What makes a policy a qualified Partnership policy
The regulation requires a Virginia resident when coverage first becomes effective, federal tax qualification, and issuance no earlier than September 1, 2007. It also sets inflation-protection requirements that differ by the purchaser's age and requires disclosure that a Partnership policy does not automatically qualify its owner for Medicaid. These requirements should be checked in the actual policy and disclosure, not inferred from a marketing label (Virginia 14VAC5-200-205).
Virginia's Medicaid manual supplies the eligibility-side benefit. For a qualifying long-term-care Partnership policy, the value of assets disregarded in the Medicaid eligibility determination equals the dollar amount of benefits paid to or on behalf of the person as of the application month, even if further benefits remain available. The manual says that the disregard does not apply to the resource assessment for a married person with a community spouse, so it is not a replacement for the community-spouse analysis (DMAS Chapter M14).
Estate recovery and purchase decisions
DMAS's estate-recovery fact sheet says assets disregarded because of ownership of a long-term-care Partnership policy are not subject to estate recovery. That is a valuable Virginia rule, but it is limited to assets actually disregarded under the Partnership policy and does not mean every asset or every long-term-care policy escapes recovery. The policy owner still needs to meet Medicaid's other program requirements (DMAS estate-recovery fact sheet; DMAS Chapter M14).
Virginia Partnership status: current SCC regulations actively regulate offers and sales of qualifying policies. Asset disregard equals benefits paid for Medicaid eligibility, subject to the manual's conditions; buying a policy does not automatically make someone Medicaid eligible (
Virginia 14VAC5-200-205;
DMAS Chapter M14).
For insurance fundamentals, see Traditional LTC Insurance. Before purchasing, ask the carrier or agent for the Partnership notices and obtain advice that considers premiums, benefit design, inflation protection, the spouse's resource assessment, and the Medicaid plan.
Federal Tax Incentives for LTC Insurance Premiums (2026)
Beyond any state-level benefit, a tax-qualified LTC insurance contract (one meeting IRC § 7702B)
carries several federal tax benefits, and a number of the relevant limits increased for 2026:
- Age-based premium deduction: eligible premiums count as a medical expense on
Schedule A (to the extent total unreimbursed medical expenses exceed 7.5% of AGI), up to 2026 limits
of $500 (age 40 or younger), $930 (41–50), $1,860 (51–60), $4,960 (61–70), and $6,200
(over 70) — all increased from 2025 (IRS Revenue Procedure 2025-32, § 4.27).
- Self-employed and business deductions: self-employed individuals can deduct 100%
of eligible premiums up to the same age-based limits without itemizing, and C-corporations can generally
deduct LTC premiums paid for employees as an ordinary business expense under IRC § 162, uncapped by
the individual age-based limits.
- Tax-free benefits: benefits from a tax-qualified contract are generally excluded
from income under IRC § 7702B(d); per-diem/indemnity contracts are tax-free up to $430/day (about
$13,079/month) for 2026 (IRS Revenue Procedure 2025-32, § 4.62).
- HSA-funded premiums: HSA funds can be withdrawn tax-free to pay eligible LTC
premiums, up to the same age-based limits above.
- New for 2026 — penalty-free retirement withdrawals: SECURE 2.0 Act § 334
lets eligible 401(k), 403(b), and governmental 457(b) participants under 59½ withdraw funds to pay
premiums on a certified LTC contract without the usual 10% early-withdrawal penalty, up to the least of
the actual premium paid, 10% of the vested account balance, or a statutory cap of $2,600 for 2026. The
distribution itself is still fully taxable as ordinary income and is not available from IRAs
(IRS Notice 2026-33).
Virginia state incentive: Virginia allows premiums to be deducted from federal AGI in computing Virginia taxable income, but only if not already deducted federally — on top of the federal incentives above (
Got LTCi, State Tax Incentives).
State tax rules change frequently and the credit/deduction summary above is not exhaustive —
confirm current eligibility, forms, and amounts with your state department of revenue or a tax
professional before relying on any figure here.
Not mutually exclusive. Most families combine two or three funding pillars — this one rarely stands alone.
The
Journey Assessment ranks all ten pillars against your specific situation and
recommends the top three.
