Texas families want clarity before a care event forces quick decisions. This guide explains how the Texas Long Term Care Partnership works, how it compares with hybrid policies, how Medicaid rules interact with coverage, what care costs in Texas today, and which tax rules apply in 2025. The focus is asset protection during life with protection for your estate after death. The goal is to help you select coverage that fits your plan so your family keeps control.
Texas LTC Partnership at a glance
The Texas Long Term Care Partnership links private insurance with Medicaid policy. A Partnership qualified policy creates a dollar for dollar asset disregard. Medicaid disregards countable resources equal to benefits that the policy pays. The same amount is protected from Medicaid Estate Recovery after death. The Texas Department of Insurance confirms that these policies are tax qualified and portable through reciprocity with other participating states. See the TDI consumer guide for features and buyer tips at TDI. Texas HHS also explains how the asset disregard works both at eligibility and during estate recovery in the MEPD Handbook at HHSC. You can also review the state’s Own Your Future page for a plain language overview at Own Your Future Texas.
Owning a Partnership policy does not guarantee Medicaid. Income and resource rules still apply at application. The advantage is that the benefits you receive can preserve assets at application and after death. This coordination can let you protect a family home or a brokerage account within the disregard amount. It can also secure peace of mind for a spouse or adult children who manage your affairs.
Texas participates in reciprocity. If you move to another Partnership state, the dollar for dollar protection follows you. The receiving state will treat your protected amount under its rules. You will still need to meet that state’s income and clinical criteria. Portability helps families who expect to retire near children in another state or who could relocate for care.
Partnership rules require tax qualified contracts. Benefits are generally tax free within federal limits. Premiums may qualify for medical expense deductions up to age based caps. This article covers those limits below.
Many clients ask about the home. The Partnership disregard can protect a slice of home equity if benefits paid reach that amount. The Texas Medicaid Estate Recovery Program can pursue recovery against the estate for care costs. A Partnership disregard carves out protection for an amount equal to benefits paid. Legal strategies can complement insurance to protect assets from Medicaid estate recovery in Texas, especially where benefits might not cover all costs.
Who qualifies and policy rules
Texas Partnership status applies only to traditional long term care insurance. State rules exclude policies that are life insurance or annuities that provide long term care through a rider. The Texas Administrative Code defines a Partnership policy in a way that removes hybrids. See TAC section 3.3804 at Cornell Law.
Inflation protection is central to Texas Partnership policy design. The rule requires insurers to include or offer inflation features by age. Buyers under 61 must receive compound inflation to age 61. A five percent offer is part of the rule. If declined the carrier must provide compound inflation within a one to four percent band or a CPI U feature until 61. Buyers from 61 through 75 must keep some form of inflation protection in force until age 76. That can be simple or compound under the rule. Buyers at 76 or older must be offered inflation protection. They do not have to accept it. The full rule text sits in TAC section 3.3872 at Texas Secretary of State. The statute also notes that these inflation provisions are not available under riders for life or annuity contracts. That is another clear signal that hybrids do not qualify for Partnership in Texas.
Texas also regulates who can sell these policies. Agents must hold a Life Accident and Health license. They must also complete an eight hour LTC Partnership certification course. Ongoing education includes four hours of Partnership CE each renewal period. See the Texas Department of Insurance training page at TDI agent certification. Work with a trained professional. The training touches policy design, inflation rules, Medicaid coordination, and suitability standards.
Medical underwriting applies. Most carriers require health questions, prescription reviews, or interviews. Some offer simplified underwriting at younger ages or for employer carve outs. A successful application leads to policy issue with the inflation feature and benefit structure you select. That structure drives the protection created in a future Medicaid assessment.
Medicaid rules that affect planning
A Partnership policy does not waive Medicaid criteria. The program still checks whether you meet clinical and financial qualifications. Texas uses a five year look back period for transfers. Gifting can create a penalty period that delays eligibility. Learn how timing works at Texas Medicaid five year look back rules. Families should avoid gifting without a review of dates, amounts, and exceptions. A transfer inside the look back can cause months of ineligibility.
Spousal impoverishment rules can help the healthy spouse. Federal standards set resource and income allowances. The latest CMS bulletin shows the maximum community spouse resource allowance and the minimum monthly maintenance needs allowance. The bulletin also sets the home equity cap used by states. For 2025 the minimum home equity limit is seven hundred thirty thousand dollars. Some states allow a higher cap. Texas follows federal guidance. Read the CMS figures at Medicaid.gov. These numbers change over time. A current review is prudent before filing an application.
The Partnership disregard applies during the Medicaid eligibility review. Texas will ignore countable resources equal to the long term care benefits you have received from a Partnership policy. That means you can keep more than the normal resource limit by the amount paid in benefits. The same dollar figure is also protected during Medicaid Estate Recovery. The Texas HHS MEPD Handbook affirms both protections at HHSC MEPD. The protection is not a blanket shield. Credits equal to benefits paid. You must still meet income rules and clinical criteria. Proper timing matters.
The estate recovery program in Texas is called MERP. It can recover certain costs for those age fifty five and older after death. Recovery targets the estate subject to probate. Waivers exist for a surviving spouse or a child under twenty one or a blind or disabled child. Hardship waivers can also apply. Read about waiver paths at MERP hardship waivers in Texas. The Partnership disregard reduces the amount exposed to MERP. If your policy paid two hundred thousand dollars in benefits then that same amount is protected from estate recovery. A legal plan can complement this credit. A trust or transfer plan can carve out more protection for assets that exceed the policy protection.
The home often raises questions. Texas exempts a homestead while the applicant or certain family members live there. Equity limits still apply. A review of occupancy, intent to return, and liens should occur before application. For a list of items that do not count, see what assets are exempt for Texas Medicaid. Policy benefits can pay for care that preserves home residency. That can avoid a quick sale to fund facility care. Later, the Partnership disregard can shield a portion of remaining equity.
Texas long term care costs
Pricing for care in Texas varies by city and by setting. A statewide snapshot helps size coverage. Genworth’s CareScout survey shows 2024 median annual costs around the low to mid sixties for assisted living and nursing home semi private rooms. Home services trend a bit higher for full time care. Private nursing rooms are higher still. See the Texas press release at Genworth CareScout.
Those figures translate to daily amounts in the one hundred eighty to two hundred forty range for many settings. A plan can target home care first. Many families value time at home. A policy can provide a monthly benefit for in home care, adult day services, or caregiver support. Facility care can be the next tier. Policy benefits can ladder up as needs grow. A benefit period of three to five years can handle many events. Longer periods can protect against dementia or extended impairment. Inflation riders matter in Texas since Partnership credits hinge on benefits paid. A higher benefit years from now yields more protection at Medicaid. Compound riders build faster protection. Simple or CPI based riders can lower premiums but still offer growth. Under the Texas rule, those under 61 need compound growth to age 61. Ages 61 to 75 must keep some inflation until 76. The goal is buying power that keeps up with rising costs.
Families in Austin or San Antonio may see higher home care rates than the statewide median. Rural areas can be lower. Plan for a margin. A policy with a monthly pool rather than a strict daily max can provide flexibility. Some months will cost more. Others will cost less. You want room to customize care without hitting caps.
Consider the tax treatment of benefits when sizing. Policies that pay reimbursement will cover actual costs up to the limit. Cash or indemnity designs pay a set dollar amount per day or per month. Federal tax law limits the tax free portion for indemnity benefits to a per diem cap. The 2025 cap is four hundred twenty dollars per day. Benefits above that cap can be taxable if not used for qualified costs. This cap does not apply to reimbursement designs.
The Partnership disregard is tied to benefits paid. A three year plan with a two hundred dollar daily base and compound inflation can easily cross two hundred thousand dollars in paid claims in a major event. That would create a two hundred thousand dollar protection amount in a future Medicaid filing. If you expect a larger estate, a longer benefit or a higher monthly base can increase that shield. You can also layer legal tools with insurance to cover larger asset pools.
Tax benefits in 2025
Federal law treats qualified long term care premiums as medical expenses within caps that vary with age. For tax years beginning in 2025 the maximum amounts you can count toward the itemized medical deduction are as follows. Age forty or less, four hundred eighty dollars. Ages forty one through fifty, nine hundred dollars. Ages fifty one through sixty, one thousand eight hundred dollars. Ages sixty one through seventy, four thousand eight hundred ten dollars. Ages seventy and above, six thousand twenty dollars. See the IRS revenue procedure at IRS. These caps apply per person. You must clear the medical expense threshold tied to adjusted gross income before any deduction produces value. Texas has no state income tax. Focus on federal treatment only.
Benefits from a qualified policy are generally tax free. Cash or indemnity designs are tax free up to the federal per diem cap. For 2025 the cap is four hundred twenty dollars per day. Benefits above that amount can be taxable to the extent they exceed actual qualified costs. Reimbursement policies pay providers up to the policy limit and are generally tax free in full. The federal code that governs qualified contracts is section 7702B. You can read the statute at Cornell Law.
Partnership policies are tax qualified by rule. Many policyholders can claim part of the premium as an itemized medical expense. Small business owners can gain additional tax benefits. C corporations can deduct premiums paid by the company on behalf of an employee, subject to reasonable compensation rules. Sole proprietors and partners can claim a deduction within the age based caps. Some S corporation owners face special rules for two percent shareholders. A coordinated CPA review is wise before purchase. The IRS bulletin cited above confirms the new limits for 2025.
Hybrids present a twist. Many linked benefit policies fund long term care charges by deducting from the life or annuity policy value. When charges are taken from cash value, you generally do not receive a medical expense deduction for those internal charges. A few products bill the rider as a separate premium. If billed separately, the age based limits can apply to that portion. Tax advisers and industry sources outline these distinctions. See section 7702B and tax commentary such as ThinkAdvisor’s tax facts page at ThinkAdvisor. Always confirm the billing method in writing before you assume any deduction for a hybrid policy.
When a hybrid policy fits
A hybrid policy couples life insurance or an annuity with a rider for long term care or chronic illness. These policies appeal to buyers who want a death benefit if care never occurs. They also suit those who prefer premium guarantees or cash value. In Texas, hybrids are not Partnership qualified. That means no dollar for dollar asset disregard at Medicaid and no linked protection from estate recovery. The Texas Administrative Code draws this eligibility line. Review the definition section at Cornell Law.
Pros for hybrids include death benefit certainty, cash value in some designs, and flexible funding using a 1035 exchange from an existing life or annuity policy. Some riders offer rich benefits with lifetime options. Guarantees can be attractive to conservative buyers. Once funded, premiums often stay fixed. Many carriers allow acceleration of the death benefit first, followed by an extension of benefits rider.
Cons include the lack of Partnership protections in Texas. Rider charges that come from policy values are usually not deductible as medical expenses. Cash or indemnity benefits can bump into the per diem cap for tax free treatment. Some designs lack robust home care benefits or have waiting periods. The policy must also handle two jobs. It must serve as life insurance or an annuity during healthy years. It must also fund significant care if you need it. That balancing act can reduce pure care efficiency compared with a traditional LTC plan.
When does a hybrid fit within an estate plan. Consider a client who has a large life insurance policy with gains. A 1035 exchange into a hybrid can reposition that asset for care with tax favorable treatment of withdrawals for qualified care. Consider a client who wants a guaranteed premium with a known death benefit floor. A hybrid can solve that concern. If Medicaid Partnership protection is the main goal, a traditional Texas Partnership policy is a better fit.
Fit with Texas estate tools
Insurance is one part of a broader estate plan. A Medicaid Asset Protection Trust can protect assets from spend down and from estate recovery if created and funded early. These trusts often work best when funded at least five years before a Medicaid filing. They can hold the home or investment accounts. Policy benefits can fund care during the trust’s seasoning period. That approach preserves principal while buying time. Read more about Medicaid Asset Protection Trusts for nursing home care in Texas. Timing is delicate. You want the trust far enough in advance to clear the look back window. You also want coverage sized to carry you through that window if care starts early.
Asset titling and beneficiary designations matter too. Certain assets are exempt or partially exempt in Texas. The homestead can be exempt while a spouse or certain relatives live there. One vehicle can be exempt. Personal effects are exempt. Retirement accounts can have special treatment depending on form and distribution status. A clear inventory helps. Use our guide to see what assets are exempt for Texas Medicaid. That list interacts with insurance planning. For example, you may choose a policy that favors home care if a homestead will remain exempt. You may choose a shorter facility benefit if exempt resources can carry part of the load.
Trust selection matters. An irrevocable trust can keep assets out of your countable estate for Medicaid if drafted and funded properly. A revocable trust does not. The revocable trust still plays an estate settlement role. It does not stop countability during Medicaid review. A careful drafter can craft a plan that mixes LTC coverage with trust protection. The goal is to keep control over care choices while preserving family wealth. Learn more about setting up a trust to protect assets from Medicaid in Texas.
Case study thoughts help put this together. A married couple in their late fifties buys two Partnership policies with compound inflation. They also create an irrevocable trust for a rental property and part of a brokerage account. They fund the trust now, then wait out the five year period. If one spouse needs care at age sixty five, policy benefits pay the first line of costs. The trust assets stay intact. If Medicaid becomes necessary later, the Partnership disregard protects an amount equal to the claims paid. The trust avoids countability for the assets it holds. MERP has less to recover. Any remaining claim can be evaluated for hardship relief if a spouse still lives in the home. The overall result is control over care and more estate preserved.
| Feature | Texas Partnership LTC | Hybrid life or annuity with LTC rider |
|---|---|---|
| Partnership status | Yes | No under Texas rules |
| Dollar for dollar asset disregard | Yes at eligibility and during estate recovery | No |
| Inflation protection | Required or offered by age per TAC 3.3872 | Riders vary, Partnership rules do not apply |
| Tax treatment of premiums | May count as medical expense within age caps | Often not deductible if charges come from policy value |
| Benefit taxation | Generally tax free. Per diem cap for indemnity | Similar per diem rules for cash or indemnity designs |
| Fit with Medicaid planning | Strong due to disregard and MERP protection | Weaker. Rely on trusts or exemptions instead |
| Who should consider | Asset protection focus. Medicaid coordination goal | Desire for death benefit or premium guarantees |
Frequently asked questions
Does a Texas Partnership policy protect my house from MERP
It can protect an amount equal to benefits paid by the policy. Texas applies the same disregard during eligibility and during estate recovery. If your policy pays two hundred thousand dollars in claims, that amount is protected from MERP. You must still meet all other Medicaid criteria. Review the state guidance at HHSC MEPD. Legal planning can stack on top of the disregard for larger estates.
Can I convert a non Partnership policy into one that qualifies
Texas rules allow certain exchanges of coverage. Availability depends on your insurer, policy type, and issue date. The rule sits in TAC section 3.3870. See a summary at Justia Regulations. A replacement can lead to new underwriting. Riders and benefits can change. We review the contract and the carrier’s exchange program before recommending action.
Are hybrid policies Partnership eligible in Texas
No. Texas excludes life insurance and annuity contracts that provide long term care by rider from the definition of a Partnership policy. See TAC 3.3804 at Cornell Law. Hybrids can still play a role for death benefit planning or premium guarantees. They do not grant the Medicaid disregard in Texas.
What inflation rider do I need for a Texas Partnership policy
Buyers under 61 need compound inflation to age 61. Buyers age 61 through 75 must keep inflation protection until 76. Buyers 76 or older must be offered inflation but can decline. The rule allows simple or compound for ages 61 through 75. Read TAC 3.3872 at Texas Secretary of State.
What are the 2025 tax limits for LTC premiums and per diem
The maximum amounts that can be included as medical expenses depend on age. For 2025 the caps are four hundred eighty dollars, nine hundred dollars, one thousand eight hundred dollars, four thousand eight hundred ten dollars, and six thousand twenty dollars across the age brackets set by Congress. The per diem cap for tax free indemnity benefits is four hundred twenty dollars per day in 2025. See the IRS bulletin at IRS.
What is the Texas Medicaid home equity limit in 2025
The federal minimum is seven hundred thirty thousand dollars for 2025. Some states adopt a higher figure. Texas follows federal standards. Review the CMS bulletin at Medicaid.gov. Special exceptions apply for a spouse or a child with disabilities. Strategy may involve a trust or occupancy planning if equity exceeds the cap.
How much does long term care cost in Texas
Genworth’s CareScout survey shows 2024 median annual costs around sixty three thousand dollars for assisted living. Home health services fall in the mid to high sixties for full time care. Semi private nursing rooms are in the mid sixties. Private rooms run higher. See the Texas data at Genworth CareScout. City level pricing can vary. Policy design should reflect local rates and your care preferences.
What about the five year look back
Texas uses a sixty month look back period for transfers. Gifts during that window can trigger a penalty period. A smart plan fits timing with your goals. Read our guide to Texas Medicaid five year look back rules. Do not gift without counsel. Penalties can delay coverage at the worst time.
How do Partnership policies interact with trusts
They complement each other. A Partnership policy pays for care while a trust seasons through the look back period. Later, the dollar for dollar disregard protects assets equal to benefits paid. The trust protects the assets it holds from spend down and estate recovery if structured properly. Learn more about trusts at Medicaid Asset Protection Trusts for nursing home care in Texas and strategies for setting up a trust to protect assets from Medicaid in Texas.
Can the state waive estate recovery
Yes in some cases. MERP has exemptions and hardship waivers. A surviving spouse stops recovery during life. A child under twenty one or a blind or disabled child can also block recovery. Hardship standards can protect the home in some cases. Read more about MERP hardship waivers in Texas. The Partnership disregard also carves out protection equal to benefits paid.
Is there reciprocity if I move out of Texas
Yes. The Partnership program has reciprocity with other participating states. Your protection amount follows you. You must meet the receiving state’s eligibility and clinical rules. Review the program overview at Own Your Future Texas and the TDI consumer guide at TDI.