Emerging Private LTC Financing Innovations The Second National Medicaid Congress June 14, 2007 Richard P. Nelson Erickson & Sederstrom, P.C. Nebraska Initiative

Agenda  Nebraska’s LTC Reform  “Own Your Future” Campaign  Answers4Families  LTC Savings Plan  LTC Insurance Partnership Program

Nebraska’s LTC Reform  Medicaid shapes Nebraska’s LTC services  Funds 57% of nursing home residents  Institutional bias  Underdeveloped community/home LTC infrastructure  40% of the Medicaid budget is spent on LTC services  Serves 9% of the Medicaid population  25% of the Medicaid budget is spent on LTC facilities  Serves 4% of the Medicaid population

Nebraska’s LTC Reform Projected population growth

Nebraska’s LTC Reform  Awareness  “Own Your Future” Campaign  Answers4Families  Advantage  LTC Savings Plan  LTC Insurance Partnership Program Strategy: Encourage Nebraskans to provide for their own LTC services as a part of their retirement planning

“Own Your Future” Campaign  Sponsored jointly by State and US HHS  Launched at Thanksgiving 2006  Emphasis on family conversations/planning  Governor’s letter to every household with a resident years old  Offered LTC planning kits  12 month media campaign Awareness

“Own Your Future” Campaign Awareness Letters Mailed Campaign PhaseTool Order Kits Response Rate 237,170Nebraska (Phase III)14, % 6,826,893Total Phase III (6 states)343, % 1,589,000Total Phase II (4 states)101, % 2,105,555Total Phase I* (5 states)187, % [All Other States 21,858] 10,521,448Grand Total (of 3 Phases)632, % Phase III Campaign Activity *Based on actual kit counts, prior to removing duplicates (to be comparable with other phases) Phone and BRC orders as of Web orders as of

Awareness Answers4Families Awareness

Answers4Families Awareness

Answers4Families Awareness

Nebraska’s LTC Savings Plan Advantage

Nebraska’s LTC Savings Plan  Favorable State Income Tax Treatment  First in the nation  Enacted in 2006, LB 965 (Neb.Rev. Stat., Sections to )  Implemented for the 2006 tax year – barely  Available at participating banks and other chartered financial institutions and their subsidiaries Advantage

Nebraska’s LTC Savings Plan  Tax deductible contributions  $1,000 per person, $2,000 per joint return  Maximum lifetime contribution  $165,000 per person, indexed to inflation  Tax-free investment earning  Qualified individuals make tax-free Qualified withdrawals for LTC expenses and insurance  10% penalty for improper withdrawals  Tax-free ownership transfer to spouse or upon death Advantage

Nebraska’s LTC Savings Plan  Age 65 or disabled persons, incurring medically necessary LTC expenses  Proposed*: Any person incurring LTC expenses  Age 62, purchasing LTC insurance for themselves or their spouse  Proposed*: Age 50, including those for whom the taxpayer has an insurable interest Advantage Qualified Individuals *Proposed changes to the original qualifications in LB 965 (2006) are contained in LB 304 (2007) that is awaiting final passage at this writing.

Nebraska’s LTC Savings Plan  LTC expenses  Costs in a LTC facility  Costs of care at home  Person is unable to perform multiple basic life functions independently  LTC insurance premiums  Policy meets the requirements of the LTC Insurance Act Advantage Qualified Withdrawals

Nebraska’s LTC Savings Plan  Eligible medical expenses and LTC insurance premiums must exceed 7.5% AGI  LTC expenses must meet two eligibility tests  Chronically ill Substantial assistance for 2 or more ADLs Minimum 90 days in 12 month period Cognitive impairment Threat to health or safety requires substantial supervision  Plan of care prescribed by licensed health care practitioner Advantage Quick Comparison: IRS Medical Expense Deduction

Nebraska’s LTC Savings Plan  Tax deductible contributions for eligible persons  High deductible health plan  Higher contribution limits, no aggregate limit  Excludes persons qualified for Medicare  Tax-free growth  Tax-free withdrawals for eligible expenses  LTC expenses only for chronically ill with a prescribed plan of care Advantage Quick Comparison: IRS Health Savings Account

LTC Insurance Partnership Program Advantage  Shelters assets from Medicaid spend down requirements  Dollar for dollar shelter  Authorized as part of Nebraska’s LTC Savings Account law (2006)  Medicaid State Plan Amendment has been approved by CMS  On administrative hold pending CMS clarification  Qualifying inflation protection  Reciprocity

Conclusion  Competition for retirement/health planning dollars  LTC Savings Plan benefit  Favorable state income tax treatment  LTC Insurance Partnership Program will add another modest benefit  Medicaid asset shelter