Company Confidential

The Federal PartnershipMaking Long Term Care Insurance A Broader OptionUnderwritten by Genworth Life Insurance Company, and in New York, by Genworth Life Insurance Company of New York

©2005-2006 Genworth Financial, Inc. All rights reserved.

For Producer Use Only. Not To Be Shown To Or Used With Consumers.

38718 1/06/06

2Making Long Term Care Insurance Affordable For Producer Use Only. Not To Be Shown To Or Used With Consumers.

The following proposals to help families struggling with the cost of long-term care were tested:

• Tax incentives for purchasing long-term care insurance;

• Public-private partnerships between states and insurance companies;

• Tax credits for expanded family care; and

• Social insurance at the federal level.

Long-Term Care: Public Policy Solutions

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Tax Incentives Proposal

This proposal would provide federal tax incentives for the purchase of long term care. Some examples of tax incentives would be:

• A tax deduction allowing taxpayers to deduct a portion of the premium costs for a long-term care insurance policy.

• Allowing individuals to draw on IRAs, 401Ks or flexible spending accounts tax free for purchases of long term care insurance.

• This proposal will help encourage Americans to take control of planning their long term care needs, rather than relying on the Medicaid system for this care.

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Reasons why the tax incentive proposal was received favorably:• Provides motivation to plan for their long-term care needs.

• Those with employer-based retirement plans (IRA, pension, 401K) liked the ability draw on accounts without penalty to pay for the premium.

Concerns about tax incentive proposal:

• May only help those who could afford to purchase long-term care insurance at the expense of middle to lower income people;

• The amount of the tax deduction was not enough of an incentive; and

• Those without employer-based retirement programs felt they were at a disadvantage.

Tax Incentives Proposal: Perceptions

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This proposal would provide federal tax credits to family caregivers who provide long-term care services for loved ones. This caregiver tax credit would allow family members who are providing long term care services to a loved one to take a $3,000 tax credit for this care, which means they would be able to subtract this amount from any federal tax you owe. This proposal provides help for those families who cannot afford long term care insurance and who are bearing the burden of care themselves.

Caregiver Support Proposal

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Positive reactions to caregiver support proposal:•Provides support for families who want to help take care of their loved one’s long-term care needs.

Mixed reactions to caregiver support proposal:•Found difference between a tax credit and a tax deduction confusing;•Among higher income participants, $3000 not seen as enough of an incentive; and •Encourages others to help take care of family members, but doesn’t increase the likelihood of personal planning for long-term care needs.

Caregiver Support Proposal

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This proposal would be modeled on Social Security and Medicare, and be a form of public insurance. The benefits for current beneficiaries would be financed from payroll taxes on current workers. Under this approach, workers would “pay into” the system during their working years and draw benefits out of the system when they need long-term care in their elderly years. Financing long-term care would be built upon social pacts between successive generations of workers. This proposal allows the risk of long-term care to be shared through a social insurance system, like Medicare, which is supported by taxes and benefits that are available to all when they need it.

Social Insurance Proposal

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This program will support a partnership between State government and long term care insurers to help people finance long-term care. Under this program, consumers would be able to purchase State-approved private insurance policies to cover the first one to four years of their long term care costs.

After this coverage has been exhausted, an individual may apply for Medicaid. Individuals will be allowed to keep additional assets that would not be subject to spend down requirements and still qualify for Medicaid. This enables Americans to have access to long term care insurance with the security of being backed by both the public and private sector.

Partnership Programs

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• Partnership programs were first developed in the early 1990’s

• At that time, four states, CA, NY, IN & CT opted-in to the pilot program

• The programs implemented in the original four states varied in a number of areas, including their approach to Medicaid asset protection

• In 1993 as part of the Omnibus Budget Reconciliation Act (OBRA-in particular the Waxman Amendment), federal law prohibited the further expansion of long term care insurance partnerships to additional states

History and Evolution of Partnership

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What is the New Legislation?

•The Deficit Reduction Omnibus Reconciliation Act of 2005 was passed by Congress and signed into law on February 8, 2006. It is expected to reduce Federal Medicaid spending by approximately $40 billion over the next five years.

•This legislation only ENCOURAGES the expansion of Long Term Care Partnership programs to new states

•This continues to strengthen the Medicaid “safety net” as a protection for low-income Americans

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What is a Partnership plan as described in the new legislation?

New Partnership plan key components:•Policies must be tax-qualified

•Policies must have certain inflation protection requirements

•Ages 0 to 60: Compound inflation protection required

•Ages 61 to 75: some form of inflation protection is required (simple permitted)

•Age 76 plus: no requirements on inflation

•Dollar-for-dollar Medicaid asset protection

•Partnership plans must meet specified requirements of the NAIC 2000 Long Term Care Insurance Model Regulations and Model Act

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Your Top 3 Questions

When can I start selling a Partnership plans in my state? Your state must opt into the program by amending its Medicaid plan with the U.S. Department of Health and Human Services, and that process is currently taking place as states opt to participate. Please remember that in most states the new Partnership plan may not be available until sometime in 2007 or later. Furthermore, some states may choose not to participate in the program.  If I have current prospects, should I wait to sell them a Partnership policy? Absolutely not. Some states may choose not to participate in the Partnership program since it is completely voluntary. If you wait, your clients’ insurability may be compromised and their advancing age may adversely impact their premium. Continue selling and covering lives.  What is the impact on existing policyholders? Can they switch to the Partnership program?Guidelines on permitted exchanges need to be finalized at the Federal and state level. We will be working to develop an exchange program based on guidance from each state and the Department of Health and Human Services.

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Partnership Example

John and Mary Estate age 55

Assets and Investments: $350,000 Primary Residence: $250,000

John and Mary Partnership Protection

John Protection:

48 Month (Min Protection TBD)

$4000 Monthly Benefit (Min Benefit TBD)

Pool of Protection: $192,000

Compound Inflation

Mary Protection

48 Month (Min Protection TBD)

$4000 Monthly Benefit (Min Benefit TBD)

Pool of Protection: $192,000

Compound Inflation

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Partnership Example

John and Mary Estate age 75

Assets and Investments at age 75: $600,000 Primary Residence: $420,000

John and Mary Partnership Protection

John Protection Today: 48 Month$10,100 Monthly Benefit Pool of Protection: $485,174Compound Inflation

Mary Protection48 Month (Min Protection TBD)$10,100 Monthly Benefit Pool of Protection: $485,174Compound Inflation

Dollar for Dollar Protection available for 1st $485,000+ inflation growth over claim

Client spend $115K and then Qualifies for Medicaid. Up to half the value of the house will be recovered upon sale or death of spouse during probate

IFIF Total Asset Protection is offered by the state the home would be protected.

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Groups responded positively to the public-private partnership proposal for the following characteristics:

• Private and government entities working together;

• Provide checks and balances for both the government and private sectors; and

• Retain assets and not have to liquidate everything for long-term care needs.

Partnership Proposal: Perceptions

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Although reactions to the partnership proposal were positive, age was a factor in terms of how respondents viewed the Medicaid aspect of the partnership proposal.

• Those under 60 years old without long-term care insurance had certain negative perceptions, specifically that they would have to get coverage through Medicaid.

• Anti-Medicaid stigma was even higher among the higher income respondents.

Partnership Proposal – Perceptions of Medicaid

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Medicaid Changes

4 Changes to the Medicaid Rules-(There may be slight state differences)

Medicaid is administered at the state level and is funded by both state and federal dollars. States set specific rules and procedures based on state needs. Please visit your state’s Web site for specific rules. Any state’s rules may differ slightly from these listed here, however, generally there are four significant changes to Medicaid designed to limit the amount of government dollars spent on Medicaid.

The DRA effective date is the date of enactment – President Bush signed the bill on February 8, so the new rules apply to transactions after that date. Any transfers before the effective date fall under the old rules.

All changes are subject to state adoption

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Old Rule – Medicaid look back is three years from the date the applicant applied for Medicaid, for gifts of assets (gifts) made by the Medicaid applicant for less than full consideration. If a transfer was made within the three-year timeframe, those assets were brought back into the applicant’s estate for the purposes of determining eligibility for Medicaid. The look-back period for asset transfers into a trust was five years.

New Rule – All transfers of assets, whether it is a gift or a transfer to a trust, are now subject to a five-year look-back. If the Medicaid applicant gifts an asset or transfers an asset into a trust within five years of applying for Medicaid, those assets will be treated as if they were still owned by the applicant, for purposes of determining eligibility for Medicaid. All transfers made within the look-back period must be documented and explained to Medicaid officials.

Look-back Period for all Asset Transfers

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“Ineligibility period” begins on the date the applicant becomes eligible to receive Medicaid

Old Rule – The “ineligibility period” is a time period during which the Medicaid applicant is disqualified to receive Medicaid benefits. Formerly, the “ineligibility period” began on the date the applicant transferred the assets. If a Medicaid applicant made a transfer within the look-back period, the state used a formula to determine an “ineligibility period.”

Example: On Aug. 1, 2005, an individual transfers $15,000 to his child. On Jan. 1, 2006, he applies for Medicaid. The average cost of a nursing home in his city is $5,000 per month. Based on the formula for determining the “ineligibility period” (transferred assets/average monthly nursing home costs) he incurs a three-month “ineligibility period.” The period begins on the date the assets were transferred. This means that he is disqualified from receiving Medicaid benefits for three months (through Oct. 31, 2005). However, he will receive Medicaid benefits when he needs them, assuming his application is approved, because the ineligibility period will be over.

Look-back Period for all Asset Transfers

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New Rule – The new “ineligibility period” begins on the date the individual (a) applies for Medicaid and (b) receives institutional-level care (i.e., in a nursing home or pursuant to a waivered home care program) and (c) whose application for Medicaid is approved but for the imposition of a penalty period at that time. This new rule inevitably captures more individuals trying to plan to receive Medicaid to cover their long-term care costs.

Example: In the same scenario, the “ineligibility period” on the $15,000 gift does not begin until the individual applied for Medicaid, is in a nursing home or receiving a level of care in any institution equivalent to that of nursing facility services, or is receiving home or community based services furnished pursuant to a Medicaid waivered program and is otherwise eligible for Medicaid. Now the ineligibility period begins essentially on

Jan. 1, 2006 and will disqualify him for three months. The individual will have to pay for those expenses out of his own pocket or have a family member or friend pay for them if he is incapable of doing so himself.

Look-back Period- continued

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More than $500,000 equity in home is a countable asset

Old Rule – An individual’s home was not a countable asset (not included in an individual’s list of assets when determining eligibility for Medicaid), regardless of the value. Although a home was not a countable asset, it may have been subject to a lien by Medicaid for recovery of funds spent on an individual’s care.

New Rule – The equity in a Medicaid applicant’s home is now countable to the extent it exceeds $500,000. The DRA provides states the option to increase the amount to $750,000. Therefore, if your client has home equity in excess of $500,000, (or $750,000) he or she is not eligible for Medicaid. This figure will be indexed for inflation beginning in 2011. The home equity cap does not apply to an individual with a spouse or child under 21 who’s blind or disabled that is living in the home.

Home Equity

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The state must be named as beneficiary of annuities

Old Rule – Annuities were treated differently depending on the state in which the applicant resides. The DRA will create a more uniform treatment of annuities as provided below.

New Rule – The Medicaid applicant must disclose the existence of any interest in annuities, regardless of whether the annuity is irrevocable or is treated as an asset. The individual must report all transfers within the past five years. The state becomes the remainder beneficiary of the annuity for the amount of medical assistance paid on behalf of the annuitant (Medicaid beneficiary). If the applicant does not name the state as the remainder beneficiary then the purchase of the annuity would be considered a transfer for less than full consideration (gift) and will result in the imposition of an “ineligibility period” as described above.

Annuities

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Training Implications

Training requirements will vary from state to state but one model might include:

•Licensed producers can continue to sell LTCI (Partnership or non-Partnership) for 1 year

•By the end of the year, any producer who has sold partnership must complete a one-time training course (no less than 8 hours) for long term care if they wish to sell LTCI (Partnership or non-Partnership). Producers are also required to complete ongoing LTCI training every 24 months thereafter (no less than 4 hours).

•The required LTCI training must cover the following areas:

•Long term care insurance

•Qualified Partnership Program insurance policies

•Relationship between Partnership policies and other public and private coverage of long term care

•The satisfaction of these training requirements in any state will be deemed to satisfy the requirements in most states and CE-qualified courses will count toward existing CE requirements.

•Qualifying training courses should be listed on state DOI websites.

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Many of the questions we receive in our Partnership Qs mailbox are from producers wanting to know the status of the Partnership Program in their state. Our newsletter appears monthly and contains the most current information available.

•Florida: Florida received HHS approval of its state plan amendment with an effective date of January 1, 2007. We are now waiting for the carrier filing date.

•Georgia: Georgia has filed its state plan amendment and we are awaiting further details regarding its status and carrier filing date.

•Kansas: Kansas has filed their state plan amendment and is awaiting HHS approval. We have been informed by the state that their targeted effective date is January 1, 2007.

•Minnesota: As previously announced, Minnesota has received HHS approval of its state plan amendment with an effective date of July 1, 2006. We are now waiting for the carrier filing date.

•Nebraska: As previously announced, Nebraska has received HHS approval of its state plan amendment with an effective date of July 1, 2006. We are now waiting for the carrier filing date.

•Virginia: Virginia received HHS approval of its state plan amendment with a targeted effective date of September 1, 2007. We are now waiting for the carrier filing date.

•Various other states are beginning to introduce the legislation but have not had a formal vote on the issue.

Partnership Program

State Approvals and Filings

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What you need to do:

Quote the appropriate inflation protection rider:

-60 and under,

-60-75, must have some form of inflation

-76 and above, inflation not required

(but available)

Most states will require a POS form be left with the client at the time of application.

This piece explains all they need to know about Partnership.

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