THE
GROWING USE OF LIFE INSURANCE POLICY CONVERSIONS AS AN ALTERNATIVE RESOURCE TO
FUND LONG TERM CARE
Issue Brief
The
United States Supreme Court codified as law the legal right of property
ownership for life insurance policies in 1911.
The owner of a policy has the legally protected right to convert their
asset from a life insurance policy into a long care benefit plan by accessing
the private, secondary market. There is
almost $30 trillion of in-force life insurance today in the United States. Comparatively, there is less than $10
trillion of home equity today in the United States and the amount of in-force
long term care insurance is only in the billions. At a time when LTCi sales should have been
exploding, the market instead has been suffering from significant disruption
with rate increases on existing policies and major carriers such as MetLife
ceasing to sell policies. Additionally,
the economy’s impact on the housing market has seriously dampened the ability
of seniors to access home equity to pay for long term care which for years was
the primary source to fund long term care, and part of a Medicaid spend down
regimen, but that has not been the case since 2008. As for owners of life insurance; the middle
class, “small face” policy owner with under $500,000 of death benefit cannot
access the life settlement market as an option either.
With
10,000 Baby Boomers turning 65 every day, the United States has officially
reached the “long term care funding crisis” era. New approaches to fund long term care must be
encouraged, and converting life insurance policies is an option quickly gaining
ground. Unfortunately, owners of life
insurance policies are not aware of their legal rights and options and millions
of seniors are stranded with polices that have outlived their insurable
interest, they can no longer afford, and are counted against them as a
dis-qualifying asset for Medicaid eligibility.
But, legislative leaders across the country are taking action with
consumer protection disclosure laws and legislation to encourage consumers to
convert their life insurance to pay for long term care as an alternative to
abandoning their policies.
Life
insurance is an unqualified asset for Medicaid eligibility, and billions worth
of policies are regularly abandoned by uninformed seniors as they enter their
“long term care years”. Converting a
life insurance policy into a long term care “Assurance Benefit” plan is a
Medicaid qualified spend down of the policy, and it extends the time a person
remains “private pay” before going onto Medicaid. States are under tremendous budget pressure
to keep pace with exploding demand to cover long term care needs with tax payer
money, and they are quickly realizing the savings that can be found for their
beleaguered budgets by delaying entry onto Medicaid through the use of Medicaid
qualified policy conversions.
The Assurance Benefit is not a long term care insurance policy, annuity,
any form of hybrid
life/LTCi policies, or an accelerated death benefit-- it is actually the exchange of a
life insurance policy for a long term care benefit plan at the time that care
needs to be paid. The Assurance Benefit is a unique financial
option for seniors because there are no wait periods, no care limitations, no
costs to apply, no requirement to be terminally ill, and there are no premium
payments. Policy owners use their legal right to convert an in-force life
insurance policy to enroll in the benefit plan and are able to immediately
direct payments to cover their senior housing and long term care costs.
It is in the
better interest of seniors and their family to convert a death benefit into a
long term care benefit and then apply the maximum private market value of the policy
towards their health care needs. If a
policy can be converted into the means to cover the costs of long term care for
an extended period, and keep the insured off of Medicaid that much longer, it
is in their best interest and that of the state’s tax payers. The Assurance Benefit policy conversion is a
private sector solution that addresses the financial needs of the senior and
can also help stressed state budgets by extending the spend down period for a
senior before they would go onto Medicaid.
Introduction: The
Medicaid Problem Grows
Medicaid
was created on July 30th, 1965 as a part of President Lyndon
Johnson’s “Great Society”. At that time
the entire GDP of the United States was $791.1 billion, and no one could have
predicted that by 2009 the U.S. would spend over $2 trillion on health care in
a single year. Ironically, the last of
the baby boom generation had been born by the time Medicare and Medicaid was first
enacted, and on January 1, 2011, 10,000 Baby Boomers started turning 65 every day at a pace that will continue
uninterrupted for twenty straight years.
The combination of this demographic “Silver Tsunami” and a fractured
U.S. economy could not have come at a worse time for the big three entitlement
programs. Social Security, Medicare and
Medicaid are all in the red and creating havoc for government budgets at the
federal and state levels. According to
Chairman Ben Bernanke, this has become the number one concern of the Federal
Reserve about the U.S. economy.
2010 National
Average Annual Costs of Long Term Care
-
Skilled Nursing Facility (SNF):
$83,585
-
Assisted Living Facility (ALF):
$39,516
-
Alzheimer’s Unit: $85,045
-
Home Healthcare: $43,065
State
budgets have been impacted particularly hard by shrinking tax dollars and
growing Medicaid enrollment brought on by the economic crisis and an aging
population. Over 10 million Americans
now require long term care annually and Medicaid is the primary source of
coverage. According to the Kaiser Family
Foundation, Medicaid spent $427 billion in 2011, paying for 43% of all long
term care services while 31% was covered “private pay”.
Private Market
Solution: A $30 Trillion Funding Source
According
to the NAIC, there is $27.2 trillion of in-force life insurance in the hands of
152 million Americans. That is a huge
population of asset owners who for the most part do not understand their legal
rights of ownership and the usage options available to them. The insurance industry makes immense profits
from the fact that millions of these people are paying billions of dollars in
premium payments for policies that in the end will be abandoned. Too few policy owners’ understand their legal
rights of ownership and do not possess the knowledge of how insurance
works. When their original need for a
policy has run its course, the vast majority of owners simply walk away from
what may be one of the most valuable assets they own—for nothing in return.
Fast Fact: 153 million Americans own $27.2 trillion worth of life policies (that
is almost triple the amount of home equity in the U.S. today)
Far
too many life insurance policies owned by seniors will never pay a death
benefit because they are allowed to either expire, lapse or are surrendered for
cash value. The shame of this situation
for the consumer is that there are numerous options for them to explore before abandoning
a policy. Life insurance is legally
recognized as personal property and the owner has the right to use their asset
in a number of ways including converting the policy to a long term care benefit
plan while still alive.
Conning and Company, the
insurance industry research organization, released a white paper in 2009 as part
of their Strategic Research Series
and in it they analyzed the growing impact of Life Care Funding Group’s use of
life insurance policies to pay for long term care. In the paper they surmised, “What is new is the concerted effort to
integrate life insurance policies and long term care providers. This is a recent development involving – Life
Care Funding Group. This new source of
funds represents a potential alignment of long term care providers and state
governments. Both state governments and the long term care industry are working
to find a solution to the budgetary threat to Medicaid created as aging Baby Boomers impoverish themselves in order to have the
state pay for long term care”.
Legislative
and market activities across the country point to the growing realization that
life insurance policies can be converted to help pay for long term care. A major challenge is that too few seniors
realize their policy could be used for purposes other than a death benefit—but
as Conning and Company predicted; word is starting to spread among policy
owners, the long term care industry and law makers.
Consumer
Rights: Converting Life Insurance to Pay Long Term Care
The Supreme Court case of Grigbsy v. Russell (1911) established a
life insurance policy owner’s right to transfer or convert the use of an
insurance policy. Justice Oliver Wendell Holmes noted in his opinion that life
insurance possessed all the ordinary characteristics of property, and therefore
represented an asset that a policy owner could transfer without limitation.
Wrote Holmes, “Life insurance has become in our days one of the best recognized
forms of investment and self-compelled saving.” This opinion placed the
ownership rights in a life insurance policy on the same legal footing as more
traditional investment property such as real estate, stocks and bonds. As with
these other types of personal property, a life insurance policy is an asset and
can be converted to another use or transferred at the discretion of the policy
owner.
Fast Fact: The owner of a policy has
the legal property ownership rights to convert a policy based on its fair
market value.
A
policy owner’s legal right to convert an existing life insurance policy into a
long term care benefit plan, also known as an Assurance Benefit Plan, is not to
be confused with a long term care insurance policy, accelerated death benefit
(ADB) rider, annuity, or a hybrid life/LTCi product. This
Assurance Benefit conversion option allows for the actual private market
exchange of a life insurance policy for a long term care benefit plan at the
time of care. Any form of life insurance
can qualify for conversion: universal life, whole life, term life, and group
life. The benefit plan will pay for any
form of long term care: home health, assisted living, and nursing home care.
The Assurance Benefit plan is a private
market funding option and is not issued by a carrier, not restricted to polices
that contain a conversion or accelerated death benefit rider, and is not
restricted to the issuing carrier. Unlike long
term care insurance, there are no wait periods to receive Assurance Benefit
payments. Once a policy is converted by
the owner, the long term care benefit payments begin immediately and the enrollee
is relieved of any responsibility to pay any more premiums. The Assurance Benefit plan is an irrevocable long
term care funding account administered by a third party ensuring the funds are
protected for the recipient of care, and the payments are made every month
directly to the care provider. Every Assurance
Benefit account also has the added protection for the enrollee of providing a
final expense benefit to help cover funeral expenses. Lastly, if the insured should pass away before the benefit amount is exhausted,
then any remaining balance is paid to the family or named beneficiary as a final
lump sum payment.
The Assurance
Benefit policy conversion meets the IRS standard for tax deductible status based on the use of funds dedicated to pay for
long term care services. The Assurance
Benefit also meets the HIPAA standards for tax exempt status based on the physical and cognitive impairments of
enrollees.
A) Any tax
implications for capital gains realized (e.g. through a policy conversion)
would be offset by deductions based on spending the money for “the entire cost
of maintenance in a nursing home or home for the aged” (sec. 1016 U.S. Master
Tax Code 2008).
B) The Health
Insurance Portability and Accountability Act (HIPAA) also carved out an
exemption for chronically ill persons to receive benefits tax free, subject to
certain limitations.
A chronically
ill person is someone who has been certified by a physician in the past 12
months:
1) to be unable to perform, as the
result of the loss of functional capacity, at least two activities of daily
living (eating, toileting, transferring, bathing, dressing, and continence) for
at least 90 days; or
2) has a similar level of disability as
defined by the Secretary of the Treasury; or
3) requires substantial supervision to
protect the person from threats to health and safety due to severe cognitive impairment.
For chronically ill persons, amounts paid with respect to a life insurance
contract are excludable only if: 1) the payment is for actual costs of
qualified long term care that are not defrayed by insurance payments or
otherwise; and 2) payment is not made for expenses that are reimbursable under
Medicare. In addition, payments made to chronically ill persons on a per diem,
or other periodic basis, are excludable but only to the extent that they do not
exceed $180 per day, indexed for inflation.
The Assurance Benefit conversion option is designed to serve a large but
ignored population. For the large
population of middle market policy owners with polices under $500,000 of death
benefit value; the viatical and life settlement market has no interest in
policies of this size, and they tend to not underwrite people with an immediate
need for long term care. The vast
majority of these overlooked policy owners unfortunately end up either lapsing
or surrendering their in-force life insurance because they can no longer afford
to pay the premiums and/or they are on a Medicaid spend down path. Owners of small face policies with an
immediate need for long term care are not candidates for a viatical, life
settlement or annuity and it is too late for them to purchase a long term care
insurance policy. As an alternative to
policy lapse or surrender, the Assurance Benefit is an immediate option to use
their policy to pay for long term care. The
in-force life insurance policy can be converted to a long term care benefit
account in as little time as 30 days and then administered by a third party with
payments made every month directly to the enrollee’s choice of long term care
provider: home health, assisted living, or nursing home.
Fast Fact: Billions of dollars of life insurance policies are abandoned by seniors
because they can no longer afford the premiums and/or they are on a Medicaid
spend-down path.
For
families with the need to pay for long term care, but are unable or unwilling
to keep their life insurance policy in-force by maintaining premium payments,
the Assurance Benefit conversion option is a much better choice than abandoning
a policy. Policy owners use their legal right to
convert an in-force life insurance policy to enroll in the benefit plan and are
able to immediately fund their care through a guaranteed monthly payment stream
for the entire benefit period. Providers of long term care services such as nursing
homes, assisted living communities and home health agencies have been quick to
embrace this alternative form of payment.
State governments too are realizing that there is tremendous value to be
found by converting life insurance policies to help pay for the costs of long
term care.
Life insurance is an unqualified asset for
Medicaid applicants and it has been standard practice to abandon a life
insurance policy if it is within the legally required five year look back
spend-down period. But now, by converting
a life insurance policy instead of abandoning it, the policy owner’s care can
be covered as a private pay patient by the long term care benefit plan over an
extended time frame. Instead of
abandoning the policy and going immediately onto Medicaid, the life insurance
asset is spent-down in a Medicaid compliant fashion—while preserving a portion
of the death benefit for the family during the extended time period.
Medicaid
Eligibility: Life Insurance is a Disqualifying Asset
Because
a life insurance policy is legally recognized as an asset of the policy owner,
it counts against them when qualifying for Medicaid. If a policy has
anything more than a minimal amount of cash value (usually in the range of
$2,000) it must be liquidated and that money spent towards cost of care before
the owner will qualify for Medicaid. All state Medicaid applications
specifically ask if the applicant owns life insurance and full policy details.
Failure to disclose and comply is fraud.
Some
states allow for a final expense policy to be kept or transferred to a funeral
home (the funeral home would keep the entire death benefit). Medicaid
recovery units have become much more forceful about looking for life insurance
policy death benefits (declared or undeclared) that have paid out to families
after the death of a Medicaid recipient. Medicaid budgets are now facing extreme
pressure and asset recovery efforts can be very aggressive. Recovering the entire cost of care through
legal action by going after the death benefit payment paid to the estate and
surviving family is federally mandated by the
Omnibus Budget Reconciliation Act (OBRA) of 1993. This law requires each state to seek
adjustment or recovery of amounts correctly paid by the state for people covered
by Medicaid. The state must, at a minimum, seek recovery for services provided
to a person of any age in a nursing facility, intermediate care facility for
the mentally retarded, or other medical institution. States are required to
seek recovery of payments from the individual's estate for nursing facility
services, home and community-based services, and related hospital and
prescription drug services.
Fast Fact: Life insurance policies are an
unqualified asset for Medicaid eligibility and the owners must either surrender
the policy or be subject to costly recovery actions by the Medicaid department
According to a Government Accounting Office (GAO)
study in 2007, 38% of Medicaid applicants owned a life insurance policy that
needed to be liquidated to qualify. When an
individual applies for Medicaid, the State conducts a "look back" to
find transfers of assets for 60 months prior to the date the individual is
institutionalized or, if later, the date he or she applies for Medicaid. Transferring ownership of an asset for less
than its fair market value would be a violation of Medicaid’s asset transfer
and look back requirements. A life
insurance policy can be surrendered for its cash value to be spent down on care,
or a policy can be converted for its fair
market value and the full benefit of that conversion can be used to pay for
long term care as a qualified spend down.
The owner of
one or more policies has a variety of options to consider:
- A policy
with more than a minimal amount of cash value must be surrendered back to
the insurance company with the proceeds spent down on care.
- A policy
with no cash value does not need to be liquidated but the death benefit
will be subject to federally required Medicaid recovery efforts to return
the amount of money spent on care.
- Many
states will exempt a small “final expense” policy if the full death
benefit value is assigned to a funeral home.
- Third-Party
Assignment or Transfer of a life insurance policy for less than its fair
market value is a violation of asset transfer rules if done within the 60
month look back period.
- A policy
owner has the legal right to convert a life insurance policy into a long
term care benefit plan at its fair market value and extend their spend
down period by covering cost of care as private pay while preserving a
portion of the death benefit until exhausted.
The
policy conversion option is considered a “qualified spend down” of a life
insurance policy asset for Medicaid eligibility. By converting an existing life insurance
policy to a long term care benefit plan, the owner is spending down the asset
towards their cost of care in a Medicaid compliant manner while still
preserving a portion of the death benefit. If the insured passes away
while spending down via their benefit enrollment, any remaining death benefit
would pay out to the designated beneficiary without being subject to Medicaid
recovery. Enrollees able to now use
non-Medicaid dollars are allowing themselves to access the best level of care
and options by remaining a “private pay” patient for as long as possible.
Conversion of a life insurance policy allows for maximum choice of care
options, and preservation of a partial death benefit instead of 100%
abandonment.
Long
term care providers prefer private pay patients over Medicaid recipients. A new report released by the American Health
Care Association (AHCA) indicates that due to major state budget deficits and
adjustments to Medicare and Medicaid reimbursements, long-term care facilities
will see historically low Medicaid reimbursements. It is estimated that unreimbursed Medicaid
funds to nursing homes exceeded $6.3 billion in 2011 – a $19.55 shortfall per
patient, per day on average. An
individual with the ability to sustain themselves as a private pay patient will
have more care and housing options to choose from.
In
addition to the policy owner and the long term care provider, there are also
advantages for state governments and their maxed out Medicaid budgets. Policy owners that convert their life
policies instead of allowing them to lapse or be surrendered represent an
opportunity to extend the spend down period of their asset. By converting a policy to its present day
value based on the death benefit, as opposed to minimal cash surrender value or
wait for federally mandated recovery efforts to be initiated against the estate
year’s later, tax payers will be saving considerable money. This represents an opportunity to extend the
time a person remains private pay by many months, or years, before they go onto
Medicaid—if ever at all.
Legislative
Action: Focus on use of Life Insurance to pay for Long Term Care
The
National Conference of Insurance Legislators (NCOIL) understood the
implications of billions of dollars of life insurance policies in the hands of
seniors being discarded when they unanimously passed the Life Insurance Consumer Disclosure Model Act in November,
2010. This consumer protection law requires that life insurance
companies inform policy holders above the age of 60, or with a terminal or
chronic condition, of approved alternatives to the lapse or surrender of a life
insurance policy including “conversion to a long term care benefit plan”.
NCOIL
declared that final passage of the Life
Insurance Consumer Disclosure Model Law is intended to be "a strong
stand for life insurance policy owners and would empower consumers through
education about their options."
NCOIL President Rob Damron (KY), upon unanimous passage said, "It
is imperative that policy holders understand that they have alternatives to
merely lapsing or surrendering their policy." California,
Connecticut, Kentucky, Maine, New Hampshire, Oregon, Washington State, Virginia
and Wisconsin already have passed or are now considering life insurance
consumer disclosure laws for their states.
Fast Fact: NCOIL passed the Life Insurance Consumer Disclosure Model Law
unanimously in November, 2011 requiring insurance companies to notify policy
owners of alternatives to abandonment of a life insurance policy.
"Conversion to a Long Term Care Benefit Plan" is one of the required
disclosure options in the Model Law.
New York State also passed a law that is
an example of the growing national trend of using life insurance policies as a
means to pay for long term care. The bill, signed into law on Dec. 14, 2010,
allows those who have been residents of a nursing home for at least three
months to apply the proceeds of an existing accelerated death benefit (ADB)
rider toward their costs of housing and care. The bill does not provide for
payment toward assisted living, home health care, or other forms of senior
housing and care.
The goal of this law, first introduced into the New York
Assembly in 2008, is to offset the costs of New York’s Medicaid program paying
for a nursing home stay by extending the spend-down period of a life insurance
policy if it has an accelerated death benefit rider. The bill’s author, State Sen. Jeff Klein, cited the high
costs of New York’s Medicaid program paying for a nursing home stay as the
driving force behind the new law’s passage. He stated that New York’s Medicaid
program spends more than $23 billion on long term care, and that this new law
could save the state approximately $1 billion over the next five years.
In 2011, the state of
Connecticut introduced study bill SB-1153, as “an
act establishing a task force to study life insurance policy and annuity
conversions and the provision of certain notifications by life insurance
companies”. The study bill has been
referred to the Joint Committee on Insurance
and Real Estate Law for consideration as a means to help Connecticut deal
with an out of control Medicaid budget through the conversion of life insurance
policies and annuities to pay for long term care.
In 2012, the state of Hawaii also
introduced a study bill, SB-2455 to “establish a task force to assess and make
recommendations regarding the use of viatical
settlements and accelerated death benefits as means of funding long-term
care”. The bill specifically declares, “The legislature finds that although the
cost of long-term care services is rising, more individuals have term life
insurance policies, which end when people leave their job or retire, instead of
private long-term care insurance. Factors such as cost, convenience, and desire
to protect growing families, may motivate individuals to buy life insurance
over long-term care insurance. The legislature also finds that according to the
American Council of Life Insurers, Hawaii had more than 709,000 in-force life
insurance policies in 2009, compared to 77,344 individuals covered by long-term
care insurance in 2010. Approximately only five per cent of the State's
population has long-term care insurance. The legislature further finds that
despite the infrequent use of viatical
settlements and accelerated death benefits in life insurance policies, these
options should be studied as possible solutions and assessed for their
potential as funding sources for long-term care services”.
For the 2012 Florida
legislative session, a bi-cameral bill was introduced in both the House and the
Senate bringing these individual private market concepts together for the first
time as a proposed law. HB-1055 would
require use of an existing accelerated death benefit (ADB) rider to pay for nursing
home care as in New York; would require the Consumer Disclosure requirements of
the NCOIL Model Law; and would require policy conversions as an extended spend
down as a Medicaid eligibility requirement.
The goal of the sponsors of this consumer protection bill is to give
policy owners as much information as possible about their legal rights of ownership. They also see a responsibility to save tax
payers money by delaying the need of a person going onto Medicaid through the
ability to access the fair market value of their asset and remaining a private
pay patient for as long as possible.
With the introduction of HB1055 in
2012, the Florida legislature has taken the consumer disclosure protections
first introduced by NCOIL a little over a year ago to its next logical
steps. According to an economic
impact study released in January, 2012 by The Center for Economic Forecasting and Analysis (CEFA) the
cost saving implications of private market policy conversions for Florida tax
payers and the state Medicaid budget through passage of HB1055 was measured.
According
to the CEFA study entitled, Conversion of Life Insurance Policies to Long Term
Care Benefit Plans in Florida: “The
objective of this research project is to examine the impacts of the objective
of House Bill 1055, specifically the opportunities for utilizing life-insurance
policy assets as an available means whereby private funding may pay for
long-term health care needs. Medicaid
expenses on long-term health care services for residents may be offset by… $157.4 million on conversion of their
life-insurance policies into long-term health care benefit plans per year.
Fast Fact: Florida estimated over $150 million in annual Medicaid
budget savings through Assurance Benefit policy conversions
The bill would
require: a) use of an
accelerated death benefit (ADB) rider, if present, to pay for nursing home
care, b) required disclosure to the consumer of the National Conference of Insurance Legislators (NCOIL) Model Law, (which deals amongst others with unclaimed property policies), and c) would allow policy
conversions as an extended spend down Medicaid eligibility requirement. The objectives of the sponsors of the bill
are twofold, namely;
- To protect consumers by giving policy owners as much information as
possible about their legal rights on life-insurance policy ownership; and
- To save taxpayers money by utilizing the value of life-insurance
policies and to delay the need for a citizen becoming dependent on
Medicaid.
In Florida, all
Medicaid applicants are specifically asked if they own life-insurance policies,
and if so, they have to disclose the full policy details. A failure to
disclose and comply is fraud. A life-insurance policy is legally
recognized as an asset of the policy owner (with all rights of personal
property ownership) and it counts against the owner when qualifying for
Medicaid. If a policy has more than a minimal amount of cash value
(usually in the range of $2,000) it must be liquidated and that money is to be
spent towards cost of care before the owner will qualify for Medicaid.”
According to the Florida Legislature’s
Office of Program Policy Analyses and Government Accountability: “A
life-insurance policy can be surrendered for its cash value to be spent down on
care, or a policy can be
converted for its fair market value and the full benefit of that conversion can
be used to pay for long-term care as a qualified spend down. The owner of one
or more policies has a variety of options to consider:
- A
policy with more than a minimal amount of cash value must be surrendered
back to the insurance company with the proceeds spent down on care.
- A
policy with no cash value does not need to be liquidated but the death
benefit will be subject to federally required Medicaid recovery efforts to
return the amount of money spent on care.
- Many
states will exempt a small “final expense” policy if the full death
benefit value is assigned to a funeral home.”
It is common sense that the best interest of
policy holders is to make decisions with full disclosure of their rights and
options. In today’s stressed economic
environment, policy owners need to understand that a life insurance policy is
more than just a death benefit. It is a
legally recognized asset that can help them in a number of ways, and simply
walking away from a policy is their worst possible option. Expect
more legislative action like this to be introduced throughout the country.
Conclusion: Consumer Information and Choice is Consumer Protection
Too
often seniors who have owned a life insurance policy for many years, which is
about to lapse or be surrendered for minimal value, will have contacted their
life insurance company to ask about their options. The life insurance company will inform them
that they really only have two options if they don’t pay their premium:
surrender the policy for its cash value (if it has any) or let it lapse. Most people that receive a lapse notice have
no cash value because it has already been drained by the carrier to cover any
unpaid premium payments. That typically
leaves the final option of “pay or go away”.
The number of seniors that allow this to happen to a policy after paying
premiums, sometimes for decades, is scandalously high.
Fast Fact: A policy can be converted to
a private market long term care benefit account locking up the funds to only be
spent on long term care services with the funds being issued monthly by a
benefit administrator to the provider of long term care.
On
November 19, 2010, during testimony at NCOIL’s annual meeting to consider
passing the Consumer Disclosure Model Law, Life Care Funding Group offered the
following observation:
“The
intersection of a growing senior and Baby Boomer population and economic bust
is creating a crisis for how seniors will fund their retirements and eventually
long term care expenses. Our case
workers hear from seniors and their families every day who have been paying
premiums for years and are getting ready to abandon their policy. These are middle class Americans without
insurance expertise and the typical size of their policy is well under
$500,000. This disclosure law will help
consumers understand they have a number of options to consider before
discarding a policy, including converting their policy into a long term care
benefit plan that holds the potential to address their financial shortfalls.”
Families with the need to pay for long term care that are unable or
unwilling to keep their life insurance policy in-force by maintaining premium
payments, or are planning to abandon as part of a Medicaid spend down regimen,
the Assurance Benefit conversion option is a much better choice.
Epilogue
Life
Care Funding Group introduced the “Life Care Assurance Benefit” in 2010 as a
tool to help families pay for long term care.
Today, over 4,000 assisted living and nursing home
communities around the United States offer the Assurance Benefit option to families
as an option to pay for long term care.
The Assurance Benefit allows the owner
of an in-force life insurance policy to convert their death benefit into a long
term care benefit plan to help cover the costs of Senior Living and Long Term
Care. The Assurance
Benefit is a
regulated transaction complying with the same standards as any other secondary
market transaction for a life insurance policy. The Assurance Benefit is the
exchange of a life insurance policy for a long term care benefit plan at the
time that care needs to be paid. The long term care
benefit account is set up as an irrevocable trust and administered by a third
party benefit administrator. The entire
amount of the benefit account is guaranteed and a final expense funeral benefit
is also provided. Policy owners use their
legal right to convert an in-force life insurance policy to enroll in the
benefit plan and are able to immediately direct payments to cover their senior
housing and long term care costs.
** In
2012, the state of Florida passed HB 5001,
a study bill as part of
the state’s budget that will examine tax dollar savings from converting life
insurance policies into long term care benefit plans for Medicaid eligibility. Specifically, the study bill will “establish a
technical advisory workgroup by August 1, 2012, to examine methods to allow an
insured under a life insurance policy or the contract holder of an annuity, to
convert the policy or annuity to a long term care benefit. The agency shall submit a report of findings and
activities of the workgroup, including recommendations and proposed
legislation, no later than January 15, 2013.”
Author
Chris
Orestis is a 15 year veteran of both the insurance and long term care
industries. His career began with senior
positions on a number of political campaigns before working in 1993 and 1994
for both the White House and the Senate Majority Leader on Capitol Hill. From that
point, he spent the next several years representing the health and life
insurance industry as Vice President and Senior Vice President respectively for
the Health Insurance Association of America (HIAA) and the American Council of
Life Insurers (ACLI). In 1999, he was
awarded the Robert R. Neal Medal by HIAA for distinction and service to the
industry. Chris is co-founder of Life
Care Funding Group (LCFG) founded in 2007.
He is an acknowledged national expert on insurance and long term care
issues, and is a frequent speaker, featured columnist and Contributing Editor
to a number of industry publications, including: National Underwriter,
Insurance News Net, Agent’s Sales Journal, Life Insurance Selling, Senior
Market Advisor, On the Risk, Society of Actuaries, HealthDecisions,
ProducersWEB, ISIS, and InsureIntell.
Chris was named to the Advisory Board of the 3in4 Need More Association
for 2012. Chris has been published on insurance
and long term care funding issues over 50 times and his Blog on senior living
and long term care funding issues (www.lifecarefunding.com/blog) with thousands
of readers every month has become one of the more popular forums on the
internet.
Life Care Funding Group
Founded in 2007, Life Care Funding Group
(LCFG) assists people in need of funds to cover the costs of senior housing and
long term care. LCFG specializes in converting the death benefit of an in-force
life insurance policy into a long term care benefit plan to cover the costs of
skilled nursing home care, assisted living, home health care, and hospice.
Thousands of assisted living
communities, nursing homes, retirement communities, home healthcare providers
and senior care advisors offer the LCFG program to families' every day. LCFG's
national education campaign has brought awareness about this important
financial option to millions of people across the United States. National
publications such as Kiplinger's, The Wall Street Journal, and The New York
Times have all published stories about the importance of Funding Solutions for
Senior Living.
Sources
Health and
Human Services (HHS) Center for Medicare and Medicaid Services (CMS)
(www.hhs.gov)
United States
Government Accountability Office (GAO) report to the United States Congress,
“Medicaid Long Term Care” report, March, 2007
Met
Life Mature Markets Institute, 2009 and 2010
Kaiser
Family Foundation, Medicaid Fact Sheet,
March 2011 and State Fiscal Condition
and Medicaid Report, October 2010
National
Conference of Insurance Legislators (NCOIL), Life Insurance Consumer Disclosure Model Law, November 2010
American
Council of Life Insurers (ACLI) tabulation of annual data by the National
Association of Insurance Commissioners (NAIC), Life Insurers Fact Book 2011, December 2011
Center
for Economic Forecasting and Analysis, University of Florida, Conversion of Life Insurance Policies to
Long Term Care Benefit Plans in Florida, January, 2012
The Health Insurance
Portability and Accountability Act of 1996 (HIPAA), Public Law 104-191
