New Mexico has a Long-Term Care Partnership program
New Mexico’s OSI Partnership Status Disclosure Notice says that some long-term-care policies sold in the state qualify for the New Mexico Long-Term Care Partnership Program. The current disclosure describes those policies as potentially eligible for “Asset Disregard” under New Mexico Medicaid (New Mexico OSI Partnership Status Disclosure Notice).
The notice defines Asset Disregard as an amount of assets equal to benefits received under a qualifying Partnership policy that is disregarded when determining Medicaid eligibility. It says this generally allows a person to keep assets equal to qualifying benefits paid, but it also stresses that all other Medicaid eligibility criteria still apply (New Mexico OSI Partnership Status Disclosure Notice).
Confirm policy status before relying on it
The existence of the current OSI disclosure for policies sold in New Mexico is evidence that the Partnership program is open to qualifying sales rather than being presented only as a closed legacy program. Still, only a policy that meets the Partnership requirements receives that special Medicaid treatment; a conventional LTC policy does not automatically create a resource exclusion (New Mexico OSI Partnership Status Disclosure Notice).
HCA’s institutional-care rule recognizes a qualified state long-term-care insurance policy program and describes protection of assets up to qualified policy benefits paid, subject to the program’s rules. HCA also notes that protected assets can be relevant in estate recovery, which makes insurer documentation and HCA confirmation important before an application or estate plan relies on a stated benefit total (HCA 8.281.500 NMAC institutional-care rule).
Insurance is one funding layer, not an eligibility waiver
Compare the policy’s daily or monthly benefit, benefit period, inflation feature, premium history, underwriting, care-setting coverage, and Partnership certification. Then compare the expected benefits with New Mexico’s Medicaid income-cap, resource, transfer, and care-level rules. A policy purchase should fit the care and family plan rather than be treated as a stand-alone Medicaid qualification strategy.
Partnership status: New Mexico’s current OSI disclosure says some LTC policies sold in the state qualify and may provide dollar-for-dollar Medicaid Asset Disregard, while other eligibility requirements continue to apply (
New Mexico OSI Partnership Status Disclosure Notice).
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).
New Mexico state incentive: Taxpayers 65+ with $28,000+ in unreimbursed medical expenses in a year (which can include LTC premiums) may claim a $2,800 credit plus a separate $3,000 medical-expense exemption — a broader elderly medical-expense provision, 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.
