United States Government Accountability Office

GAO Report to Congressional Requesters

LONG-TERM CARE 

INSURANCE 

Partnership Programs 

Include Benefits That 

Protect Policyholders 

and Are Unlikely to 

Result in Medicaid 

Savings 

May 2007 

 

GAO-07-231 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 2007

LONG-TERM CARE INSURANCE

Partnership Programs Include Benefits 

That Protect Policyholders and Are 

Unlikely to Result in Medicaid Savings 

Highlights of GAO-07-231, a report to 

congressional requesters 

Partnership programs allow 

individuals who purchase 

Partnership long-term care 

insurance policies to exempt at

least some of their personal assets

from Medicaid eligibility

requirements. In response to a 

congressional request, GAO

examined (1) the benefits and 

premium requirements of 

Partnership policies as compared

with those of traditional long-term 

care insurance policies; (2) the

demographics of Partnership 

policyholders, traditional long-term 

care insurance policyholders, and 

people without long-term care

insurance; and (3) whether the 

Partnership programs are likely to 

result in savings for Medicaid. 

To examine benefits, premiums,

and demographics, GAO used 2002

through 2005 data from the four

states with Partnership programs—

California, Connecticut, Indiana, 

and New York—and other data 

sources. To assess the likely impact

on Medicaid savings, GAO (1) used

data from surveys of Partnership

policyholders to estimate how they 

would have financed their longterm care without the Partnership 

program, (2) constructed three 

scenarios illustrative of the options 

for financing long-term care to

compare how long it would take for 

an individual to spend his or her 

assets on long-term care and 

become eligible for Medicaid, and 

(3) estimated the likelihood that

Partnership policyholders would 

become eligible for Medicaid based 

on their wealth and insurance 

benefits. 

California, Connecticut, Indiana, and New York require Partnership 

programs to include certain benefits, such as inflation protection and 

minimum daily benefit amounts. Traditional long-term care insurance 

policies are generally not required to include these benefits. From 2002

through 2005, Partnership policyholders purchased policies with more 

extensive coverage than traditional policyholders. According to state 

officials, insurance companies must charge traditional and Partnership 

policyholders the same premiums for comparable benefits, and they are not 

permitted to charge policyholders higher premiums for asset protection. 

Partnership and traditional long-term care insurance policyholders tend to 

have higher incomes and more assets at the time they purchase their 

insurance, compared with those without insurance. In two of the four states, 

more than half of Partnership policyholders over 55 have a monthly income

of at least $5,000 and more than half of all households have assets of at least 

$350,000 at the time they purchase a Partnership policy.

Available survey data and illustrative financing scenarios suggest that the 

Partnership programs are unlikely to result in savings for Medicaid, and may 

increase spending. The impact, however, is likely to be small. About 80 

percent of surveyed Partnership policyholders would have purchased 

traditional long-term care insurance policies if Partnership policies were not 

available, representing a potential cost to Medicaid. About 20 percent of 

surveyed Partnership policyholders indicate they would have self-financed 

their care in the absence of the Partnership program, and data are not yet 

available to directly measure when or if those individuals will access 

Medicaid had they not purchased a Partnership policy. However, illustrative 

financing scenarios suggest that an individual could self-finance care—

delaying Medicaid eligibility—for about the same amount of time as he or 

she would have using a Partnership policy, although GAO identified some 

circumstances that could delay or accelerate Medicaid eligibility. While the 

majority of policyholders have the potential to increase spending, the impact

on Medicaid is likely to be small because few policyholders are likely to 

exhaust their benefits and become eligible for Medicaid due to their wealth 

and having policies that will cover most of their long-term care needs. 

Information from the four states may prove useful to other states 

considering Partnership programs. States may want to consider the benefits 

to policyholders, the likely impact on Medicaid expenditures, and the 

income and assets of those likely to afford long-term care insurance. 

HHS commented on a draft of the report that our study results should not be 

considered conclusive because they do not adequately account for the effect

of estate planning efforts such as asset transfers. While some Medicaid 

savings could result from people who purchase Partnership policies instead 

of transferring assets, they are unlikely to offset the costs associated with 

those who would have otherwise purchased traditional policies.

www.gao.gov/cgi-bin/getrpt?GAO-07-231.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John E. Dicken 

at (202) 512-7119 or dickenj@gao.gov. 
Contents 

Letter 1

Results in Brief 7

Background 11

Partnership Policies Must Include Certain Benefits Not Required of 

Traditional Policies, and Insurance Companies Cannot Charge 

Higher Premiums for Asset Protection in Partnership Policies 21 

Compared with Traditional Long-Term Care Insurance Policies, 

Two of Four States Subject Partnership Policies to Additional 

Review, and All Four States Require Additional Agent Training 28 

Long-Term Care Insurance Policyholders Are Generally Wealthier 

than Those Without Such Insurance, and Partnership 

Policyholders Are Typically Younger than Traditional Long-Term 

Care Insurance Policyholders 30 

Partnership Programs Unlikely to Result in Savings for Medicaid 

Largely Because of the Asset Protection Benefit of Partnership 

Policies 34

Concluding Observations 42 

Agency and State Comments and Our Evaluation 43 

Appendix I Data and Methods for Analysis of Long-Term Care 

Insurance Benefits and Demographics 51 

Appendix II Explanation of the Simplifying Assumptions Used 

in the Illustrative Scenarios 55 

Appendix III Comments from the Department of Health & 

Human Services 62 

Appendix IV Comments from the Four States with Partnership 

Programs, California, Connecticut, Indiana, and 

New York 63 

Appendix V GAO Contact and Staff Acknowledgments 79 

Page i GAO-07-231 Long-Term Care Partnership Program
Tables 

Table 1: Percentage of Partnership and Traditional Long-Term Care 

Insurance Policyholders Purchasing Benefits from 2002 

through 2005 26 

Table 2: Household Income and Household Asset Distribution

among Partnership Policyholders and Comparison 

Populations in Partnership States and Nationally 32 

Table 3: Demographic Characteristics of Partnership Policyholders 

and Comparison Populations in Partnership States and 

Nationally 33

Figure 

Figure 1: Financing of Long-Term Care Nursing Facility Stays 

Under Three Scenarios 37 

Page ii GAO-07-231 Long-Term Care Partnership Program
Abbreviations 

ADL activities of daily living 

ACS American Community Survey 

CBO Congressional Budget Office 

CMS Centers for Medicare & Medicaid Services 

DOI Department of Insurance 

DRA Deficit Reduction Act of 2005 

HHS Department of Health and Human Services 

HIPAA Health Insurance Portability and Accountability Act 

 of 1996 

HRS Health and Retirement Study 

IADL instrumental activities of daily living 

NAIC National Association of Insurance Commissioners 

OBRA ‘93 Omnibus Budget Reconciliation Act of 1993 

UDS Uniform Data Set 

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Page iii GAO-07-231 Long-Term Care Partnership Program
United States Government Accountability Office

Washington, DC 20548 

May 11, 2007

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable John D. Rockefeller, IV 

United States Senate 

In 2004, national spending on long-term care, which includes care 

provided in nursing facilities, totaled $193 billion and nearly half of that 

was paid for by Medicaid, the joint federal-state program that finances 

medical services for certain low-income adults and children. In contrast, 

private insurance paid for about $14 billion worth of long-term care—

about 7 percent of the total cost. The demand for this type of care is likely 

to increase as the proportion of those in the population age 65 and older—

those most likely to need long-term care—increases. With Medicaid 

financing nearly half of the long-term care costs nationwide, policymakers 

are concerned that, without changes in how long-term care is financed, the 

growing demand for this type of care will continue to strain the resources 

of federal and state governments. 

In 2004, national spending on long-term care, which includes care 

provided in nursing facilities, totaled $193 billion and nearly half of that 

was paid for by Medicaid, the joint federal-state program that finances 

medical services for certain low-income adults and children. In contrast, 

private insurance paid for about $14 billion worth of long-term care—

about 7 percent of the total cost. The demand for this type of care is likely 

to increase as the proportion of those in the population age 65 and older—

those most likely to need long-term care—increases. With Medicaid 

financing nearly half of the long-term care costs nationwide, policymakers 

are concerned that, without changes in how long-term care is financed, the 

growing demand for this type of care will continue to strain the resources 

of federal and state governments. 

In the late 1980s the Robert Wood Johnson Foundation provided start-up

funds for programs in eight states—California, Connecticut, Indiana, 

Massachusetts, New Jersey, New York, Oregon, and Wisconsin—aimed at 

helping to shift some of the responsibility for financing long-term care 

from Medicaid to private long-term care insurance. Four of the states that 

received funds—California, Connecticut, Indiana, and New York—

established the programs. These four state-run long-term care programs, 

which are known as Partnership programs, encourage individuals to 

purchase long-term care insurance by providing an incentive—specifically, 

allowing those who purchase long-term care insurance policies through 

the program to exempt some or all of their personal assets from Medicaid 

eligibility requirements should the policyholders exhaust their long-term 

care insurance benefits and need to continue financing their long-term 

care. Without the exemption, before individuals could receive Medicaid 

benefits they would typically have to spend their assets on their long-term 

care until the assets met or fell below certain Medicaid thresholds. 

In the late 1980s the Robert Wood Johnson Foundation provided start-up

funds for programs in eight states—California, Connecticut, Indiana, 

Massachusetts, New Jersey, New York, Oregon, and Wisconsin—aimed at 

helping to shift some of the responsibility for financing long-term care 

from Medicaid to private long-term care insurance. Four of the states that 

received funds—California, Connecticut, Indiana, and New York—

established the programs. These four state-run long-term care programs, 

which are known as Partnership programs, encourage individuals to 

purchase long-term care insurance by providing an incentive—specifically, 

allowing those who purchase long-term care insurance policies through 

the program to exempt some or all of their personal assets from Medicaid 

eligibility requirements should the policyholders exhaust their long-term 

care insurance benefits and need to continue financing their long-term 

care. Without the exemption, before individuals could receive Medicaid 

benefits they would typically have to spend their assets on their long-term 

care until the assets met or fell below certain Medicaid thresholds. 

Page 1 GAO-07-231 Long-Term Care Partnership Program
Medicaid does not allow for asset protection for long-term care insurance 

policies purchased outside of Partnership programs.1

 In order to 

implement their Partnership programs, the four states with Partnership 

programs had to obtain approval from the Centers for Medicare & 

Medicaid Services (CMS), the agency within the Department of Health and 

Human Services (HHS) that oversees Medicaid, and amend their state 

Medicaid plans to allow them to exempt the assets of Partnership program 

participants from Medicaid eligibility requirements.2,3

Since the early 1990s, the treatment of Partnership programs under federal 

law has changed. Although a number of states established, or were 

authorized to establish, programs prior to the enactment of the Omnibus 

Budget Reconciliation Act of 1993 (OBRA ‘93), OBRA ‘93 prohibited 

additional states from establishing similar programs. The legislation was 

enacted, in part, because of concerns about potential costs to Medicaid, 

but allowed California, Connecticut, Indiana, and New York to maintain 

their programs.4,5

 More recently, the Deficit Reduction Act of 2005 (DRA) 

authorized all states to establish Partnership programs that meet certain

criteria and required the original 4 participating states to maintain the 

existing consumer protections in their Medicaid plans. DRA provisions are 

intended, in part, to allow states to provide an incentive for individuals to

take responsibility for their own long-term care needs rather than relying 

 1

For the purposes of this report, we use the term “Partnership policies” to refer to longterm care insurance policies purchased through Partnership programs and the term

“traditional long-term care insurance” to refer to long-term care insurance policies that are 

not purchased through these programs. To refer to both Partnership and traditional longterm care insurance policies, we use the term “long-term care insurance.”

2

A state plan describes the state’s Medicaid program and establishes guidelines for how the 

state’s Medicaid program will function. 

3

For our purposes we use the Partnership program’s definition of “assets,” that is, when we

refer to assets, we mean savings and investments, while excluding income. For eligibility 

purposes, the Medicaid program considers both income—which is anything received 

during a calendar month that is used or could be used to meet food or shelter needs—and

resources, which are cash or anything owned, such as savings accounts, stocks, or property 

that can be converted to cash. 

4

Another objective of OBRA ‘93, as expressed in the accompanying House of 

Representatives Budget Committee report, was to close a loophole permitting wealthy 

individuals to qualify for Medicaid. H.R. Rep. No. 103-111, at 536. 

5

Prior to the enactment of OBRA ‘93, California, Connecticut, Indiana, and New York 

established Partnership programs. Iowa and Massachusetts also received permission from

the Health Care Financing Administration (now CMS) to establish a Partnership program,

but had not implemented one as of October 2006. 

Page 2 GAO-07-231 Long-Term Care Partnership Program
on Medicaid. According to the National Association of Health

Underwriters, prior to the enactment of DRA, there was legislative activity

in 19 additional states to begin development of a Partnership program. As 

of October 2006, the only states with active Partnership programs were the 

original 4 states: California, Connecticut, Indiana, and New York.6

However, HHS indicated that as of February 2007, CMS had approved 

Partnership program state plan amendments in 6 states: Florida, Georgia,

Idaho, Minnesota, Nebraska, and Virginia. Although the program appears 

to be expanding beyond the original 4 states, concerns about the potential

cost to Medicaid of expanding the program remain an issue. In 2005, the 

Congressional Budget Office (CBO) estimated that repealing the 

moratorium on new Partnership programs could increase Medicaid 

spending by $86 million between 2006 and 2015.7

States are responsible for overseeing Partnership programs and regulating

the Partnership programs as well as the traditional long-term care 

insurance policies sold in their states. As more states consider establishing 

Partnership programs, there is interest, on the part of Congress and others, 

in understanding how the four states with Partnership programs designed 

and regulate their Partnership programs, who purchases Partnership 

policies, and how these programs will impact Medicaid financially. 

You asked us to analyze the experience of the four states with Partnership 

programs. In August 2005, we provided you with a briefing, which 

summarized aspects of the design of these Partnership programs and 

included demographic information on Partnership policyholders.8

 In this 

report, we updated our briefing information and provided a more detailed 

analysis of the Partnership programs. Specifically, we examined (1) the 

benefits and premium requirements of Partnership policies as compared 

with those of traditional long-term care insurance policies, including 

information on benefits purchased by policyholders; (2) the extent to 

which states oversee Partnership policies as compared with their 

 6

When we refer to the four states with Partnership programs or the four states, we are

referring to California, Connecticut, Indiana, and New York. According to CMS officials, as

of October 2006, no other states had active Partnership programs; that is, no insurance 

companies were issuing Partnership policies in any other states. 

7

Congressional Budget Office Cost Estimate: S. 1932 Deficit Reduction Act of 2005, at 36-39, 

January 27, 2006. 

8

GAO, Overview of the Long-Term Care Partnership Program, GAO-05-1021R 

(Washington, D.C.: Sept. 9, 2005). 

Page 3 GAO-07-231 Long-Term Care Partnership Program
oversight of traditional long-term care insurance policies; (3) the 

demographics, including asset and income levels, of Partnership 

policyholders, traditional long-term care insurance policyholders, and 

people without long-term care insurance; and (4) whether the Partnership 

programs are likely to result in savings for Medicaid. 

To compare the benefits and premium requirements of Partnership and 

traditional long-term care insurance policies, we reviewed state 

regulations, and interviewed Partnership program officials and department 

of insurance (DOI) officials in each of the four states with Partnership 

programs–California, Connecticut, Indiana, and New York. To compare 

the benefits purchased by Partnership policyholders and traditional longterm care insurance policyholders, we obtained data from 2002 through 

2005 from two sources. Our data source for benefits purchased by 

Partnership policyholders was the Uniform Data Set (UDS)—a data set 

with information on Partnership policyholders compiled by officials in 

each of the four states with Partnership programs from data provided by 

participating insurers.9

 Our data source for benefits purchased by 

traditional long-term care insurance policyholders was from a survey we 

conducted of five of the largest long-term care insurance companies in the 

individual long-term care insurance market.10

To examine the extent to which states oversaw Partnership policies 

compared with state oversight of traditional long-term care insurance 

policies, we reviewed state regulations and Partnership program 

documents, and interviewed officials from Partnership programs, longterm care insurance companies, and each Partnership state’s DOI, the 

entities that are responsible for regulating insurance policies, including 

long-term care insurance policies, that are sold in the states. We reviewed 

state regulations, Partnership program documents, and conducted 

interviews about how training requirements for insurance agents who sell 

Partnership policies compared with training requirements for agents who 

sell traditional long-term care insurance policies. 

 9

The UDS is a data set developed by the four states with Partnership programs; 

participating insurers; the National Program Office at the Center on Aging, University of 

Maryland; and the Program Evaluator, Laguna Research Associates. Data in the UDS are 

submitted by insurers to the Partnership program in the state in which they are 

participating and contain information on Partnership policyholders. 

10We selected the five insurance companies on the basis of the total number of policies and 

amount of annualized premiums in effect in the individual market as of December 31, 2004. 

Page 4 GAO-07-231 Long-Term Care Partnership Program
To examine the demographics, including income and assets levels, of 

Partnership policyholders, traditional long-term care insurance 

policyholders, and individuals without long-term care insurance, we used 

data from three sources. First, to calculate the household income and 

assets of Partnership policyholders, we used available survey data from a 

sample of Partnership policyholders in California and Connecticut. We 

restricted our analysis to the income and asset data from these two states 

because Indiana’s data were not sufficiently detailed to include in our 

analysis, and New York was not able to provide us with data from recent 

years. We combined multiple years of these data in order to increase the 

sample size.11 To estimate the household income of individuals without 

insurance in California and Connecticut, we used data from the American 

Community Survey (ACS) for 2004 published by the U.S. Census Bureau. 

Finally, we used national data from the Health and Retirement Study 

(HRS) for 2004, to compare household income and household assets for 

those individuals with traditional long-term care insurance and those 

without long-term care insurance.12 The HRS is a national survey 

sponsored by the National Institute on Aging and conducted by the 

University of Michigan of individuals over the age of 50.

13 The HRS 

collected information about retirement, health insurance, savings, and 

other issues confronting the elderly. To examine the age, marital status, 

and gender of Partnership policyholders, traditional long-term care 

insurance policyholders, and individuals without long-term care insurance, 

we used data from the UDS and the HRS. 

To examine whether the Partnership programs in the four states are likely 

to result in savings for Medicaid, we assessed (1) available state survey 

data of Partnership policyholders and (2) the options an individual has for 

financing long-term care and the time it would take for the individual to 

become eligible for Medicaid under three illustrative scenarios. We used 

the illustrative scenarios because the Partnership programs in the four 

states have only been operating since the early 1990s, and as yet there are 

 11For income and asset data in California we combined data for 2003 and 2004, and for 

Connecticut, we combined data for 2002 through 2005. 

12To make our income analysis consistent across the different data sources, we restricted 

our calculations of household income to individuals aged 55 and over. 

13The Health and Retirement Study (HRS) is a longitudinal national panel survey that 

collects information over time on individuals over age 50. The first survey was conducted 

in 1992, and subsequent surveys were conducted every 2 years. The most recent survey for 

which data were available was 2004. 

Page 5 GAO-07-231 Long-Term Care Partnership Program
no available data describing when or if Partnership policyholders would 

have accessed Medicaid. As a result, there are insufficient data available to 

directly measure whether the Partnership programs are associated with 

increased or decreased Medicaid spending. We used available survey data

in California, Connecticut, and Indiana to determine what Partnership 

policyholders report they would have done to finance their long-term care 

needs if there had not been a Partnership program in their state.14 In 

addition, we assessed three scenarios that represent the three main 

options an individual has for financing long-term care: financing using a 

Partnership policy, financing using a traditional long-term care policy, and 

self-financing without any long-term care insurance. The latter two 

scenarios describe the financing options that a Partnership policyholder 

could use if the Partnership programs did not exist. We used the three 

scenarios to explore how long it would likely take before the individual 

depicted in our scenarios would become eligible for Medicaid with a 

Partnership policy and–-in the scenarios in which Partnership programs 

did not exist—with the other two financing options. In the scenarios, if, in

the absence of a Partnership program, an individual using a traditional 

long-term care insurance policy or relying on self-financing is likely to 

become eligible for Medicaid sooner than the same individual would have 

using a Partnership policy, we consider the Partnership programs to be a 

potential source of savings for Medicaid. In contrast, if the same individual 

delays Medicaid eligibility using a traditional long-term care insurance 

policy or self-financing, when compared with the time it would take the 

individual to become eligible for Medicaid using a Partnership policy, we 

consider the Partnership program to be a potential source of increased 

spending for Medicaid. To develop our scenarios, we made several 

simplifying assumptions. These include the following: 

• The individual depicted in the scenarios has $300,000 in assets, and in two 

of our scenarios a long-term care insurance policy worth $210,000—assets 

and benefits that are typical of many individuals with long-term care 

insurance—and the individual receives long-term care in a nursing facility 

with costs for a year of care of $70,000, about equal to average nursing 

facility costs nationwide in 2004. 

• The individual has assets that are no less than the value of the individual’s 

Partnership policy—that is, the individual does not overinsure his or her 

assets. 

 14New York State survey data were unavailable. 

Page 6 GAO-07-231 Long-Term Care Partnership Program
• The individual is unmarried. While most Partnership policyholders are 

married at the time they purchase a Partnership policy, they are unlikely to 

require long-term care for many years, and their marital status can change. 

Most individuals who are admitted to a nursing facility are unmarried. 

Where possible, we use data from surveys of Partnership policyholders to

support our assumptions. We also explored whether adjusting the 

assumptions changed the conclusions we could draw. Although our 

scenarios represent the choices facing a single individual, the results of 

this analysis are applicable beyond this individual. For example, the 

relative impact on Medicaid spending across the scenarios is independent

of the amount of assets owned by the individual or the level of the 

individual’s insurance coverage. 

As part of our efforts to examine whether the Partnership programs are 

likely to result in savings for Medicaid, we also examined the likelihood 

that the population of Partnership policyholders will ever become eligible 

for Medicaid. To assess this likelihood, we examined the long-term care 

insurance benefits and income of Partnership policyholders. We also 

assessed the number of people with Partnership policies who accessed 

Medicaid as of October 2006. 

Based on discussions with state officials and reviewing documentation on 

uniformly collected insurer data and surveys of policyholders, we 

determined that the information we used was sufficiently reliable for our

purposes. We also examined reports on the Partnership program from the 

CBO, the Congressional Research Service, and other research

organizations. Appendix I provides information on the data and methods 

used for our analyses of long-term care insurance benefits, policyholder 

income, assets, age, gender, and marital status. Appendix II provides more 

information about the illustrative scenarios, the simplifying assumptions 

underlying the scenarios, and the effect on our analysis of adjusting these 

assumptions. We conducted our work from September 2005 through May 

2007 in accordance with generally accepted government auditing 

standards. 

In the four states with Partnership programs, Partnership policies must 

include certain benefits not generally required of traditional long-term care 

insurance policies, and insurance companies cannot charge higher 

premiums for asset protection in Partnership policies. Partnership policies 

must include certain benefits, such as inflation protection and minimum 

daily benefit amounts, while traditional long-term care insurance policies 

Results in Brief 

Page 7 GAO-07-231 Long-Term Care Partnership Program
may include these benefits but are generally not required to do so. 

Partnership policies include these benefits in order to increase the 

likelihood that Partnership policyholders will have sufficient long-term 

care insurance coverage to pay for a significant portion of their long-term 

care. For example, Partnership policies must include inflation protection, 

which increases the amount a policy pays over time to account for 

increases in the cost of care, and minimum daily benefit amounts, which 

are set at levels designed to cover a significant portion of the costs of an 

average day in a nursing facility. Though traditional long-term care 

insurance policyholders are able to purchase most of the same benefits as 

Partnership policyholders, in comparing these two groups we found that a 

higher percentage of Partnership policyholders purchased policies from 

2002 through 2005 with more extensive coverage—for example, higher 

levels of inflation protection and coverage for care in both nursing facility 

and home and community-based care settings. Officials in states with 

Partnership programs told us that companies selling long-term care 

insurance are not permitted to charge Partnership policyholders higher 

premiums for the asset protection benefit—Partnership and traditional 

long-term care insurance policies with otherwise comparable benefits 

must have equivalent premiums. However, Partnership policies are likely 

to have higher premiums because they are required to have inflation 

protection and other benefits that are not required for traditional longterm care insurance policies. 

According to state officials, compared with traditional long-term care 

insurance policies, Partnership policies in two Partnership states are 

subject to additional review, and in all four Partnership states, insurance 

agents who sell Partnership policies are subject to additional state training

requirements compared with agents who sell only traditional long-term 

care policies. While all long-term care insurance policies are reviewed by

the DOI in each state, Partnership policies in California and Connecticut 

are also reviewed by Partnership program offices. This additional review is 

designed by these states to ensure that the Partnership policies that are 

issued meet all specific Partnership regulatory requirements, and the 

insurance companies issuing these policies meet the data reporting and 

other administrative requirements. Before they can sell Partnership 

policies, long-term care insurance agents are required by each of the four

Partnership states to undergo training specific to the state’s Partnership 

program, in addition to the training that is required for those who sell 

traditional long-term care insurance. This specialized training typically 

provides information on long-term care planning, Medicaid, Medicare, the 

specific benefits required by the state’s Partnership program, and how 

Page 8 GAO-07-231 Long-Term Care Partnership Program
policies sold through the program differ from traditional long-term care 

insurance policies. 

Partnership and traditional long-term care insurance policyholders tend to

be relatively wealthy with higher incomes and more assets, compared with 

those without insurance. At the time they purchased their Partnership 

policies, more than half of Partnership policyholders over 55 in California 

and Connecticut had monthly household incomes of $5,000 or greater, and 

more than half of all households had assets of $350,000 or greater. 

Partnership policyholders in the four states with Partnership programs are 

also younger on average than traditional long-term care insurance 

policyholders. In addition, a higher percentage of Partnership and 

traditional long-term care insurance policyholders are married rather than 

unmarried, and female rather than male. 

Available survey data from three states with Partnership programs and our 

three illustrative financing scenarios together suggest that the Partnership 

programs are unlikely to result in savings for Medicaid and may result in 

increased Medicaid spending. Based on surveys of Partnership 

policyholders in California, Connecticut, and Indiana, we estimate that, in

the absence of a Partnership program in their state, 80 percent of 

Partnership policyholders would have purchased a traditional long-term 

care insurance policy. Our long-term care financing scenarios suggest that

it takes longer for an individual with a traditional long-term care insurance 

policy to become eligible for Medicaid than it would take the same 

individual to become eligible for Medicaid if he or she owned a 

Partnership policy. Therefore, the 80 percent of surveyed Partnership 

policyholders may represent a potential source of increased spending for 

Medicaid, as Medicaid is likely to begin paying for the long-term care of 

these policyholders sooner than if they had held traditional long-term care 

insurance policies instead. The survey data also indicate that the 

remaining 20 percent of surveyed policyholders would not have purchased 

any long-term care insurance if Partnership programs did not exist. Data 

are not yet available to directly measure when or if these individuals will 

access Medicaid had they not purchased a Partnership policy. However, 

our scenarios suggest that an individual who self-finances his or her longterm care without any long-term care insurance is likely to become eligible

for Medicaid at about the same time as the individual would using a 

Partnership policy, though there were some circumstances that could 

accelerate or delay the individual’s time to Medicaid eligibility. While the

majority of Partnership policyholders have the potential to increase 

spending, we also anticipate that the impact of these programs is likely to 

be small because few policyholders will become eligible. Partnership 

Page 9 GAO-07-231 Long-Term Care Partnership Program
policyholders tend to have incomes that exceed Medicaid eligibility 

thresholds and insurance benefits that cover most of their long-term care

needs. 

With DRA authorizing all states to implement Partnership programs, 

information on the Partnership policies and policyholders from the four 

states with Partnership programs may prove useful to other states 

considering implementing such programs. States may want to consider the 

benefits to Partnership policyholders, the likely impact on Medicaid 

expenditures, and the incomes and assets of those likely to be able to

afford long-term care insurance. 

We received comments on a draft of this report from HHS and state 

officials from California, Connecticut, Indiana, and New York. HHS 

commented that our study results should not be considered conclusive 

and the simplified scenarios were flawed because they did not adequately 

account for the effect of asset transfers. HHS also noted that our data 

sources were unlikely to yield accurate data on asset transfers and 

criticized the report for not incorporating a review of the literature on this

issue and the analyses conducted by the four states with Partnership 

programs. The four states disagreed with our conclusion that the 

Partnership programs are unlikely to result in Medicaid savings, and like 

HHS, commented that our scenarios did not adequately account for the 

impact of asset transfers. California, Connecticut, and New York objected

to our methodology for estimating the financial impact of the program on 

Medicaid. California and Connecticut suggested that our analysis should 

have included results from two Partnership policyholder survey questions 

that they consider in their own analysis of the Partnership program. 

We maintain that the evidence suggests that the Partnership program is 

unlikely to result in savings for Medicaid, despite limited data and program 

experience. As discussed in our draft report, some savings to Medicaid 

could be associated with individuals who would have transferred their 

assets and become eligible for Medicaid sooner in the absence of the 

Partnership program. However, we noted that these savings are unlikely to

offset the potential costs associated with policyholders who would have 

purchased traditional long-term care insurance in the absence of the 

Partnership programs. We did not provide a review of the literature on 

asset transfers because—as we previously noted in our March 2007 report 

on the subject—the evidence on the transfer of assets to become eligible 

Page 10 GAO-07-231 Long-Term Care Partnership Program
for Medicaid coverage for long-term care is generally limited.15 However, in 

response to HHS’ comments, we have amended our draft report to make 

the discussion of asset transfers more prominent in the body of our report 

and to include reference to the 2007 GAO study. We also maintain that our 

methodology for estimating the financial impact of the program on 

Medicaid is sound and disagree with California and Connecticut regarding

the appropriateness of using the two survey questions. Specifically, by 

relying on the responses from these questions, the method California, 

Connecticut, and Indiana use to evaluate Medicaid costs underestimates 

the percentage of people who would have purchased traditional policies in

the absence of the Partnership program, while their method of evaluating 

Medicaid savings overestimates the percentage of people who would 

transfer assets. 

Long-term care comprises services provided to individuals who, because 

of illness or disability, are generally unable to perform activities of daily 

living (ADL)—such as bathing, dressing, and getting around the house—

for an extended period of time.16 These services can be provided in various 

settings, such as nursing facilities, an individual’s own home, or the 

community.17 The typical 65-year-old has about a 70 percent chance of

needing long-term care services in his or her life.18 Long-term care can be 

Background 

 15GAO, Medicaid Long-Term Care: Few Transferred Assets before Applying for Nursing 

Home Coverage; Impact of Deficit Reduction Act on Eligibility Is Uncertain, GAO-07-280 

(Washington, D.C.: Mar. 26, 2007). 

16As people age, they typically experience a decline in their ability to perform basic physical 

functions, increasing the likelihood that they will need long-term care services. Individuals 

qualify for Medicaid coverage for long-term care services if they meet certain functional 

criteria that in general involve a degree of impairment measured by the level of assistance 

an individual needs to perform six activities of daily living (ADL): eating, bathing, dressing, 

using the toilet, getting in and out of bed, and getting around the house, as well as the 

instrumental activities of daily living (IADL), which include preparing meals, shopping for

groceries, and venturing outside of a home or facility. 

17Long-term care services, such as personal care, homemaker services, and respite care, are 

known as home care. Home care can also include services provided outside of 

policyholders’ homes, such as services provided in adult day care centers. Long-term care

services provided in community-based facilities are generally designed to help people 

receive long-term care and remain living in their own homes. Known as community-based 

services, these long-term care services can be supplied in settings such as policyholders’ 

homes, adult day care facilities, or during visits to a physician’s office.

18P. Kemper, H.L. Komisar, and L. Alecxih, Long-Term Care Over an Uncertain Future:

What Can Current Retirees Expect? Inquiry, vol. 42, no. 4 (Winter 2005/2006) pp. 335-350. 

Page 11 GAO-07-231 Long-Term Care Partnership Program
expensive, especially when provided in nursing facilities. In 2005, the 

average cost of a year of nursing facility care was about $70,000.19 In 1999,

the most recent year for which data were available, the average length of 

stay in a nursing facility was between 2 and 3 years.20

Long-term care insurance is used to help cover the cost associated with 

long-term care. Individuals can purchase long-term care insurance policies 

directly from insurance companies, or through employers or other groups. 

The number of long-term care insurance policies sold has been small–

about 9 million as of 2002, the most recent year for which data were 

available. About 80 percent of these policies were sold through the 

individual insurance market and the remaining 20 percent were sold 

through the group market. 

Long-term care insurance companies generally structure their long-term 

care insurance policies around certain types of benefits and related 

options. 

Long-Term Care Insurance 

• A policy with comprehensive coverage pays for long-term care in nursing 

facilities as well as for care in home and community settings, while a 

policy with coverage for home and community-based settings pays for care 

only in these settings. 

• A daily benefit amount specifies the amount a policy will pay on a daily 

basis toward the cost of care, while a benefit period specifies the overall 

length of time a policy will pay for care. Data from 2002 through 2005 

show that the maximum daily benefit amounts can range from less than 

$100 to several hundred dollars per day, while benefit periods can range 

from 1 year to lifetime coverage.

21

 19MetLife Mature Market Institute, The MetLife Market Survey of Nursing Home & Home

Care Costs (September 2005). 

20Department of Health and Human Services, Centers for Disease Control and Prevention, 

National Center for Health Statistics, The National Nursing Home Survey: 1999

Summary, Series 13, No. 152 (June 2002). 

21GAO analysis of data provided by five insurance companies selling traditional long-term 

care insurance: see GAO, Long-Term Care Insurance: Federal Program Compared

Favorably with Other Products, and Analysis of Claims Trend Could Inform Future

Decisions, GAO-06-401 (Washington, D.C.: March 2006). 

Page 12 GAO-07-231 Long-Term Care Partnership Program
• A policy’s elimination period establishes the length of time a policyholder 

who has begun to receive long-term care has to wait before his or her 

insurance will begin making payments towards the cost of care. According 

to data from 2002 through 2005, elimination periods can range from 0 to at 

least 730 days.22

• Inflation protection increases the maximum daily benefit amount covered

by a policy, and helps ensure that over time the daily benefit remains 

commensurate with the costs of care.

There can be a substantial gap between the time a long-term care 

insurance policy is purchased and the time when policyholders begin 

using their benefits, and the costs associated with long-term care can 

increase significantly during this time. A typical gap between the time of 

purchase and the use of benefits is 15 to 20 years: the average age of all 

long-term care insurance policyholders at the time of purchase is 63, and 

in general policyholders begin using their benefits when they are in their 

mid-70s to mid-80s. Usually, automatic inflation protection increases the

benefit amount by 5 percent annually on a compounded basis. A policy 

with automatic 5 percent compound inflation protection and a $150 per 

day maximum daily benefit in 2006 would be worth approximately $400 

per day 20 years later. Another means to protect against inflation is a 

future purchase option. This option allows the consumer to increase the 

dollar amount of coverage every few years at an extra cost. Some future 

purchase options do not allow consumers to purchase extra coverage

once they begin receiving their insurance benefit and the opportunity to 

purchase extra coverage may be withdrawn should the consumer decline a 

predetermined number of premium increases. A policy with a future 

purchase option may be less expensive initially than a policy with 

compound inflation protection. However, over time the policy with a 

future purchase option may become more expensive than a policy with 

compound inflation. 

Without inflation protection, policyholders might purchase a policy that

covers the current cost of long-term care but find, many years later, when 

they are most likely to need long-term care services, that the purchasing 

power of their coverage has been reduced by inflation and that their 

coverage is less than the cost of their care. For example, if the cost of a 

day in a nursing facility increases by 5 percent every year for 20 years, a 

 22See GAO-06-401. 

Page 13 GAO-07-231 Long-Term Care Partnership Program
nursing facility that costs $150 per day in 2006 would cost about $400 per

day 20 years later in 2026. A policy purchased in 2006 with a daily benefit

of $150 without inflation protection would pay $150 per day—or 

38 percent—of the daily cost of about $400 in 2026. The remaining $250 of 

the daily cost of the nursing facility care would have to be paid by the 

policyholder.

Long-term care insurance policies may also include other benefits or 

options. For example, policies can offer coverage for home care at varying 

percentages of the maximum daily benefit amount. Some policies include 

features in which the policy returns a portion of the premium payments to 

a designated third party if the policyholder dies. Some policies provide 

coverage for long-term care provided outside of the United States or offer 

care-coordination services that, among other things, provide information 

about long-term care services to the policyholder and monitor the delivery 

of long-term care services. 

Many factors impact the premiums individuals pay for long-term care 

insurance. Notably, long-term care insurance companies typically charge

higher premiums for policies with more extensive benefits. In general, 

policies with comprehensive coverage have higher premiums than policies 

without such coverage, and policyholders pay higher premiums the higher 

their maximum daily benefit amounts, the longer their benefit periods, the 

greater their inflation protection, and the shorter their elimination periods. 

For example, in Connecticut, if a 55-year-old man decided to buy a 1-year, 

$200 per day comprehensive coverage policy, in 2005 it would have cost 

him about $1,000 less per year than a comparable 3-year policy. Similarly, 

the age of an applicant also impacts the premium, as premiums typically 

are more expensive the older the policyholder at the time of purchase. For

example, in Connecticut, a 55-year-old purchasing a 3-year, $200 per day 

comprehensive coverage policy in 2005 would pay about $2,500 per year, 

whereas a 70-year-old purchasing the same policy would pay about $5,900 

per year. Health status may also affect premiums. Insurance companies 

take into account the health status of an applicant to evaluate the risk that 

he or she will access long-term care services. If an applicant has a medical 

condition that increases the likelihood of the applicant using long-term 

care services, but does not automatically disqualify the applicant from 

Page 14 GAO-07-231 Long-Term Care Partnership Program
purchasing insurance, the applicant may receive a substandard rating from 

an insurance company, which may result in a higher premium.23

Regulation of the insurance industry, including those companies selling 

long-term care insurance, is a state function. Those who sell long-term 

care insurance must be licensed by each state in which they sell policies, 

and the policies sold must be in compliance with state insurance laws and 

regulations. These laws and regulations can vary but their fundamental 

purpose is to establish consumer protections that are designed to ensure

that the policies’ provisions comply with state law, are reasonable and fair, 

and do not contain major gaps in coverage that might be misunderstood by 

consumers and leave them unprotected. 

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) 

specified conditions under which long-term care insurance benefits and 

premiums would receive favorable federal income tax treatment.24

Individuals who purchase policies that comply with HIPAA requirements, 

which are therefore “tax-qualified,” can itemize their long-term care 

insurance premiums as deductions from their taxable income along with 

other medical expenses, and can exclude from gross income insurance 

company proceeds used to pay for long-term care expenses. Under HIPAA, 

tax-qualified plans must begin coverage when a person is certified as: 

needing substantial assistance with at least two of the six ADLs for at least 

90 days due to a loss of functional capacity, having a similar level of 

disability, or requiring substantial supervision because of a severe 

cognitive impairment. HIPAA also requires that a policy comply with 

certain provisions of the National Association of Insurance 

Commissioners’ (NAIC) Long-Term Care Insurance Model Act and 

Regulation adopted in January 1993. This model act and regulation 

established certain consumer protections that are designed to prevent 

insurance companies from (1) not renewing a long-term care insurance 

policy because of a policyholder’s age or deteriorating health, and 

Long-Term Care Insurance 

Regulation 

 23The process of reviewing medical and health-related information furnished by an 

applicant to determine if the applicant presents an acceptable level of risk and is insurable 

is known as underwriting. Examples of medical conditions that may not disqualify an 

individual from obtaining insurance but that can result in a substandard rating during the 

underwriting process include osteoporosis, emphysema, and diabetes. However, the

severity and the ability to control and treat the medical condition are all factors that can 

also impact how a nondisqualifying medical condition impacts an underwriting rating. 

24Pub. L. No. 104-191, §§ 321-327, 110 Stat. 1936, 2054-2067. 

Page 15 GAO-07-231 Long-Term Care Partnership Program
(2) increasing the premium of an existing policy because of a 

policyholder’s age or claims history. In addition, in order for a long-term 

care insurance policy to be tax-qualified, HIPAA requires that a policy

offer inflation protection. The NAIC, which represents insurance 

regulators from all states, reported in 2005 that 41 states based their longterm care insurance regulations on the NAIC model, 7 based their 

regulations partially on the model, and 3 did not follow the model. 

Medicaid is the primary source of financing for long-term care services in 

the United States. In 2004, almost one-third of the total $296 billion in 

Medicaid spending was for long-term care. Some health care services, such

as nursing facility care, must be covered in any state that participates in 

Medicaid. States may choose to offer other optional services in their 

Medicaid plans, such as personal care.25

Medicaid coverage for long-term care services is most often provided to 

individuals who are aged or disabled. To qualify for Medicaid coverage for 

long-term care, these individuals must meet both functional and financial

eligibility criteria. Functional eligibility criteria are established by each 

state and are generally based on an individual’s degree of impairment, 

which is measured in terms of the level of difficulty in performing the 

ADLs and IADLs. To meet the financial eligibility criteria, an individual 

cannot have assets or income that exceed thresholds established by the 

states and that are within standards set by the federal government. 

Generally, the value of an individual’s primary residence and car, as well 

as a few other personal items, are not considered assets for the purpose of

determining Medicaid eligibility.26 Individuals with high medical costs and 

whose income exceeds state thresholds can “spend down” their income on 

their long-term care, which may bring their income below the statedetermined income eligibility limit. In all four states with Partnership 

programs, for the purpose of obtaining Medicaid eligibility, individuals are 

Medicaid 

 25Personal care includes long-term care services that help people meet personal needs such

as assistance with personal hygiene, nutritional or support functions, and health-related 

tasks. 

26Under DRA, certain individuals with an equity interest in their home of greater than

$500,000 are not eligible for Medicaid coverage for nursing facility services or other longterm care services. However, states have the option to increase the home equity interest 

level to an amount that does not exceed $750,000. This home equity limitation does not 

apply to individuals if they have a spouse, a child under age 21, or a child who is blind or 

disabled living in the home.

Page 16 GAO-07-231 Long-Term Care Partnership Program
allowed to deduct medical expenses, including those for long-term care, in

order to bring their incomes below the state-determined thresholds. 

In order to meet Medicaid’s eligibility requirements, some individuals may 

choose to divest themselves of their assets—for example, by transferring 

assets to their spouses or other family members.27 However, those who 

transfer assets for less than fair market value during a specified “lookback” period—a period of time before an individual applies for Medicaid 

during which the program reviews asset transfers—may incur a penalty, 

that is, a period during which they are ineligible for Medicaid coverage for

long-term care services. Evidence of the extent to which individuals 

transfer assets for less than fair market value to become financially 

eligible for Medicaid coverage for long-term care is generally limited and 

often based on anecdote. However, our March 2007 report on asset 

transfers suggests that the incidence of asset transfers is low among 

nursing home residents covered by Medicaid.28 Nationwide, about 

12 percent of Medicaid-covered elderly nursing home residents reported 

transferring cash during the 4 years prior to nursing home entry, and the

median amount transferred was very small ($1,239). The percentage of 

nursing home residents not covered by Medicaid who transferred cash 

was about twice that of Medicaid-covered nursing home residents. 

However, the median amount of cash transferred as reported by nonMedicaid covered residents and Medicaid-covered residents did not vary 

greatly.29 In addition to the nationwide analysis, our report summarized an 

analysis of a sample of approved Medicaid nursing home applicants in 

three states who generally applied to Medicaid in 2005 or before, and 

found that about 10 percent of applicants had transferred assets for less 

than the fair market value during the 3-year look-back period before 

Medicaid eligibility began. The median amount transferred was about 

$15,000. DRA tightened the requirements on Medicaid applicants 

transferring assets by extending the look-back period for all asset transfers 

from 3 to 5 years. In addition, DRA changed the beginning date of the

penalty period. Prior to enactment of DRA, the penalty period started on 

 27For asset transfer purposes, Medicaid defines the term “assets” to include income and 

resources, such as bank accounts.

28See GAO-07-280. 

29The median amount of cash transferred by non-Medicaid-covered residents during the 

4 years prior to nursing home entry was $1,859. During the 2 years prior to nursing home 

entry, the median amount transferred for both non-Medicaid-covered residents and

Medicaid-covered residents was $2,194. 

Page 17 GAO-07-231 Long-Term Care Partnership Program
the first day of the month during or after which assets were transferred. 

DRA changed this so that the penalty period now begins on the first day of

the month when the asset transfer occurred, or the date on which the 

individual is eligible for medical assistance under the state plan, and is 

receiving institutional care services that would be covered by Medicaid 

were it not for the imposition of the penalty period, whichever is later. The 

extension of the look-back period and the redefinition of the penalty 

period may reduce transfers of assets. 

The Partnership programs are public-private partnerships between states 

and private long-term care insurance companies. Established in 1987 as 

programs funded through the Robert Wood Johnson Foundation, the 

programs are designed to encourage individuals, especially moderate 

income individuals, to purchase private long-term care insurance in an 

effort to reduce future reliance on Medicaid for the financing of long-term 

care. As of October 2006, the original four Partnership programs in 

California, Connecticut, Indiana, and New York remained the only active 

Partnership programs.30

Partnership programs attempt to encourage individuals to purchase 

private long-term care insurance by offering them the option to exempt 

some or all of their assets from Medicaid spend-down requirements. 

However, Partnership policyholders are still required to meet Medicaid 

income eligibility thresholds before they may receive Medicaid benefits. In

the four states with Partnership programs, those who purchase long-term 

care insurance Partnership policies generally must first use those benefits

to cover the costs of their long-term care before they begin accessing 

Medicaid.31 In 2006, there were about 190,000 active Partnership policies, 

out of the approximately 218,000 Partnership policies that had been sold 

Long-Term Care 

Partnership Programs 

 30Iowa and Massachusetts received approval from the Health Care Financing

Administration (now CMS) to establish Partnership programs, but programs were not 

functioning in these states as of October 2006. Since enactment of DRA, a Partnership 

program in Idaho was approved by CMS, though the program was not functioning as of 

October 2006. Also, as of that date, amendments to state Medicaid plans allowing 

Partnership programs in Florida, Georgia, Minnesota, and Nebraska were under review at 

CMS. 

31For the purposes of this report, we use the term “accessing Medicaid” to describe the 

point at which long-term care policyholders first begin receiving Medicaid payments for 

their long-term care. 

Page 18 GAO-07-231 Long-Term Care Partnership Program
since the inception of the Partnership programs.32,33 Between September 

2005 when we last reported on the Partnership programs, and August 2006, 

the number of Partnership policies in the four states combined increased 

by about 10 percent.34

The four states with Partnership programs vary in how they protect 

policyholders’ assets. The Partnership programs in California,

Connecticut, Indiana, and New York have dollar-for-dollar models, in 

which the dollar amount of protected assets is equivalent to the dollar 

value of the benefits paid by the long-term care insurance policy. For 

example, a person purchasing a long-term care dollar-for-dollar insurance 

policy with $300,000 in coverage would have $300,000 of assets protected 

if he or she were to exhaust the long-term care insurance benefits and 

apply for Medicaid. However, New York’s program also offers total 

protection. That is, those who purchase a comprehensive long-term care 

insurance policy, covering a minimum of 3 years of nursing facility care or

6 years of home care, or some combination of the two, can protect all their 

assets at the time of Medicaid eligibility determination. In Indiana, in 

addition to the dollar-for-dollar models, the Partnership program offers a 

hybrid model that allows purchasers to obtain dollar-for-dollar protection 

up to a certain benefit level as defined by the state; all policies with 

benefits above that threshold provide total asset protection for the 

purchaser. 

 32Partnership program offices reported that about 235,000 Partnership policies had been

sold since the four Partnership programs began, but that number included people who 

subsequently dropped their policies within 30 days of purchasing the product. The four

states with Partnership programs give Partnership policy purchasers a 30-day “free look” 

period during which they can decide whether to keep their policy or drop it and receive a

full refund. 

33By state, the number of Partnership policies, excluding those that were dropped, was 

73,811 in California and 33,040 in Connecticut, through March 2006; 31,750 in Indiana 

through June 2006; and 51,262 in New York through December 2005.

34This rate of increase varied across the states: the sales of Partnership policies in 

California increased by 14 percent—the largest percentage increase among the Partnership 

states—compared with increases of 7, 9, and 8 percent in Connecticut, Indiana, and New 

York, respectively. 

Page 19 GAO-07-231 Long-Term Care Partnership Program
Under DRA, any state that implements a Partnership program must ensure 

that the policies sold through that program contain certain benefits, such 

as inflation protection.35,36 DRA also requires that Partnership policies 

provide dollar-for-dollar asset protection. Insurers are not allowed to offer 

Partnership policies that provide the total asset protection feature found 

in Partnership policies in New York and Indiana.37 DRA also requires 

Partnership policies to include consumer protections contained in the 

NAIC Long-Term Care Insurance Model Act and Regulation as updated in

October 2000. DRA established specific requirements for Partnership 

policies that do not apply to traditional long-term care insurance policies 

sold in the Partnership states, such as inflation protection and dollar-fordollar asset protection. DRA prohibits states from creating other 

requirements for Partnership policies that do not also apply to traditional 

long-term care insurance policies in the four states with Partnership 

policies. The Partnership programs in California, Connecticut, Indiana,

and New York, which were implemented before DRA, are not subject to 

these specific requirements, but in order for those programs to continue,

they must maintain consumer protection standards that are no less 

stringent than those that applied as of December 31, 2005. 

 35DRA requires Partnership policies to provide compound inflation protection for 

individuals younger than 61. For individuals younger than 76, Partnership policies must

provide policyholders with some level of inflation protection, although not necessarily 

compound inflation protection, while inflation protection is an optional feature for 

Partnership policyholders aged 76 or older. Pub. L. No. 109-171, § 6021(a)(1), 120 Stat. 68 

(codified at 42 U.S.C. § 1396 p(b)(1)(c)(iii)(IV)). 

36Some of the states that passed legislation prior to the passage of DRA to enable the 

creation of a Partnership program may need to make additional changes to meet DRA 

requirements. 

37According to CMS officials, policies in New York and Indiana may continue to provide 

this type of coverage. 

Page 20 GAO-07-231 Long-Term Care Partnership Program
The four states with Partnership programs require that Partnership 

policies include certain benefits—such as inflation protection and 

minimum daily benefit amounts—while traditional long-term care 

insurance policies may include these benefits but are not generally 

required to do so. Compared with policyholders of traditional long-term 

care insurance policies, a higher percentage of Partnership policyholders

purchased policies with more extensive coverage. In the four states, 

insurance companies are not allowed to charge policyholders higher 

premiums for policies with asset protection, and Partnership and 

traditional long-term care insurance policies with comparable benefits are 

required to have equivalent premiums. 

In general, the four states with Partnership programs require that 

Partnership policies sold in their states include certain benefits that are 

not required for those states’ traditional long-term care insurance policies. 

A state DOI official told us that they have these benefit requirements for 

Partnership policies in order to protect policyholders by helping to ensure

that benefits are sufficient to cover a significant portion of their 

anticipated long-term care costs and to protect the Medicaid program by 

reducing the likelihood that policyholders will exhaust their benefits and 

become eligible for Medicaid. 

In addition to asset protection, which by definition Partnership policies 

include, all four states require Partnership policies to include inflation 

protection.38 Three of the four Partnership states—California, Connecticut, 

and New York—require that Partnership policies include inflation 

protection that automatically increases benefit amounts by 5 percent 

annually on a compounded basis.39 The four states do not require 

traditional long-term care insurance policies to include inflation 

protection, though insurance companies in these states are required to 

Partnership Policies 

Must Include Certain 

Benefits Not Required 

of Traditional 

Policies, and 

Insurance Companies 

Cannot Charge Higher 

Premiums for Asset 

Protection in 

Partnership Policies 

The Four States Require 

Partnership Policies to 

Include Certain Benefits 

Not Required for 

Traditional Long-Term 

Care Insurance Policies 

 38There are some exceptions to the inflation protection requirement. For example, in New 

York, insurance companies are allowed to sell Partnership policies to policyholders 

80 years of age or older without inflation protection.

39In Indiana, Partnership policies are required to include either automatic compound 

inflation protection at 5 percent annually or in accordance with the consumer price index,

or an inflation protection option that covers at least 75 percent of the average daily private 

pay rate. 

Page 21 GAO-07-231 Long-Term Care Partnership Program
offer inflation protection as an optional benefit. While policies with 

inflation protection may include coverage that is more commensurate with 

expected future costs of care, these policies can be two or three times as 

expensive as policies without inflation protection. For example, in 2005 a 

long-term care insurance policy with a $200 daily benefit, a 3-year benefit 

period, and inflation protection cost about $3,000 per year for a 60-year-old

male; the same policy cost about $1,350 per year without inflation 

protection. An insurance company official told us that the additional cost

of inflation protection is the primary reason individuals do not buy a 

Partnership policy. 

The four states with Partnership programs also require minimum daily 

benefit amounts for all Partnership policies, while in three of the 

Partnership states, traditional long-term care insurance policies are not 

subject to this requirement.40 According to Partnership and DOI officials in 

California and Connecticut, minimum daily benefit amounts are required 

for Partnership policies in order to prevent consumers from purchasing 

coverage that would be insufficient to cover a substantial portion of the 

cost of their care. According to Partnership program materials from New 

York, for example, the average daily cost of long-term care in a nursing 

facility in New York was about $263 per day in 2004. Anything less than 

New York’s 2004 minimum daily benefit amount of $171 for nursing facility 

care would therefore have required out-of-pocket payments for 

policyholders of more than one-third of the cost of their nursing facility 

care. In 2006, the required minimum daily benefit amounts for nursing 

facility care in Partnership policies ranged from $110 per day in Indiana to

$189 per day in New York. 

In the four states with Partnership programs, Partnership policies are 

subject to minimum nursing facility benefit period requirements 

established by the states, but some traditional long-term care insurance 

policies are not subject to these same requirements. In California and 

Indiana, Partnership policies are required to have dollar coverage that 

provides for at least 1 year of care in a nursing facility, while traditional 

long-term care insurance policies are not subject to a minimum benefit 

period requirement.41 In New York, Partnership policies are required to 

 40New York requires minimum daily benefit amounts for traditional long-term care

insurance policies.

41The minimum amount paid under a Partnership policy for this dollar coverage can be no

less than 70 and 75 percent of the average daily private pay rate for nursing facilities in 

California and Indiana, respectively. 

Page 22 GAO-07-231 Long-Term Care Partnership Program
have minimum nursing facility benefit periods ranging from 18 months to 

4 years, depending on the type of coverage an individual purchases, while 

certain traditional long-term care insurance policies are required to have

1-year minimum nursing facility benefit periods. In Connecticut, 

Partnership and traditional long-term care insurance policies are both 

required to have 1-year minimum benefit periods for care provided in 

nursing facilities. 

Partnership and traditional long-term care insurance policies both 

typically include elimination periods, which establish the length of time a 

policyholder who has begun to receive long-term care has to wait before 

receiving long-term care insurance benefits. The four states with 

Partnership programs limit the length of the elimination periods that can

be included in Partnership policies. Two of the four states, Connecticut 

and New York, also generally limit the elimination period included in 

traditional long-term care insurance policies. In 2006, the elimination 

period for Partnership policies in California was no more than 90 days, 

while New York had a 100-day limit42 and Indiana had a 180-day limit. In 

Connecticut, the elimination period limit for both Partnership and 

traditional long-term care insurance policies was 100 days. According to a 

New York Partnership program staff member, in New York the elimination 

period for traditional policies was generally no more than 180 days. The 

effect of increasing the elimination period is to increase the out-of-pocket

costs policyholders incur in paying for their long-term care. One official 

from an insurance company that sells long-term care insurance policies 

told us that having long elimination periods could quickly deplete an 

individual’s assets, which might make the asset protection under the 

Partnership program less valuable. 

Unlike traditional long-term care insurance policies, Partnership policies 

in the four states must cover or offer case management services.43 Case 

management services can include providing individual assessments of 

policyholders’ long-term care needs, approving the beginning of an 

episode of long-term care, developing plans of care, and monitoring 

policyholders’ medical needs. According to a Partnership program official, 

by helping policyholders assess their medical needs and develop a plan of 

 42This was for New York’s total asset protection policies. The maximum elimination period

for New York’s dollar-for-dollar policies was 60 days. 

43In Connecticut and Indiana, the case management provision for Partnership policies is 

specific to home and community-based services. 

Page 23 GAO-07-231 Long-Term Care Partnership Program
care, case management services can help policyholders use their benefit 

dollars efficiently. Partnership program officials in California,

Connecticut, and Indiana explained that their states require that 

Partnership policies cover case management services provided through 

state-approved intermediaries that are independent of insurance company

control. Partnership program officials in New York told us that 

Partnership policyholders have the option to seek case management 

services from independent case management service providers, but they

can also elect to receive case management services from their own 

insurance company. Traditional long-term care insurance policies are not 

required to cover case management services, though some may offer them

as an optional benefit. In addition, some insurance companies that sell 

traditional long-term care insurance policies may directly provide case 

management services. 

Insurance companies in the four states with Partnership programs are 

subject to restrictions on the types of coverage they can offer in 

Partnership policies, while they are allowed to offer traditional long-term 

care insurance policies with more coverage options. In California, 

Connecticut, and Indiana, insurance companies can only offer Partnership 

policies with two types of coverage: an option that covers only nursing 

facility care, and a comprehensive option that covers nursing facility care 

as well as care provided in the home and in community-based facilities.44

In New York, insurance companies may only offer Partnership policies 

that cover comprehensive care. The four states do not allow insurance 

companies to offer Partnership policies in their state that exclusively 

cover care provided in the home and in community-based facilities. 

However, in the four states, insurance companies can offer traditional 

long-term care insurance policies with nursing facility care only, home and 

community-based facility only, and comprehensive coverage options. 

 44In California, Indiana, and New York, nursing facility coverage also includes other settings 

that are similar to nursing facilities. 

Page 24 GAO-07-231 Long-Term Care Partnership Program
In the four states with Partnership programs, traditional long-term care 

insurance policies can include—and individuals can therefore choose to 

purchase—generally the same benefits found in Partnership policies.45

However, Partnership policyholders tended to purchase benefits that are 

more extensive than those purchased by traditional long-term care 

insurance policyholders. We found that from 2002 through 2005, a higher 

percentage of Partnership policyholders purchased policies with more 

extensive coverage compared with policyholders who purchased 

traditional long-term care insurance nationally. Specifically, more 

Partnership policyholders purchased policies with higher levels of 

inflation protection and coverage that includes care in both nursing facility 

and home and community-based care settings. See table 1 for a summary

of the benefits purchased by Partnership and traditional long-term care 

insurance policyholders. For example, while all Partnership policyholders

had policies from 2002 through 2005 with the required inflation protection 

that generally increases daily benefit amounts by 5 percent annually, about 

76 percent of traditional long-term care insurance policyholders had 

policies with some form of inflation protection. Similarly, during this 

period, 64 percent of all Partnership policyholders had policies that 

included daily benefit amounts of $150 or greater, while 36 percent of 

traditional long-term care insurance policyholders nationwide had policies 

that provided daily benefit amounts at this level or greater. While these 

differences may reflect the benefit requirements found in Partnership 

policies, they may also reflect the incentive offered by the asset protection 

benefit of Partnership policies, which may influence consumers deciding 

whether to buy a Partnership or traditional long-term care insurance 

policy. The differences may also reflect the demographic and financial

characteristics of the people living in the four states with Partnership 

programs relative to other states. 

Partnership Policyholders 

Purchased Policies with 

Benefits That Were More 

Extensive Than Those 

Purchased by Traditional 

Policyholders Nationwide 

 45Traditional long-term care insurance policyholders cannot obtain asset protection 

through their policies.

Page 25 GAO-07-231 Long-Term Care Partnership Program
Table 1: Percentage of Partnership and Traditional Long-Term Care Insurance 

Policyholders Purchasing Benefits from 2002 through 2005 

Partnershipa

Traditional long-term care 

insurance policyholdersb

Inflation protection 

Yes 100% 76%

No 0 16

Otherc0 8

Daily benefit amount 

Less than $100 0 11

$100 to $149 35 53

$150 to $199 40 25

$200 and greater 24 11

Benefit period

1 year 3 3

More than 1 and less than 3 years 13 11

3 years 37 23

More than 3 years but not unlimited 30 37

Lifetime/unlimited benefit 19 26

Elimination period 

Less than 30 days 3 8

30 days to 89 days 23 21

90 days 47 60

More than 90 days 27 11

Coverage type

Comprehensived99 91

Nursing facility-only 1 3

Othere0 6

Sources: GAO analysis of the four states’ UDS Partnership data and data provided by five insurance companies selling traditional longterm care insurance. 

Note: Percentages may not add to 100 due to rounding. 

a

Reported values for daily benefit amount, benefit period, and elimination period include nursing 

facility data, but not home care data. 

b

Approximately 2 percent of people nationwide with long-term care policies have Partnership policies. 

Thus, although the data may include a number of Partnership policyholders, about 98 percent of 

these people are likely to have traditional long-term care insurance. Because this is only 2 percent, 

we consider this as a reasonable proxy for traditional long-term care policyholders. 

c

Includes policies with a future purchase option (7 percent) and policies with a deferred inflation option 

(1 percent). Enrollees who select a deferred inflation option may increase benefits at a later date that

they choose. 

Page 26 GAO-07-231 Long-Term Care Partnership Program
d

Comprehensive coverage insurance policies provide benefits for both nursing facility-only and home

care services. 

e

Includes home care coverage. 

According to state officials, the four states with Partnership programs 

require Partnership and traditional long-term care insurance policies to 

have equivalent premiums if the benefits offered—except for asset 

protection—are otherwise comparable. According to information from 

one state’s Partnership program, one reason for this requirement is that, 

unlike other insurance company benefits, insurance companies do not 

provide asset protection to Partnership policyholders. Instead, the four 

states with Partnership programs provide the asset protection benefit by

allowing Partnership policyholders to protect some or all of their assets 

from Medicaid spend-down requirements. However, because Partnership 

policies are required to have inflation protection and other benefits that 

traditional long-term care insurance policies are not required to have, 

Partnership policies are likely to have higher premiums. According to a 

Connecticut state official, in 1996, before the state required that 

Partnership and traditional long-term care insurance policies have 

equivalent premiums for the same benefits, Partnership policies were 25 to

30 percent more expensive than traditional long-term care insurance 

policies with comparable benefits. The official further explained that after 

the requirement was established, sales of Partnership policies in 

Connecticut more than tripled. 

Insurance Companies 

Cannot Charge Partnership 

Policyholders Higher 

Premiums for Asset 

Protection, and Premiums 

for Partnership Policies 

Must Be Equivalent to 

Premiums of Traditional 

Policies That Have 

Comparable Benefits 

Page 27 GAO-07-231 Long-Term Care Partnership Program
State officials told us that, while both Partnership and traditional longterm care insurance policies undergo reviews by the DOI in each of the 

four states with Partnership programs, Partnership policies in California 

and Connecticut also undergo another review by state Partnership 

program officials.46,47 California and Connecticut Partnership program staff 

review Partnership policies to determine whether the policies include the 

benefits mandated by Partnership regulations, and whether the insurance 

companies can meet additional data reporting and other administrative 

requirements. The programs’ staff also try to ensure that the policies can

be easily understood and contain all of the required language. The 

Partnership program offices in California and Connecticut perform their 

review of policies first, and then pass the application on to the DOI for 

further review. 

DOI officials in California and Connecticut told us that the Partnership 

office review of Partnership policies tends to be lengthier for insurance 

companies than the DOI review. A DOI official explained that when 

insurance companies add new benefit options to policies, the Partnership 

review can take longer. Other factors that may slow the Partnership 

review process include the time spent coordinating between the 

Partnership program and the state DOI, and the time it takes for insurance 

companies to learn how to complete the Partnership review process for 

the first time. State officials in Indiana and New York—where reviews of 

new Partnership policies are conducted by the DOI and not a separate 

Partnership program office—told us that it generally takes the same 

amount of time for Partnership and traditional long-term care insurance 

policies to pass through the review process. 

Before they can sell Partnership policies, insurance agents are subject to 

additional state training requirements compared with agents who sell only 

traditional long-term care insurance policies. Although each of the four 

states with Partnership programs has somewhat different requirements, in 

general the states require Partnership agents to undergo about a day of 

Compared with 

Traditional Long-Term 

Care Insurance 

Policies, Two of Four 

States Subject 

Partnership Policies 

to Additional Review, 

and All Four States 

Require Additional 

Agent Training 

 46The New York Partnership program does not conduct a review of Partnership policies.

The New York DOI reviews all Partnership and traditional long-term care insurance 

policies.

47Until recently, the Indiana Partnership program was housed in the Medicaid office and

conducted an initial review of Partnership policies prior to the DOI review. As of 

September 2006, the Indiana Partnership program was housed in, and administered by, the

DOI and there was only one review of Partnership policies, which was conducted by the 

DOI. 

Page 28 GAO-07-231 Long-Term Care Partnership Program
training specific to the Partnership program in addition to the training that 

the states require for those who sell traditional long-term care

insurance.48,49 Partnership program training typically includes information 

on topics such as long-term care planning, Medicaid, Medicare, the 

specific benefits required by the Partnership program, and how 

Partnership policies differ from traditional long-term care insurance 

policies. According to some state officials, agents need training on the 

Partnership program and Medicaid in order to understand the program 

and provide appropriate advice to their clients. In 2006, in three of the four 

states all Partnership program training was conducted in person, rather 

than via correspondence or on the internet; however, in New York agents 

completed an online internet-based course as well as classroom training as

part of the Partnership program training. According to state officials, all 

four Partnership states require that the provider of this specialized 

Partnership training be approved by the state DOI, and in Connecticut, the 

training is provided exclusively by Partnership program staff. 

Despite the complexity of long-term care insurance products, DOI officials 

in three states with Partnership programs reported that long-term care 

insurance policies, including Partnership policies, garner few complaints 

from policyholders. For example, from 1998 to 2005 the New York 

Insurance Department received an average of two to three complaints 

about Partnership policies each year (there were 51,262 active Partnership 

policies in the fourth quarter of 2005 in New York). During this time 

period, according to data from the New York state DOI, complaints about 

all long-term care insurance policies in New York related to issues such as 

the interpretation of policy provisions, premium amounts, and refusals to 

issue policies. 

 48In order to continue to sell long-term care insurance in the four Partnership states, 

insurance agents must receive several hours of continuing education every 2 years. The

required hours ranged from 5 hours every 2 years in Indiana to 24 hours every 2 years in 

Connecticut.

49In New York, the continuing education credits from the required Partnership policy 

training can be used to meet the DOI requirements for agent recertification for traditional 

long-term care policies.

Page 29 GAO-07-231 Long-Term Care Partnership Program
Long-term care insurance policyholders—that is, both Partnership 

policyholders and traditional long-term care insurance policyholders—are 

more likely to have higher incomes and more assets than people without 

long-term care insurance. On average, Partnership policyholders are 

younger than traditional long-term care insurance policyholders. Those 

with long-term care insurance policies are also more likely to be female 

rather than male, and married than unmarried. 

In examining Partnership policyholders in two states, traditional long-term 

care insurance policyholders nationwide, and those without long-term 

care insurance nationwide, we found that Partnership and traditional longterm care policyholders are more likely to have higher incomes than those 

without such insurance.50 In California and Connecticut—the two states 

with Partnership programs for which we had data—at the time they 

purchased a policy, 55 percent of Partnership policyholders over age 55 

had monthly household incomes of $5,000 or greater. In comparison, 

43 percent of all households with people over age 55 in these states had 

monthly household incomes at this level at the time they were surveyed.51,52

Long-Term Care 

Insurance 

Policyholders Are 

Generally Wealthier 

than Those Without 

Such Insurance, and 

Partnership 

Policyholders Are 

Typically Younger

than Traditional LongTerm Care Insurance 

Policyholders 

Long-Term Care Insurance 

Policyholders Generally 

Have Higher Incomes and 

More Assets than Those 

Without Long-Term Care 

Insurance 

 50Data from Indiana and New York are excluded from our income and asset comparisons. 

New York did not collect income or asset data for its Partnership program, while Indiana 

income and asset data were not detailed enough to make comparisons with other states. 

51Income data for Partnership policyholders in Connecticut were from 2002 through 2005. 

Income data for Partnership policyholders in California were from 2003 to 2004. Data for all 

households in those two states were from 2004. We combined multiple years of these data 

in order to increase the sample size. 

52Because we did not have a direct measure of the population without long-term care

insurance, we used the general population of all households as a proxy. Nationally, about

12 percent of the population over age 55 has long-term care insurance. Therefore we

assume that the income information from all households in two states with Partnership

programs–California and Connecticut–largely reflects the income and asset patterns of 

people without long-term care insurance.

Page 30 GAO-07-231 Long-Term Care Partnership Program
Similarly, at the national level, when surveyed, 46 percent of traditional 

long-term care policyholders over age 55 had monthly household income 

of $5000 or greater, whereas 29 percent of those individuals over age 55

without long-term care insurance had such incomes.53 We also found that 

more than half (53 percent) of Partnership policyholders had household 

assets of $350,000 or more in California and Connecticut. Data on the asset

levels of all households in those states were not available for our 

comparison. Nationwide, 36 percent of traditional long-term care 

insurance policyholders and 17 percent of people without long-term care 

insurance had household assets exceeding $350,000 (see table 2). 

 53The national-level data are from 2004. 

Page 31 GAO-07-231 Long-Term Care Partnership Program
Table 2: Household Income and Household Asset Distribution among Partnership Policyholders and Comparison Populations 

in Partnership States and Nationally 

Partnership states: CA and CTa

All statesb

Partnership 

policyholdersc, d All householdse, f

Traditional long-term care 

insurance policyholdersg

Those without longterm care insurance

Monthly household income rangesh

<$1000 1% 8% 4% 15%

$1000-$4999 45 49 50 56

$5000 or greater 55 43 46 29

Household asset rangesi, j

<$100,000 16% Not Available 36% 62%

$100,000-$199,999 14 Not Available 14 12

$200,000-$349,999 17 Not Available 14 9

$350,000 or greater 53 Not Available 36 17

Sources: GAO analysis of Partnership program purchaser surveys, American Community Survey (ACS), and the HRS. 

Note: Percentages may not add to 100 due to rounding. 

a

Does not include data from New York and Indiana. 

b

Data for all states are from the HRS, 2004. 

c

Connecticut values are based on survey data from 2002 through 2005. 

d

California values are based on survey data from 2003 and 2004. 

e

Data are from the ACS, 2004. 

f

We use the All Households category as a proxy for those without long-term care insurance in 

California and Connecticut. Approximately 12 percent of people nationwide over 55 have long-term 

care insurance so our measure is likely to contain approximately 88 percent without long-term care 

insurance. 

g

Approximately 2 percent of people nationwide with long-term care policies have Partnership policies. 

Thus, although the HRS data may include a small number of Partnership policyholders, about 

98 percent of these people likely have traditional long-term care insurance. 

h

Data for monthly income ranges are for survey respondents aged 55 and over. 

i

Data for asset ranges are for all survey respondents regardless of age. 

j

In the policyholder surveys, California and Connecticut instructed policyholders to exclude the value 

of homes and cars when reporting their assets. The HRS data for assets also exclude homes and 

vehicles. 

Page 32 GAO-07-231 Long-Term Care Partnership Program
In our analyses, we found that Partnership policyholders in California, 

Connecticut, Indiana, and New York are younger on average than 

traditional long-term care insurance policyholders nationally and those 

without long-term care insurance nationally (see table 3). We also found 

that those who purchase long-term insurance policies—both traditional 

and Partnership—are more likely to be women than men, and married 

than unmarried.54

Table 3: Demographic Characteristics of Partnership Policyholders and

Comparison Populations in Partnership States and Nationally

Partnership Policyholders 

Are Younger on Average 

than Traditional Long-Term 

Care Insurance 

Policyholders and People 

Without Long-Term Care 

Insurance 

All partnership

policyholdersc, e

Traditional longterm care insurance 

policyholdersa, d

People without 

long-term care 

insuranced

Average age 59 63c64b

Age range 18-104 30-95c24-107b

Age categories 

Under 55 years 28% 20% 21%

55-64 years 49 37 36

65-74 years 19 30 22

75 years & over 3 13 20

Sex 

Female 58% 56% 54%

Male 42 44 46

Marital status

Married 75% 72% 62%

Not married 24 28 38

Unknown 1 0 0

Source: GAO analysis of the UDS and the HRS. 

Note: Percentages may not add to 100 due to rounding. 

a

Approximately 2 percent of people nationwide with long-term care policies have Partnership policies. 

Thus, although the HRS data may include a small number of Partnership policyholders, about 

98 percent of these people are likely to have traditional long-term care insurance. 

b

Denotes average age at time of survey. 

c

Data are as of time of purchase.

d

Data are from the 2004 HRS, which is a longitudinal national panel survey of individuals over age 50.

 54To make this comparison, we used cumulative data from the 2002 through 2005 UDS data

sets on Partnership policyholders and data from the 2004 HRS survey. 

Page 33 GAO-07-231 Long-Term Care Partnership Program
e

Data are from the UDS for 2002 through 2005. 

Surveys conducted in some states with Partnership programs and our 

illustrative financing scenarios together suggest that in the four states with 

Partnership programs, the programs are unlikely to result in Medicaid 

savings and could result in increased Medicaid spending. Survey data

show that in the absence of a Partnership program in their state, 

80 percent of Partnership policyholders would have purchased a 

traditional long-term care insurance policy and may represent a potential

source of increased spending for Medicaid. Data are not yet available to 

determine the extent to which the 20 percent of individuals who would 

have self-financed their care will access Medicaid in the absence of a 

Partnership program. However, our scenarios suggest that an individual 

could self-finance care and delay Medicaid eligibility for about the same 

amount of time as he or she would have with a Partnership policy, 

although we identify some circumstances that could delay or accelerate 

the time to Medicaid eligibility. Because of the amount of insurance 

Partnership policyholders generally purchase and their typical income and 

assets, few Partnership policyholders are likely to ever become eligible for 

Medicaid, which suggests that the Partnership programs are likely to have

a small impact on Medicaid spending. 

The four Partnership programs are unlikely to result in savings for their 

state Medicaid programs and may result in increased Medicaid spending.55

Based on surveys of Partnership policyholders conducted by state 

Partnership programs in California, Connecticut, and Indiana, we estimate 

that, in the absence of a Partnership program in their state, 80 percent of 

Partnership policyholders would have purchased traditional long-term 

care insurance policies instead, while the other 20 percent would have

self-financed their care.56 To assess the impact Partnership programs may 

have on Medicaid savings in the four states with Partnership programs, we 

explored, under three different illustrative financing scenarios and using 

certain assumptions, how long it would take before an individual using a 

Partnership policy would become eligible for Medicaid and how long—in 

Partnership Programs 

Unlikely to Result in 

Savings for Medicaid 

Largely Because of 

the Asset Protection 

Benefit of Partnership 

Policies 

Most Partnership 

Policyholders Would Have 

Purchased Traditional 

Long-Term Care Insurance 

in Absence of Partnership 

Program, Suggesting an 

Increase in Medicaid 

Spending 

 55This is consistent with CBO’s estimate that repealing the moratorium on new Partnership 

programs could increase Medicaid spending.

56The results for the individual states were 84 percent, 76 percent, and 57 percent for 

California, Connecticut, and Indiana, respectively. Using the number of respondents in 

each state to weight the calculation, the average for the three states combined was 

approximately 80 percent. 

Page 34 GAO-07-231 Long-Term Care Partnership Program
the absence of a Partnership program—it would take for the same 

individual to become eligible for Medicaid using the other two financing 

options depicted in the scenarios. Our financing scenarios indicate that 

with a Partnership policy, an individual with assets and benefits typical of

many policyholders becomes eligible for Medicaid sooner than if the 

individual financed his or her long-term care with a traditional long-term 

care policy. Because a Partnership policy, unlike a traditional long-term 

care insurance policy, exempts the individual in the scenario from 

spending his or her protected assets on long-term care before the 

individual becomes eligible for Medicaid, the individual with a Partnership 

policy becomes eligible for Medicaid sooner than if the individual had a 

traditional policy, which is likely to increase the amount of time Medicaid 

finances the individual’s long-term care. The scenarios also suggest that if 

the individual would have self-financed his or her long-term care in the 

absence of the Partnership program, the individual would become eligible 

for Medicaid at about the same time as he or she would have with a 

Partnership policy. 

The three financing scenarios we compared were 

• financing using a Partnership policy,

• financing using a traditional long-term care insurance policy, and 

• self-financing without any long-term care insurance. 

For illustrative purposes, our scenarios are based on an individual with 

assets that are typical of many of those who have long-term care 

insurance—that is, an individual who holds assets of $300,000.57 In two of 

our scenarios, the individual holds long-term care insurance benefits of 

$210,000, which will cover a nursing facility stay of about 3 years—the 

average nursing facility stay is between 2 and 3 years. We also make 

several simplifying assumptions, such as that the individual is not 

overinsured (i.e., does not have insurance that exceeds the value of the 

individual’s assets) and is unmarried at the time long-term care is required. 

 57For example, 53 percent of Partnership policyholders in California and Connecticut had 

household assets of $350,000 or more. Approximately 37 percent of Partnership 

policyholders purchased policies with a 3-year benefit period. 

Page 35 GAO-07-231 Long-Term Care Partnership Program
Specifically, scenario A (see fig. 1) depicts a Partnership policyholder with 

$300,000 in assets who purchases a policy valued at $210,000 (worth about 

3 years of nursing facility coverage), automatically receiving $210,000 in 

asset protection. When the individual requires long-term care, the 

Partnership policy will pay for the first $210,000 worth of care—the total 

amount of his or her insurance benefits. After these Partnership benefits 

have been exhausted, the individual will have to spend down the $90,000 

of unprotected assets on long-term care and then, assuming the individual 

meets state Medicaid income eligibility requirements, Medicaid will begin 

to finance the individual’s long-term care. As depicted by scenario B, if this 

same individual purchases a traditional long-term care insurance policy 

worth $210,000 instead of the Partnership policy, insurance will pay for the 

first $210,000, and the individual will then have to spend down the 

unprotected assets—all $300,000—before he or she is eligible for 

Medicaid.58,59 Scenario C describes how this same individual would finance 

his or her long-term care without any long-term care insurance. As 

scenario C shows, if the individual had $300,000 in assets, these would 

have to be spent before the individual would be eligible for Medicaid.60 In 

both this scenario and in the scenario in which the individual owns a 

Partnership policy, Medicaid begins paying for the individual’s long-term 

care at about the same time, with the difference being whether long-term 

care costs prior to Medicaid eligibility are paid by long-term care 

insurance or by the individual. 

 58To qualify for Medicaid, individuals must meet a number of requirements, including their 

state’s allowable asset limitation, excluding the amount of protected assets due to the 

Partnership policy. For 2006, these were $2,000 in California, $1,600 in Connecticut, $1,500

in Indiana, and $4,150 in New York. The situation is more complicated when the person has

a spouse. For instance, regarding assets, when someone in an institution applies for 

Medicaid and they are married, Medicaid looks at all the assets of the couple, regardless of

ownership (certain items such as the couple’s home, personal and household property, one 

vehicle, and a small amount set aside for burial, are excluded). One half of the remaining

countable assets, up to a maximum of approximately $100,000 in 2007, are then protected 

for the community spouse. Any remaining assets are then used to determine Medicaid 

eligibility for the spouse in the institution. 

59Individuals may choose a different set of benefits, depending on whether they select a 

traditional or Partnership program policy. In order to simplify our comparison of scenarios

A and B, we assume that the benefits of a Partnership policy and a program traditional 

long-term care policy are the same, except for the asset protection benefit of the 

Partnership policy. 

60More than half of all Partnership policyholders in California and Connecticut combined

reported assets of at least $350,000, which is more than the national average of about 

$210,000 that would be needed to pay for a 3-year stay in a nursing facility—the average

stay being between 2 and 3 years. 

Page 36 GAO-07-231 Long-Term Care Partnership Program
Figure 1: Financing of Long-Term Care Nursing Facility Stays Under Three Scenarios 

Source: GAO.

Medicaid pays cost of care

Insurance pays cost of care

Individual pays cost of care

Total cost of care

Scenario

A

Partnership 

policy

Scenario

C

No long-term

care 

insurance

Scenario

B

Traditional 

policy

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

We assume an individual has $300,000 in nonhousing assets. To simplify this example, we assume 

no income exceeding Medicaid eligibility levels. There are three options for funding long-term care costs:

Scenario A: Purchase a dollar-for-dollar partnership policy

• Insurance pays for 3 years of care at a cost of about $70,000 per year

• Individual spends down $90,000, covering a little more than 1 year of care 

• Individual is eligible for Medicaid after a little more than 4 years

Scenario B: Purchase traditional LTC insurance

• Insurance pays for 3 years of care at a cost of about $70,000 per year

• Individual spends down $300,000, covering more than 4 years of care

• Individual is eligible for Medicaid after more than 7 years

Scenario C: Do not purchase insurance: self-finances care

• Individual spends down $300,000, covering more than 4 years of nursing facility care

at a cost of about $70,000 per year

• Individual is eligible for Medicaid after a little more than 4 years

$490,000

$420,000

$350,000

$280,000

$210,000

$140,000

$70,000

$0

$560,000

Year 7 Year 7 Year 7

Year 8 Year 8 Year 8

Note: To simplify our scenarios, we made some simplifying assumptions, such as, the individual 

depicted in the scenarios has assets and benefits that are typical of many individuals with long-term 

care insurance; the individual is unmarried; and the individual has assets that are greater than or 

equal to the value of the individual’s Partnership policy. Our results do not depend on the level of 

assets or the amount of insurance dollars, provided the amount of insurance dollars does not exceed 

the amount of assets. Appendix II further discusses the effects of changing these assumptions. 

We found some circumstances when adjusting the assumptions underlying

our scenarios resulted in delaying or accelerating Medicaid eligibility, but 

most did not change the outcomes related to Medicaid savings. For 

example, to construct our scenarios, we assumed an individual who had 

$300,000 in assets, $210,000 in insurance coverage, and who used this 

coverage for long-term care that cost about $70,000 per year. When we 

changed these amounts—as long as the amount of insurance coverage did 

not exceed the amount of assets—the scenarios still showed that the 

individual became eligible for Medicaid sooner with a Partnership policy 

than with a traditional policy, and became eligible for Medicaid at the 

same time with a Partnership policy and self-financing. 

Page 37 GAO-07-231 Long-Term Care Partnership Program
Our scenarios also assumed that the individual with a Partnership policy 

or a traditional long-term insurance policy was not overinsured—that is, 

had more insurance coverage than the value of his or her assets. When we 

modified this assumption, we found that one portion of our finding still 

held true—the individual in the scenarios using the Partnership policy still 

became eligible for Medicaid sooner than he or she did using a traditional 

long-term care insurance policy. However, the individual also became 

eligible for Medicaid later using the Partnership policy than when the 

individual self-financed his or her own long-term care. This suggests that if

individuals overinsure their assets, those who finance their long-term care 

using Partnership policies could represent a source of savings for 

Medicaid when compared with those who self-finance their care. However, 

the number of policyholders that this applies to is unlikely to be large 

enough to offset the number of Partnership policyholders who represent a 

potential source of increased Medicaid spending. While we do not have 

information about the amount of assets that Partnership policyholders 

have at the time they use their benefits, survey data from California and 

Connecticut indicate that when Partnership policyholders purchased their 

policies, they tended to purchase policies that were equal to or lower than 

the value of their household assets. This suggests that most individuals are 

unlikely to overinsure their assets at the time of purchase, though their 

status could change over time.61 In California and Connecticut combined, 

in 2004, 53 percent of Partnership policyholders had at least $350,000

worth of household assets at the time of purchase, while only about 

32 percent of these Partnership policyholders have more than 5 years of 

coverage equal to about $350,000. 

Our scenarios also depicted an unmarried individual. While most 

Partnership policyholders are married when they purchase a Partnership 

policy, by the time most individuals require long-term care services, they

are unmarried. Our analysis of 2004 HRS data of individuals entering a 

nursing facility who are age 65 or older showed that about 66 percent are 

widowed, and more than 75 percent are not married. However, there are 

likely some individuals who will be married when they require long-term 

 61Household assets may be jointly owned by a couple. In order for assets to be fully 

protected for the couple, both individuals need to have their own Partnership policies that 

insure all eligible assets because many individuals are no longer married by the time they 

require long-term care services, and the asset protection associated with a Partnership

policy is not transferable. We do not consider a married couple to be overinsured when

both individuals have long-term care insurance policies that are worth the value of their 

estate. 

Page 38 GAO-07-231 Long-Term Care Partnership Program
care services. In general, after applying the Medicaid spousal exemption, if 

the individual’s assets remain higher than the value of his or her insurance, 

being married does not change the result that compared with a 

Partnership policy, the individual’s time to attain Medicaid eligibility is 

accelerated with a traditional policy and is the same as with selffinancing.62 However, if the amount of the Medicaid spousal exemption 

brings the individual’s eligible assets below the value of the insurance 

policy, then the individual would fall into an overinsured category. Being 

overinsured means the individual would become a source of savings for 

Medicaid; however, this only applies to the 20 percent of individuals who 

would have self-financed their care in the absence of a Partnership 

program. The 80 percent of individuals who would have purchased a 

traditional policy still represent potential increased spending, whether 

they are overinsured or not. 

We also explored what would occur if we modified our assumption that an

individual is equally likely to transfer assets in all three of our scenarios. 

We found that if the individual who would have self-financed care 

transfers his or her assets, it would likely take less time for the individual 

to become eligible for Medicaid than it would with a Partnership policy.

This could result in some savings to Medicaid for those individuals who 

purchase Partnership policies instead of transferring assets. We also found 

that for an individual who would have purchased traditional insurance, the 

amount of assets transferred would have to be at least as much as the 

value of the insurance policy purchased in order for the Partnership 

program to result in Medicaid savings. While we do not know how many 

individuals would have transferred assets in the absence of the 

Partnership program, one of our recent reports suggests that asset 

transfers may not be that prevalent. In March 2007, we reported that few 

applicants who were approved for Medicaid coverage ultimately 

transferred assets.63 In addition, the asset transfer standards established 

under DRA increased the look-back period to 5 years, which reduces the 

 62The Medicaid spousal exemption, also known as the community spouse resource

allowance, permits the spouse remaining in the community to retain an amount equal to

one-half of the couple’s combined countable assets, up to a state-specified maximum level. 

In 2007, the federal maximum was $101,640; that is, states were allowed to set their 

community spouse resource allowance equal to a value no greater than this amount. 

Medicaid eligibility of the institutionalized spouse is determined using the remaining assets. 

63This finding was based on our review of the prevalence of asset transfers among 465

approved applicants in three states. See GAO-07-280. 

Page 39 GAO-07-231 Long-Term Care Partnership Program
opportunity for individuals to transfer assets to establish Medicaid 

eligibility. 

Overall, our scenarios suggest that in the aggregate the savings potential 

from the Partnership programs of the 20 percent of individuals who would

have self-financed their care is outweighed by the 80 percent of individuals 

who will likely result in increased Medicaid spending. For more 

information on our simplifying assumptions and the impact of adjusting 

these assumptions on our findings, see appendix II. 

Few Partnership 

Policyholders Are Likely to 

Become Eligible for 

Medicaid, Limiting the 

Impact on Medicaid 

Expenditures 

Although our survey data and scenarios show that about 80 percent of 

Partnership policyholders who become eligible for Medicaid are likely to 

do so sooner than they otherwise would have without a Partnership 

program, we also expect that few Partnership policyholders will actually 

become eligible for Medicaid and turn to the program to finance their longterm care. There are two reasons for this expectation. First, most 

Partnership policyholders purchase policies that are likely to cover all or 

most of their long-term care expenses during their lifetimes, thereby 

reducing the likelihood that the policyholders will require financing from 

Medicaid for their long-term care. We found that 86 percent of Partnership 

policyholders had benefits covering 3 or more years, while the average 

nursing facility stay lasts between 2 and 3 years. One study of traditional 

long-term care insurance policyholders with lifetime benefits found that 

only about 14 percent of policyholders used their benefits for more than 

3 years, and fewer than 5 percent of all policyholders used their benefits 

for more than 5 years. These data suggest that if Partnership policyholders

continue to purchase policies with benefit periods that cover their longterm care needs, the percentage of Partnership policyholders who exhaust 

their benefits and then become eligible for Medicaid is likely to be limited. 

While some experts have reported that there is a recent trend for 

traditional long-term care insurance policies to be sold with shorter 

benefit periods, the minimum benefit requirements that applied to 

Partnership policies could result in Partnership benefits remaining more 

stable over time. 

The second reason we estimate that few Partnership policyholders are 

likely to turn to Medicaid for their long-term care financing is that, in 

general, Partnership policyholders have incomes that exceed Medicaid 

income eligibility thresholds. Although Partnership policyholders can 

purchase varying amounts of asset protection, they must still meet state 

Medicaid income thresholds in order to become eligible for Medicaid. In 

2006, the monthly income eligibility thresholds for all states were required 

Page 40 GAO-07-231 Long-Term Care Partnership Program
to be no higher than 300 percent of the Supplemental Security Income 

standard, which was $1,809 in 2006.64 However, only 1 percent of the 

Partnership policyholders in California and Connecticut had household 

incomes less than $1,000 per month at the time they purchased their longterm care insurance policies. Our analysis of HRS data also indicates that

wealthy individuals continue to have a high level of assets65 at the time 

they are admitted to a nursing facility, which suggests that many 

Partnership policyholders will continue to be relatively wealthy and 

unlikely to meet Medicaid eligibility thresholds, even at the time they enter 

a nursing facility. For example, of all people who entered a nursing facility 

in 2004, the average asset value for the 25 percent of people with the 

highest assets was over $334,000 in 1992, and by 2004, 12 years later, their 

assets had grown to almost $430,000. Similarly, the average monthly 

income for the 25 percent of people with the highest incomes who were 

admitted to a nursing facility in 2004 was about $5,600 in 1992, and about

$3,700 in 2004—more than double the threshold for Medicaid eligibility in

any of the four states with Partnership programs. 

The income levels of Partnership policyholders may reflect the fact that 

the cost of purchasing a long-term care insurance policy—including a 

Partnership policy—may exceed what most elderly households can afford.

According to guidelines published by the NAIC, a person should spend no

more than 7 percent of his or her income on long-term care insurance. A 

traditional long-term care insurance policy covering 3 years of care, with

inflation protection, a $200 daily benefit allowance, and comprehensive 

coverage, costs about $3,000. In order to afford such a policy, an individual 

would need an annual income of about $43,000. However, data from the 

2004 HRS show that about half of elderly households nationwide had 

annual incomes below $43,000. A survey of Connecticut Partnership 

policyholders suggested that cost was the most important factor in 

policyholders’ decision to let their policies lapse. Sixty-two percent of 

 64Specifically, the Medicaid eligibility thresholds in the four states with Partnership 

programs were $600 in California, $619 in Indiana, $1,809 in Connecticut, and $692 in New

York in 2006. If individuals were in a nursing facility, they were permitted to keep a

personal allowance amount to cover incidental purchases in the nursing facility. The 

personal allowances for individuals in nursing facilities in 2006 were $35 in California, $52

in Indiana, $61 in Connecticut, and $50 in New York. 

65In this particular example, our criterion for being among the wealthiest people is those 

people whose assets are in the highest 25 percent. 

Page 41 GAO-07-231 Long-Term Care Partnership Program
surveyed individuals in Connecticut who let their Partnership policy lapse 

said that they dropped their Partnership policy because it was too costly.66

As of 2006, few Partnership policyholders in the four states with 

Partnership programs had accessed Medicaid to finance their long-term 

care. Of the approximately 218,000 Partnership policies sold since the 

program was first introduced in the late 1980s, approximately 190,000 

were still active as of August 2006. In addition, as of that same date, a total

of 3,454 Partnership policyholders—less than 2 percent of all Partnership 

policyholders—have accessed long-term care benefits since the 

Partnership programs began. Of that group, 292 Partnership policyholders

exhausted their long-term care insurance benefits, and 159 

policyholders—approximately 54 percent of those who exhausted their 

benefits—subsequently went on to access Medicaid benefits. The number 

of Partnership policyholders who access benefits and also access 

Medicaid is likely to grow, because people typically use long-term care 

services 15 to 20 years after they purchase a policy, and the first 

Partnership policies were established less than 20 years ago. We do not 

know why some of the 292 individuals who exhausted their long-term care 

insurance benefits did not access Medicaid. It is possible that their income 

was higher than Medicaid eligibility thresholds, or they may have had 

unprotected assets that they had to spend down. Alternatively, they may 

have preferred to self-finance their care, they may have died, or they may 

have stopped using long-term care services. 

With DRA authorizing all states to implement Partnership programs, 

information on the Partnership policies and policyholders from the four 

states with Partnership programs may prove useful to other states 

considering implementing such programs. In particular, states may want to 

consider the trade-offs that come with implementing a Partnership 

program. First, a Partnership program’s potential impact on Medicaid 

expenditures should be considered. Based on our scenario comparison 

and survey data, we anticipate that Partnership programs in California, 

Connecticut, Indiana, and New York are unlikely to result in savings for 

their state Medicaid programs and could result in increased Medicaid 

Concluding 

Observations 

 66It is possible that Partnership policyholders with higher incomes could meet Medicaid 

income thresholds because the four states with Partnership programs allow individuals to 

deduct medical expenses from their income when determining Medicaid eligibility. 

However, the individuals would still need to contribute their income toward the cost of 

care. Therefore, this limits Medicaid’s liability for individuals with higher incomes. 

Page 42 GAO-07-231 Long-Term Care Partnership Program
expenditures. This is largely due to the modifications of state Medicaid 

eligibility requirements states have to make in order to offer asset 

protection to Partnership policyholders and survey data showing that the 

majority of Partnership policyholders would have purchased traditional 

long-term care insurance had the Partnership program not existed. 

However, given the amount of long-term care insurance benefits and 

income and asset levels of current Partnership policyholders, we also 

anticipate that relatively few policyholders will access Medicaid in the 

four states with Partnership programs. Therefore, the impact of 

Partnership programs on state Medicaid programs will likely be small. 

While Partnership programs are not likely to reduce states’ Medicaid 

expenditures, the programs do offer some benefits to some consumers. 

The asset protection feature, which states require Partnership policies to 

offer at no additional premium cost, can benefit policyholders who 

exhaust their Partnership benefits and who access Medicaid. Even if 

individuals do not end up using their Partnership insurance or Medicaid, 

the availability of asset protection may provide peace of mind for those 

who fear the risk of having to spend their assets on their long-term care. 

However, states that implement Partnership programs should recognize 

that, because of their cost, Partnership policies generally do not benefit all 

consumers. The cost of annual premiums for long-term care insurance 

may not be affordable to individuals with moderate incomes, and as a 

result long-term care insurance policyholders, including Partnership 

policyholders, tend to be wealthier than those without such insurance. 

We received written comments on a draft of this report from HHS (see 

appendix III) and from the four states with Partnership programs, 

California, Connecticut, Indiana, and New York (see appendix IV). 

HHS commented that the results of our study should not be considered 

conclusive because the results do not adequately account for the effect of 

estate planning efforts such as asset transfers. Specifically, HHS was 

concerned that the simplified scenarios were flawed in that they did not

account for individuals who engage in estate planning activities prior to 

expending all of their own funds on long-term care costs. HHS further 

noted that the data sources used in our report would not likely yield

accurate data on asset transfers and criticized the report for not 

incorporating a review of the literature on this issue and reporting on 

analyses of the experience of the four states with Partnership programs. 

The four states with Partnership programs disagreed with our conclusion 

that the Partnership programs are unlikely to result in Medicaid savings 

Agency and State 

Comments and Our 

Evaluation 

Page 43 GAO-07-231 Long-Term Care Partnership Program
and, like HHS, commented that our scenarios did not adequately account 

for the impact of asset transfers. California, Connecticut, and New York 

raised concerns about our methodology for estimating the financial impact 

of the Partnership program on Medicaid. California and Connecticut noted 

that we had excluded two Partnership policyholder survey questions from 

our analysis that they consider in their own analysis of the Partnership 

program. 

We maintain that the evidence suggests that the Partnership program is 

unlikely to result in savings for Medicaid, despite limited data and program 

experience. We agree with HHS and the four states with Partnership 

programs that Medicaid savings could result from those individuals who 

would have transferred assets in the absence of the Partnership program. 

However, our scenarios suggest that the savings associated with asset 

transfers are likely to offset the potential costs associated with 

policyholders who would have purchased traditional long-term care 

insurance in the absence of the Partnership programs. Further, the 

assumptions used by California, Connecticut, and Indiana to predict 

savings could underestimate the percentage of Partnership policyholders

that represent a cost to Medicaid and overestimate the percentage that 

represent savings to Medicaid. We did not provide an overview of the 

literature on asset transfers in our draft report because, as we noted in our 

March 2007 report, the evidence on the extent to which individuals 

transfer assets to become financially eligible for Medicaid coverage for 

long-term care is generally limited and often based on anecdote.67 We did

not comment on states’ analyses of their experience with the Partnership 

programs because, according to our analysis, their methodology overstates

potential savings and understates potential costs.

In appendix II of our draft report we acknowledged that some savings 

could result for Medicaid if, in the absence of a Partnership program, an 

individual would have self-financed his or her long-term care and 

transferred assets. We also acknowledged how a Partnership program can 

result in Medicaid savings if, in the absence of the Partnership program, an 

individual would have purchased a traditional long-term care insurance 

policy and transferred assets that were at least equal to the value of the 

traditional long-term care insurance policy. However, our analysis 

suggests that these savings would be limited to those individuals who, 

prior to requiring long-term care, would have transferred assets to become 

Impact of Asset Transfers on 

Medicaid 

 67See GAO-07-280. 

Page 44 GAO-07-231 Long-Term Care Partnership Program
eligible for Medicaid in the absence of the Partnership program. Further, 

the larger percentage of policyholders who represent a potential cost to 

Medicaid are likely to offset savings attributable to asset transfers. 

While the literature on the extent of asset transfers is generally limited and 

anecdotal, in March 2007, we published a report that included an analysis

of asset transfers by nursing home residents using HRS data. We 

complemented that analysis by examining a sample of Medicaid 

applications in three states to identify the extent of asset transfer activity.68

Both of these analyses suggested that about 10 to 12 percent of individuals

transferred assets before applying for Medicaid, and the median amount 

transferred based on analysis of the HRS data and state Medicaid 

applications was $1,239 and $15,152, respectively.

69 The relatively low 

incidence of asset transfers and the small amounts transferred relative to

the costs associated with long-term care suggest that the impact of asset 

transfers on Medicaid may be limited. While the results of this study are 

not specific to Partnership policyholders, we found no other credible 

evidence suggesting that Partnership policyholders would transfer 

sufficient assets to offset the costs to Medicaid associated with the large

number of individuals who would have purchased traditional long-term 

care insurance in the absence of the Partnership program. Also, although

the overall impact of DRA on Medicaid eligibility is uncertain, DRA 

reduces the opportunity for people to transfer assets in order to become 

Medicaid eligible by increasing the period Medicaid programs can “lookback” at an individual’s assets to 5 years. In response to HHS’ comments 

about asset transfers, we have amended our draft report to make the 

discussion of asset transfers more prominent in the body of our report and 

to include reference to our March 2007 study. 

California, Connecticut, and New York raised concerns about our 

methodology for estimating the financial impact of the Partnership 

program on Medicaid. California and Connecticut noted that we had 

excluded two Partnership policyholder survey questions from our analysis

that they consider in their own analysis of the Partnership program. These 

questions asked Partnership policyholders whether they would have 

Methodology for Assessing 

Medicaid Savings 

 68See GAO-07-280. 

69The HRS analysis was based on transfers during the 4 years prior to nursing home entry

by elderly nursing home residents who were Medicaid-covered. The analysis of a sample of

Medicaid applications in three states was based on transfers during the 3-year look-back

period by approved Medicaid applicants. 

Page 45 GAO-07-231 Long-Term Care Partnership Program
transferred assets to become eligible for Medicaid in the absence of the 

program and whether the Partnership program influenced their decision to 

buy long-term care insurance.70

We maintain that our methodology is sound and that the methodology 

California, Connecticut, and Indiana use underestimates the potential for

Medicaid costs and overestimates the potential for Medicaid savings. We 

relied on a question that asked Partnership policyholders whether they 

would have purchased traditional long-term care insurance in the absence 

of the Partnership program.71 We disagree with California, Connecticut, 

and Indiana regarding the appropriateness of including additional survey 

information because of concerns about ambiguous wording and these 

states’ assumption that policyholders’ responses can be used to predict the 

likelihood of future asset transfers. We did not present the states’ analyses 

for evaluating Medicaid spending in our draft report because we believe 

the states’ analyses overstate potential savings and understate potential 

costs. 

In our analysis, we estimated that about 80 percent of policyholders would 

have purchased traditional long-term care insurance in the absence of the 

program, and we estimated that these individuals generally represented a 

potential cost to Medicaid. Our 80 percent estimate was based on analysis 

of the survey question about how Partnership policyholders would have 

financed their long-term care in the absence of the Partnership program. 

The methodology that California, Connecticut, and Indiana use to estimate 

potential costs is based on a policyholders’ response to the following 

criteria, obtained from three survey questions: 

1. The policyholder would have purchased traditional insurance in the 

absence of the Partnership program; 

2. the Partnership program had no influence on the policyholders’ 

decision to purchase insurance; and

 70One survey question asks: “Did the [partnership program] influence your decision to 

purchase long-term care insurance? (yes or no).” The other asks: “Why did you decide to

purchase long-term care insurance?” Eight response options are provided, one being “As an

alternative to transferring assets to qualify for Medicaid.” 

71The California, Connecticut, and Indiana surveys asked: “Would you have purchased longterm care insurance in the absence of the Partnership?” (yes or no). 

Page 46 GAO-07-231 Long-Term Care Partnership Program
3. the policyholder would not have transferred assets in the absence of 

the Partnership program. 

By adding the two additional criteria to determine whether an individual

represents a potential cost to Medicaid, the states’ estimate of the 

percentage of policyholders who fell into this category was more 

restrictive than ours. We have several concerns with the wording of the 

survey questions used to define the additional two criteria. In addition, 

according to our analysis, the criteria that define costs are not correctly 

specified because there are some circumstances when the second 

criterion would represent a cost to Medicaid whether or not the 

Partnership program had an influence on the policyholder’s decision to 

purchase insurance. 

The wording of the survey question about whether the Partnership 

program influenced the policyholder’s decision to purchase insurance was 

not specific with regard to how the decision was influenced. In particular,

the Partnership programs’ influence could have been to influence the 

policyholder to purchase a different benefit package, to change the timing

of the policyholder’s purchase, or to change the policyholder’s decision to

purchase at all. Given the ambiguity of the question, it is not clear how a 

response should be interpreted. Moreover, how this question is interpreted 

could influence the outcome of an analysis of the likely impact of the 

Partnership program on Medicaid spending. Our analysis suggests that 

even if the Partnership program influenced policyholders to purchase 

enhanced benefits, the Partnership program still represented a potential

cost, just a smaller cost. Adding this criterion incorrectly narrows the 

number of policyholders who represent potential costs to Medicaid. 

We also disagree with the states’ assumption that policyholders’ responses 

to the asset transfer question can be used to approximate the extent to 

which individuals would or would not transfer all of their assets in the 

future and—in the absence of the program—become eligible for Medicaid.

The respondents were asked about events that are unlikely to occur for 15 

to 20 years, and to speculate on what their actions would be in the future if 

there was no Partnership program. California, Connecticut, and New York 

reported that about 25 percent of respondents said they would have 

transferred assets to become eligible for Medicaid. All of these individuals

are excluded from the pool of policyholders who represent a potential cost 

to the program in the state cost estimates. The assumption that all of these

individuals would have transferred all of their assets is inconsistent with 

our March 2007 report regarding the incidence of asset transfers and 

amount of assets transferred for the purposes of becoming eligible for 

Page 47 GAO-07-231 Long-Term Care Partnership Program
Medicaid. We agree that some individuals would have transferred assets in 

the absence of the program, but do not agree that this question provides 

an adequate measure of the extent to which it occurs. Therefore, we 

believe using the responses to this question may overstate the extent to

which respondents would actually transfer all of their assets. 

We have similar concerns with the methodology California, Connecticut,

and Indiana used to estimate savings, because it is based on the same 

three questions, two of which we view as inadequate. We assumed in our 

scenarios that individuals who would have self-funded their long-term care

without insurance were likely to be budget neutral, but acknowledged 

there were several circumstances that would cause these individuals to 

become a potential source of savings. However, we did not attempt to 

quantify the percentage who would become a source of savings because of 

data limitations and because the savings were likely to be outweighed by 

the larger percentage of policyholders who likely represented a cost to the

program. In contrast, California, Connecticut, and Indiana consider a 

policyholder to represent savings if: 

1. the policyholder would have purchased a Partnership policy as an 

alternative to transferring assets; and

2. (a) the Partnership program influenced their decision to purchase 

insurance, or 

(b) the policyholder would not have purchased long-term care 

insurance in the absence of the Partnership program. 

As we noted in the discussion above regarding the states’ methodology for 

estimating Medicaid costs, we disagree with the reliance on the asset 

transfer question as a measure of the extent to which individuals would 

have transferred assets. We also believe it was incorrect to predict 

Medicaid savings for those respondents who said the Partnership program 

influenced their decision to purchase a policy. Even if the Partnership 

program influenced the policyholder’s decision to purchase enhanced 

benefits, our analysis suggests the Partnership program would not result in 

savings but would rather result in a reduction of costs to Medicaid. 

New York commented that our analysis was not applicable to their state.

They cited preliminary results of a 2006 survey that estimated the number 

of recent Partnership policyholders who would have financed their care 

with a traditional policy in the absence of the Partnership program. Their 

estimates were considerably lower than the 80 percent we estimated based 

on our results from California, Connecticut, and Indiana. New York used 

Page 48 GAO-07-231 Long-Term Care Partnership Program
different questions in their survey than California, Connecticut, and 

Indiana.72 As such, their results were not comparable to those of the other 

states. We believe New York’s question was less direct for the purposes of 

our analysis than the question used by California, Connecticut, and 

Indiana in their survey of Partnership policyholders. New York’s question 

asked policyholders—using a multiple choice format—how they would 

pay for long-term care in the future, if they had not purchased a 

Partnership policy. One of the possible responses was that they would 

purchase traditional insurance. This required policyholders to speculate 

about future behavior, and to respond to a more complex question and 

answer format. California, Connecticut, and Indiana asked directly about 

decisions made in the past—whether the Partnership policyholder would 

have purchased long-term care insurance in the absence of the Partnership 

program, with a simple yes or no response. 

California, Connecticut, and New York also commented that our finding 

that Partnership policyholders tended to have more extensive benefits 

than traditional policyholders was inconsistent with our scenarios that 

assumed that the policyholder would have purchased comparable benefits

in the absence of the Partnership program. Assuming comparable benefits 

in our scenarios allowed us to assess the impact of the Partnership 

program on Medicaid savings in a simpler framework. As we explain in

appendix II, some Partnership policyholders may have more coverage than 

if they had purchased a traditional policy. We show that if the value of the 

insurance policy is less than the amount of assets owned by the 

policyholder, the person will still take longer to become Medicaid eligible 

with a traditional long-term care insurance policy with a lesser value than 

with a Partnership policy. However, the amount of additional time it would 

take for the individual with a traditional policy to become eligible for 

Medicaid would be less than if the two policies had the same amount of 

benefits. 

Impact on Medicaid Savings of 

Purchasing Different Levels of 

Benefits by Partnership and 

Traditional Policyholders 

HHS, the Indiana Partnership program, and the New York Department of 

Insurance provided us with technical comments and clarifications, which 

we incorporated as appropriate. 

 72Whereas California, Connecticut, and Indiana surveys asked: “Would you have purchased

long-term care insurance in the absence of the Partnership?” (yes or no), New York’s

survey asked: “Had you not purchased Partnership insurance, what would be your plan to 

pay for LTC you may need?” Seven response options were provided, one being “I would 

purchase non-Partnership long-term care insurance.” 

Page 49 GAO-07-231 Long-Term Care Partnership Program
As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

issue date. At that time, we will send copies of this report to the Secretary 

of Health and Human Services, congressional committees, and other 

interested parties. We will also make copies available to others upon 

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov. 

If you or your staff have questions about this report, please contact me at

(202) 512-7119 or dickenj@gao.gov. Contact points for our Office of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made key contributions to this report are 

listed in Appendix IV. 

John E. Dicken 

Director, Health Care 

Page 50 GAO-07-231 Long-Term Care Partnership Program
Appendix I: Dat

LongDemo

a and Methods for Analysis of 

Term Care Insurance Benefits and 

graphics 

Page 51 GAO-07-231

Appendix I: Data and Methods for Analysis of 

Long-Term Care Insurance Benefits and 

Demographics 

In this appendix we describe the data and methods that we used to 

examine the benefits of Partnership and traditional long-term care 

insurance policyholders. We also describe the data and methods we used 

to assess income, assets, age, gender, and the marital status of Partnership 

program long-term care insurance policyholders, traditional long-term 

care insurance policyholders, and people without long-term care 

insurance. 

Examining Long-Term 

Care Insurance Benefits 

Purchased by Partnership 

Policyholders and 

Traditional Long-Term 

Care Insurance 

Policyholders 

We examined the benefits purchased by Partnership long-term care 

policyholders and the benefits purchased by traditional long-term care 

policyholders, using 2002 through 2005 data from two sources. Our data 

source for the benefits purchased by Partnership policyholders was the 

Uniform Data Set (UDS)—a data set supplied to us by each of the four 

states with Partnership programs that contained information on all 

Partnership policyholders who had purchased long-term care Partnership 

policies. The UDS was developed collaboratively among the four states 

with Partnership programs, insurers, the National Program Office at the 

Center on Aging, University of Maryland, and the Program Evaluator, 

Laguna Research Associates. The UDS contains information submitted by 

insurers with Partnership policyholders and summarized by each of the

states on a quarterly basis. Insurers are required to submit data to the state 

Partnership program on: (1) newly insured people,1

 (2) people who 

dropped their policies, (3) applicants for insurance who were assessed for 

long-term care insurance eligibility, and (4) the amount of payments for 

services and utilization. We used the data set for newly insured people to 

analyze the benefits purchased by Partnership policyholders. These data

contain information on daily benefit amounts, the length of the benefit

period, the length of the elimination period, and the type of coverage, 

including whether the coverage is comprehensive coverage or for facilities 

only. To obtain data about the benefit characteristics of insurance policies 

purchased by traditional long-term care policyholders, we surveyed five 

large insurance companies selling long-term care insurance. We selected 

these five insurance companies on the basis of the total number of policies 

and amount of annualized premiums in effect in the individual market, as 

of December 31, 2004. The five insurance companies were AEGON USA,2

Bankers Life and Casualty Company, Genworth Financial, John Hancock 

 1

This part of UDS data contains information on each person who applied for a Partnership

policy and who passed the underwriting process.

2

AEGON USA left the long-term care insurance market on March 31, 2005. 

Long-Term Care Partnership Program
Appendix I: Data and Methods for Analysis of 

Long-Term Care Insurance Benefits and 

Demographics 

Life Insurance Company, and Metropolitan Life Insurance Company. All 

five insurance companies sold policies in the individual market, and two of 

the five carriers—John Hancock Life Insurance Company and

Metropolitan Life Insurance Company—were also among the five largest 

carriers that sold products in the group market. We requested data on the 

number of enrollees in the individual market who chose selected benefit 

options for new long-term care insurance policies sold from July 1, 2002, 

to March 31, 2005. We collected data on coverage types, daily benefit 

amounts, elimination periods, benefit periods, inflation protection options, 

and optional benefits offered. 

Examining Income and 

Asset Distributions Among 

Partnership Policyholders 

and Comparison 

Populations in Two 

Partnership States and 

Nationally 

We used three data sources to examine the income and assets of 

Partnership policyholders, traditional long-term care insurance 

policyholders, and people without long-term care insurance: Partnership 

program surveys of Partnership policyholders; the 2004 American 

Community Survey (ACS); and the 2004 Health and Retirement Study 

(HRS). 

To examine the household income and household assets of Partnership 

policyholders, we used data from Partnership program surveys of a sample 

of Partnership policyholders at the time they first purchased insurance 

coverage. We restricted our analysis of the income and assets of 

Partnership policyholders to surveys conducted by the California and 

Connecticut Partnership programs because the Indiana Partnership 

program’s data were not sufficiently detailed to include in our analysis, 

and the New York Partnership program was not able to provide us with 

data from recent years. In addition, because the surveys were of a sample 

of Partnership policyholders—40 percent of Partnership policyholders in

California and 50 percent of Partnership policyholders in Connecticut—we 

increased the number of observations by analyzing more than 1 year of 

data. We included data from 2003 and 2004 for California, and data from 

2002 through 2005 for Connecticut. 

To approximate the household income of individuals without long-term 

care insurance in California and Connecticut, we used the 2004 ACS. 

Household asset information was not available in these states. The ACS is 

conducted by the Census Bureau, as a part of the Decennial Census 

Program, and provides information about the characteristics of local 

communities. The ACS publishes social, housing, and economic 

characteristics for demographic groups, including household income and 

assets, covering a broad spectrum of geographic areas in the United States

and Puerto Rico. It is the largest household survey in the United States,

Page 52 GAO-07-231 Long-Term Care Partnership Program
Appendix I: Data and Methods for Analysis of 

Long-Term Care Insurance Benefits and 

Demographics 

with an annual sample size of about 3 million. In order to make 

appropriate comparisons between the income data from the California and 

Connecticut Partnership program surveys and the ACS, we restricted our 

calculations in the income analysis to respondents who were aged 55 and 

over, when we calculated our household income ranges.3

 In our analysis, 

we used the ACS state population data as a proxy for people without any 

long-term care insurance. Approximately 12 percent of people over age 55

have long-term care insurance, so our measure is likely to contain 

approximately 88 percent of people without long-term care insurance. 

To examine national-level data on household income and assets of 

individuals with and without long-term care insurance, we used 

information from the 2004 HRS, the most recent year available for that 

survey data set. The HRS is a longitudinal national panel survey of 

individuals over age 50, and is sponsored by the National Institute on 

Aging and conducted by the University of Michigan. The HRS includes 

individuals who were not institutionalized at the time of the initial 

interview and tracks these individuals over time, regardless of whether 

they enter an institution. Researchers conducted the initial interviews in 

1992 in respondents’ homes and conducted follow-up interviews over the 

telephone every second year thereafter. HRS questions pertain to physical

and mental health status, insurance coverage, financial status (including 

household income and assets), family support systems, employment 

status, and retirement planning. We used data from the HRS to calculate 

the household income distribution nationally for people with long-term 

care insurance and for people without long-term care insurance. To make

our income analysis of HRS data consistent with the income analysis of 

Partnership policyholders and individuals without long-term care 

insurance in California and Connecticut, we restricted the HRS income 

analysis to individuals age 55 and over. The HRS data for people with 

insurance do not differentiate between Partnership and traditional 

insurance policyholders and approximately 2 percent of people with longterm care insurance nationwide have Partnership policies. Therefore, 

although the HRS data may contain a small number of Partnership 

policyholders, about 98 percent of all long-term care policyholders are 

likely to have traditional long-term care insurance. 

 3

We restricted our analysis of income to people age 55 and older because long-term care

policies tend to be purchased by people in their late 50s or early 60s, and people in this age

group may have a different level of income compared to the average for the population as a

whole. 

Page 53 GAO-07-231 Long-Term Care Partnership Program
Appendix I: Data and Methods for Analysis of 

Long-Term Care Insurance Benefits and 

Demographics 

To compare the age, gender, and marital status of Partnership 

policyholders and other populations in Partnership states and nationally, 

we used data from the UDS from 2002 through 2005 and the HRS data from

2004. The UDS data contain information on Partnership policyholders, 

while the HRS was used to calculate estimates for traditional 

policyholders and for those people without long-term care insurance. 

We took several measures to ensure the reliability of the data used in this 

report. For the UDS and Partnership policyholder surveys conducted by

the states with Partnership programs, we interviewed the officials at the 

state offices familiar with these data in order to establish whether the data 

were reliable and suitable for the purposes of our report. For the GAO 

survey of traditional long-term care insurance carriers, we interviewed 

each of the carriers about their data to ensure the accuracy and reliability 

of the data provided. For the ACS and HRS data sets, we collected and 

examined the data documentation and sought information from the 

providers of the data. In addition, we took steps to ensure that the data 

were valid and within reasonable ranges. To do this, where appropriate,

we examined the distribution of our key variables, calculating estimates of 

central tendency, ranges, and frequencies, missing values, and sample size. 

We determined that these data sets were sufficiently reliable for the 

purposes of this report. 

Examining Demographic 

Characteristics—Age, 

Gender, and Marital 

Status—of Partnership 

Policyholders and Other 

Populations in Partnership 

States and Nationally 

Data Reliability 

We performed our work from September 2005 through May 2007 in 

accordance with generally accepted government auditing standards. 

Page 54 GAO-07-231 Long-Term Care Partnership Program
Appendix II: E

Assumptio

Scenar

xplanation of the Simplifying 

ns Used in the Illustrative

ios 

Page 55 GAO-07-231

Appendix II: Explanation of the Simplifying 

Assumptions Used in the Illustrative 

Scenarios 

To analyze the impact of the Partnership programs on Medicaid, we used

scenarios that are illustrative of the options individuals have to finance 

their care. This appendix provides additional information on the 

construction of the three scenarios and how adjusting the simplifying 

assumptions affects the length of time it takes for the individual to become 

eligible for Medicaid in the scenarios. 

Illustrative Scenarios for 

Time Taken to Become 

Eligible for Medicaid 

We developed three illustrative scenarios based on the three basic options 

that are available to an individual for financing his or her long-term care: 

(1) self-financing without any long-term care insurance, (2) financing using 

traditional long-term care insurance, and (3) financing using Partnership 

long-term care insurance. For illustrative purposes, our scenarios are 

based on an individual who owns assets worth $300,000. If the individual 

has a long-term care insurance policy, this policy covers 3 years of nursing 

facility care at a cost of $70,000 per year: that is, the policy covers $210,000 

of nursing facility care costs. We then used the scenarios to compare the 

time it would take for the individual to become eligible for Medicaid using 

each of the three financing options.1

• Self-financing Without Any Long-term Care Insurance 

(Scenario C): The calculations underlying the self-financing scenario are 

the simplest. If the individual self-finances in the absence of the 

Partnership program, the individual pays for his or her own care, 

essentially spending his or her assets down to Medicaid eligibility 

thresholds before becoming eligible for Medicaid. In this case, the number 

of years it takes for the individual to become eligible for Medicaid equals 

the total assets2

 divided by the cost of a year of nursing facility care. In our 

example, this is $300,000 in assets divided by $70,000 in nursing facility 

costs per year, or about 4.3 years until the individual is eligible for 

Medicaid. The equation for this calculation can be expressed as 

Equation 1: Self-financing time to Medicaid 

= Assets / cost per year 

 1

We used constant dollars in our scenarios. This means that the purchasing power of 

dollars in our scenarios is constant over time. We also hold the individual’s assets at a fixed 

dollar amount over time. 

2

In our illustrative scenarios, we assume the individual spends his or her assets to zero. In

other words, we disregard the effect of Medicaid allowing beneficiaries to retain some 

assets. We address the effect of adjusting this assumption in this appendix. 

Long-Term Care Partnership Program
Appendix II: Explanation of the Simplifying 

Assumptions Used in the Illustrative

Scenarios 

• Traditional Long-term Care Insurance (Scenario B): Next we 

calculated the time it would take to become Medicaid eligible if the same 

individual has a traditional long-term care insurance policy. In this 

scenario, the insurance policy pays for care up to the limits of the policy.

After the insurance policy is exhausted, the individual spends his or her 

own assets to pay for long-term care. Once the assets are exhausted, the 

individual is eligible for Medicaid. In our example, the individual has a 

traditional long-term care insurance policy worth 3 years of care in a

nursing facility or $210,000. The time to Medicaid in this example is 

$210,000 in insurance coverage plus $300,000 in assets, all divided by

$70,000 in nursing facility costs per year, or about 7.3 years. The equation 

for this calculation can be expressed as 

Equation 2: Traditional insurance time to Medicaid 

= (Insurance policy value + assets) / cost per year

• Partnership Long-term Care Insurance (Scenario A): Finally, we 

calculated the time it would take to become Medicaid eligible if the same 

individual has a Partnership policy. In this scenario, the insurance pays for 

care up to the limits of the policy, and then the individual has to selffinance using unprotected assets. Once those assets are exhausted, the 

individual is eligible for Medicaid because protected assets do not have to 

be spent on care. In a dollar-for-dollar model, the protected assets are 

equivalent to the value of the insurance policy. The time to become eligible 

for Medicaid in this example is $210,000 in insurance coverage plus 

$90,000 in unprotected assets, all divided by $70,000 in nursing facility 

costs per year or 4.3 years. The equation for this calculation can be 

expressed as 

Equation 3: Partnership insurance time to Medicaid 

= (Insurance policy value + unprotected assets) / cost per year 

Under the assumptions of our illustrative scenarios, with a dollar-fordollar policy, the sum of the insurance policy and the unprotected assets is

equal to total assets: the same as for the self-financing scenario. Therefore,

the time to Medicaid is the same for the individual in both the Partnership 

and self-financing scenarios, and it is greater if the individual purchases a 

traditional policy than if he or she purchases a Partnership policy. These 

relationships are shown graphically in the report in figure 1. 

Page 56 GAO-07-231 Long-Term Care Partnership Program
Appendix II: Explanation of the Simplifying 

Assumptions Used in the Illustrative

Scenarios 

Underlying our illustrative scenarios were several simplifying 

assumptions. When we adjusted these simplifying assumptions, we found 

that some resulted in no change, some resulted in accelerated Medicaid 

eligibility, and some resulted in delayed Medicaid eligibility. Overall, we 

believe that the survey data showing that 80 percent of Partnership 

policyholders would have purchased a traditional long-term care 

insurance policy in the absence of the Partnership program represent 

compelling evidence that, as currently structured, the Partnership 

programs are unlikely to result in Medicaid savings. 

While some of the 20 percent of Partnership policyholders who would 

have self-financed their care and become eligible for Medicaid may 

represent a source of savings, others may represent a source of increased

spending and still others will result in neither savings nor spending. We 

believe that in the aggregate the savings potential from the Partnership 

programs of these 20 percent of individuals is outweighed by the 

80 percent of individuals who will likely result in increased Medicaid 

spending. Specifically, we made the following simplifying assumptions in 

our scenarios and discuss the effect on our results of adjusting these 

assumptions: 

Evaluating the Effects of 

Adjusting the Assumptions 

Underlying the Illustrative 

Scenarios

• The individual depicted in the scenarios has assets and benefits 

that are typical of many individuals with long-term care insurance. 

The individual depicted in the scenarios has $300,000 in assets and 3 years 

of long-term care insurance—assets and benefits that are typical of many 

individuals with long-term care insurance. The individual also receives 

long-term care in a nursing facility with costs for a year of care of $70,000 

that are roughly equivalent to average nursing facility costs nationwide in

2004. In our example, the individual has assets of $300,000 and, in two of 

our scenarios, a long-term care policy worth $210,000. The cost of a year of 

nursing facility care is $70,000. As long as the individual has assets that are 

greater than the value of the insurance policy, we can insert any numbers 

into equations (1), (2), and (3), and the individual becomes eligible for 

Medicaid at the same time as with a Partnership policy and if he or she 

self-finances, but it takes longer if the individual has traditional insurance. 

• The individual spends eligible assets to zero as a condition for 

Medicaid eligibility. While states allow individuals to keep a small 

amount of assets, these assets are in addition to anything that needs to be

spent to become eligible for Medicaid. Including these assets has little 

impact on the scenarios since the individual can keep the same assets in 

all three scenarios, and these assets are outside of any spend-down 

requirement. Using our examples above, we decrease the assets in 

Page 57 GAO-07-231 Long-Term Care Partnership Program
Appendix II: Explanation of the Simplifying 

Assumptions Used in the Illustrative

Scenarios 

equations 1 and 2, and decrease the unprotected assets in equation 3 by

the amount of assets the individual is allowed to keep. We find that having

a traditional policy will still result in more years to Medicaid eligibility 

than having a Partnership policy or self-financing, and the Partnership and 

self-financing scenarios still result in the same time to Medicaid eligibility. 

• The individual purchases the same amount of insurance benefits 

under the Partnership and traditional long-term care insurance 

scenarios. While this is our simplifying assumption, we recognize that the 

Partnership policyholder might have more coverage than if he or she had 

purchased a traditional policy because of the extra benefit requirements of 

Partnership policies, such as inflation protection, that are not required of 

traditional policies. Provided the individual has assets that are no less than

the value of the insurance policies, the Partnership policyholder will still 

not take as long to reach Medicaid eligibility as he or she will with a 

traditional policy, although the difference is narrower than if the benefits 

are the same. For example, if we change the value of the benefits in the 

traditional policy to $150,000 (and keep the value of the Partnership policy 

at $210,000 and the value of assets at $300,000) the equation for the 

traditional policy becomes ($150,000 + $300,000)/$70,000, which is about 

6.4 years and is still longer than the approximate 4.3 years with the 

Partnership policy but less than the approximate 7.3 years expected if the

policies in the traditional and Partnership scenarios were the same. 

• The individual has income below Medicaid eligibility thresholds. We 

made this assumption because Medicaid income eligibility thresholds vary 

across states. However, increasing the individual’s income up to Medicaid 

eligibility thresholds has no impact on the scenarios since the individual 

can keep the same income in all three scenarios. If the income exceeds 

Medicaid eligibility thresholds, the individual is ineligible for Medicaid in 

all three scenarios. 

• The individual’s assets are greater than the value of the insurance

policy. We assumed that most individuals would have assets that are 

worth more than the value of the insurance policy. Individuals have a

disincentive to purchase long-term care insurance with a value exceeding 

their assets because it might increase their premium unnecessarily. While 

we do not have information about the amount of assets that Partnership 

policyholders have at the time they use their benefits, available evidence 

suggests that most individuals do not overinsure the value of their assets 

at the time of purchase, though their status could change over time. Survey 

data from California and Connecticut show that while 53 percent of 

Partnership policyholders have more than $350,000 worth of household 

Page 58 GAO-07-231 Long-Term Care Partnership Program
Appendix II: Explanation of the Simplifying 

Assumptions Used in the Illustrative

Scenarios 

assets at the time of purchase, only about 32 percent of these Partnership 

policyholders have more than 5 years of coverage equal to $350,000.3

However, it is possible that some policyholders will spend some or all of 

their assets by the time they require long-term care and will have more 

insurance than assets. If we modify our example above, and assume the 

individual’s insurance policy has greater value than the assets in our 

scenarios, we see that with a Partnership policy, the individual will still 

become eligible for Medicaid sooner than with a traditional policy, but 

later than if he or she self-financed. Therefore, for the 20 percent of 

individuals who would have self-financed their care in the absence of a

Partnership program, and who have more insurance than assets, the 

Partnership program results in savings to Medicaid. Specifically, if we 

assume the insurance policy is worth $210,000, and the individual has 

assets equal to $150,000, we obtain the following results from our 

scenarios: 

Self-finance: assets / cost per year = $150,000 / $70,000 = 2.1 years 

Traditional insurance: (insurance + assets) / cost per year = ($210,000 +

$150,000) / $70,000 = 5.1 years 

Partnership insurance: (insurance + unprotected assets) / cost per year =

($210,000 + 0) / $70,000 = 3 years 

• The individual is unmarried. In our illustrative scenarios, we assume 

the individual is unmarried—the most likely marital status of 

policyholders at the time nursing home care is required. On the other 

hand, if the individual is married, Medicaid allows spouses to keep a 

certain amount of jointly owned assets (i.e., half of the value of the assets

up to a maximum amount that was approximately $100,000 in 2007). In

general, the spousal exemption that is deducted from assets would be the 

same across all three scenarios and would not affect the basic 

relationships among the three scenarios unless the net assets after the 

spousal exemption are of less value than the insurance policy. If the 

 3

Some of these individuals may be married and the household assets may be shared. In

order for the assets to be fully protected for married individuals, both individuals need to 

have a Partnership policy. Partnership policies are not transferable, and if a surviving 

spouse of a Partnership policyholder requires long-term care and does not have a 

Partnership policy, the assets would not be protected. 

Page 59 GAO-07-231 Long-Term Care Partnership Program
Appendix II: Explanation of the Simplifying 

Assumptions Used in the Illustrative

Scenarios 

amount of insurance exceeds the value of assets net of the spousal 

exemption, there is a potential for Medicaid savings for a Partnership 

policyholder who would have self-financed. If that individual would have 

purchased a traditional policy, Medicaid spending would increase. Our 

scenarios illustrate this point. If we assume the individual is married and 

the spouse has already taken the spousal exemption such that the 

individual’s assets are $300,000, the results do not change and our original

formulas remain intact. Alternatively, if we assume the individual’s spouse 

is entitled to half of the household assets of $300,000, up to the maximum 

of $100,000, then our results do change and the policyholder becomes 

overinsured. In this instance, if the individual self-finances, the spousal 

exemption would be $100,000, leaving the individual with $200,000 in 

assets. If the individual has traditional insurance, the spouse is also 

entitled to $100,000. However, if the individual has a Partnership policy, 

$210,000 of the assets are protected, leaving $90,000 in unprotected assets. 

The spouse would be entitled to half of the $90,000, or $45,000. The 

formulas are presented below. 

Self-finance: assets / cost per year = $200,000 / $70,000 = 2.9 years 

Traditional insurance: (insurance + assets) / cost per year = ($210,000 +

$200,000) / $70,000 = 5.9 years 

Partnership insurance: (insurance + unprotected assets) / cost per year =

($210,000 + $45,000) / $70,000 = 3.6 years 

• The individual uses the same long-term care services in all three

scenarios. An individual who self-finances might have an incentive to use 

fewer or less expensive services than if he or she were insured by either a 

Partnership or traditional policy because the individual would be paying

for services. If the individual uses fewer services when self-financing, the

assets last longer, enabling the individual to pay for care longer and 

postponing Medicaid eligibility. In this situation, the cost per year of selffinancing would be smaller than if he or she had either Partnership or 

traditional insurance. This would result in an increase in the time it takes 

to become Medicaid eligible for a person who self-finances relative to 

what it would have taken if he or she had purchased either a Partnership 

or traditional insurance policy. 

Page 60 GAO-07-231 Long-Term Care Partnership Program
Appendix II: Explanation of the Simplifying 

Assumptions Used in the Illustrative

Scenarios 

• The individual does not save premiums paid if he or she would have 

self-financed their care such that assets are equal in all three 

scenarios. We made this assumption to make our scenarios easier to 

understand. Premium payments may be substantial—potentially as much 

as $3,000 per year—so it is possible that if the individual would have saved 

their premium payments by instead self-financing his or her long-term 

care, the individual would have more assets than either Partnership or 

traditional policyholders would when they begin to use their benefits. If 

this is the case, by self-financing, the individual would have more assets to 

pay for long-term care before becoming eligible for Medicaid, which would 

delay the time to Medicaid. Therefore, individuals who purchase 

Partnership policies would have saved their premium dollars and not 

purchased long-term care insurance represent a potential cost to the 

Medicaid program. Using our examples above and assuming 15 years of 

payments saved at $3,000 per year, by self-financing, the individual would 

save $45,000 in additional assets that would otherwise have been spent on

Partnership premiums. Therefore, the self-financing individual has assets 

of $345,000. Using our equation we see that the time to Medicaid is delayed 

($345,000 / $70,000 = 4.9 years) if the individual self-finances, while 

relative to this option a Partnership policy would accelerate the 

individual’s time to Medicaid by 0.6 years. In this case, the Partnership and 

traditional policy scenarios would not change because premiums are 

required to be identical for the Partnership and traditional polices. 

• The individual is equally likely to transfer assets in all three 

scenarios. An individual who self-finances or uses traditional insurance 

might be more likely to transfer assets to a spouse or other family 

members than he or she would with a Partnership policy, because assets 

are protected under Partnership policies. If the individual self-finances and 

transfers assets, he or she would likely take less time to become eligible 

for Medicaid than with a Partnership policy (and assuming no transfers 

with the Partnership policy), resulting in Medicaid savings. If the 

individual would have purchased traditional insurance, the amount of 

assets transferred would have to be equal to at least the value of the 

insurance policy purchased in order for the Partnership program to result 

in Medicaid savings. If the amount of asset transfer is less than the value of

the insurance policy, the increase in Medicaid spending attributable to the 

Partnership program would be less than without the asset transfer, but 

would still be an increase. 

Page 61 GAO-07-231 Long-Term Care Partnership Program
Appendix III: Comments from the Department of Health & Appendix III: Comments from the Human Services

Department of Health & Human Services 

Page 62 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, Appendix IV Connecticut, Indiana, and New York : Comments from the Four States 

with Partnership Programs, California, 

Connecticut, Indiana, and New York 

Page 63 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 64 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 65 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 66 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 67 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 68 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 69 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 70 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 71 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 72 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 73 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 74 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 75 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 76 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 77 GAO-07-231 Long-Term Care Partnership Program
Appendix IV: Comments from the four 

 states with Partnership programs, California, 

Connecticut, Indiana, and New York 

Page 78 GAO-07-231 Long-Term Care Partnership Program
Appendix V: 

A

GAO Contact and Staff 

cknowledgments 

Page 79 GAO-07-231

Appendix V: GAO Contact and Staff 

Acknowledgments 

John E. Dicken (202) 512-7119 or dickenj@gao.gov

Christine Brudevold, Assistant Director; Krister Friday; Michael Kendix; 

Julian Klazkin; Elijah Wood; and Suzanne Worth made key contributions 

to this report. 

Long-Term Care Partnership Program

GAO Contact 

Acknowledgments 

(290497) 
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