Medicaid
Eligibility Issue
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 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 Long Term Care Benefit conversions.
Consumer
Awareness
Consumers lack awareness and are
unprepared for how they are going to cover the costs of long term care. It is a
subject typically ignored until a loved one is in immediate need of care.
Families requiring senior living and long term care are in a particularly
difficult position if they have not planned with savings and
insurance/annuities. Unfortunately, that is how you would describe the vast
majority of people who require senior housing and long term care today. We need
to do all we can to educate people on how to plan for their long term care
futures. But what about the majority of unprepared people that need to access
long term care today?
It all starts with education and
awareness. Millions of seniors are holding a potential solution in their hands
today if they own a life insurance policy. Unfortunately they are unaware of
their legal property ownership rights and available options such as the life
insurance policy conversion to pay for senior living and long term care. It is common sense that the best
interest of policy holders is to make decisions with full disclosure of their
rights and options. Addressing this simple fact, states are now taking
action to tackle this lack of consumer awareness. As the word spreads across
long term care providers, advisors and with the consumer; the growing use of
policy conversions will begin to have a measurable, positive impact on the long
term care funding crisis in the United States.
Converting
an existing life insurance policy into a Long Term Care 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
conversion option allows for the private, secondary market exchange of a life
insurance policy for a long term care benefit plan at the time that care is
needed. The benefit plan is a private
market long term care funding option and is not issued by an insurance company
or restricted to life policies that contain a conversion or accelerated death
benefit rider. Any form of life insurance can qualify for conversion: universal
life, whole life, term life, and group life.
The benefit plan will pay for all forms of long term care: home health,
assisted living, and nursing home care. Once a policy is converted by
the owner (usually 30 days), the monthly long term care benefit payments begin
immediately and the enrollee is relieved of any responsibility to pay any more
premiums. Every benefit account provides
a final expense benefit to help cover funeral expenses, and 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.
When
a family learns about the Long Term Care Conversion option either through interaction
with a long term care provider, an elder law attorney, a geriatric case
manager, by reading about the conversion option in the media or online, or
through an insurance agent or financial advisor; they are typically at the
point that they are actively looking to pay for long term care services.
Any of these entities will inform the family that if they have a life insurance
policy it is an unqualified asset for Medicaid but it is their legal right to
convert it to a long term care benefit plan to help pay for the costs of home
healthcare, nursing home care or assisted living .
Consumer
Rights and Legislative Action
Middle
class policy owners and their families are caught in the ironically unfortunate
position of not being poor enough to automatically qualify for Medicaid, but
they are not wealthy enough to access the care they need with enough
out-of-pocket funds. In America, the vast middle class market is financially
punished for being caught “in the middle” when they reach the point that a
loved one requires long term care.
When
a family has a life insurance asset to work with, the ultimate decision for
those we talk with is based upon: what is the best possible outcome for a life
insurance policy in relation to the immediate needs of the loved one and
family?
1- The
policy owner could keep their policy in force and ultimately the named
beneficiaries collect the death benefit which of course is tax free. This
option puts the policy owner and the family in the position to answer a couple
of questions:
a. What is more important to the policy owner and
family—continue to pay the premiums and collect a death benefit at an unknown
time in the future, or;
b. Utilize the present day value of the policy to help
pay for the costs of long term care for a loved one.
2- The
answer to this question is often driven by one of two major factors:
a. Can the policy owner (and/or family) afford to keep
a policy in-force by continuing to pay the premium obligations, and;
b. Can the policy owner (and/or family) afford for
their loved one to receive the long term care services they require.
An
additional factor that must be taken into account for Medicaid applicants is that life insurance is an
“unqualified asset” for eligibility. It has been standard practice for years to
abandon a life insurance policy if it is within the legally required five year
look back spend-down period. But, converting
a life insurance policy into a long term care benefit plan is a Medicaid
qualified spend-down. Instead of abandoning the policy and
going immediately onto Medicaid, the time a person remains private pay
is extended while the present
day value of the life insurance asset is spent-down in a Medicaid compliant
fashion—all while preserving a portion of the death benefit for the family
during the extended time period.
When
evaluating the viability of the Long Term Care Benefit conversion option, families
will assess their current needs and all available options are for them to
consider maximizing the value of their policy, which typically would consist of
the following:
·
Keep the policy in-force to collect the death benefit
·
Surrender the policy for any remaining cash value
·
Consider a policy loan (requires they keep the policy
in-force and cover interest payments and fees)
·
Consider a life settlement (a policy less than $1M will get
little to no interest in the secondary market and overall life settlement
payouts offer a smaller percentage of face value than an Assurance Benefit
conversion provides to fund senior living and long term care)
·
Consider an accelerated death benefit (if the policy has
such a feature and then there are very specific requirements by life insurance
companies to verify terminal diagnosis to get approval)
·
Consider converting the policy to a Long Term Care Benefit
plan
When
the National Conference of Insurance Legislators (NCOIL) passed the Life
Insurance Consumer Disclosure Model Law in November, 2010 they provided for
eight specific options that a life insurance policy owner would need to be made
aware of as an alternative to lapse or surrender of a policy:
1.
Accelerated death benefit
2.
Assignment of policy as a gift
3.
Life settlement
4.
Policy replacement
5.
Maintenance pursuant to terms or riders
6.
Maintenance of policy through a loan
7.
Conversion from term to a permanent policy
8.
Conversion to LTCI or
a Long Term Care Benefit Plan
Understanding the implications of
billions of dollars in asset value that could be converted and spent on long
term care instead of just being abandoned, state legislatures across the
country have begun taking action to educate the consumer about their legal
rights to convert a life insurance policy.
·
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”.
·
In
2012, Louisiana passed study bill SCR-66,
“To establish an advisory work group
within the Department of Insurance to examine options that may be available to
allow an insured under a life insurance policy or contract holder of an annuity
to fund long term care benefits.” The Louisiana work group has begun their
meetings
·
In 2012, Hawaii introduced 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”.
·
In 2012, the state of Florida passed HB 5001, to “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.” The Florida study group has begun
their meetings.
In
January, 2012, the Center for Economic Forecasting and Analysis (CEFA) of
Florida State University analyzed the tax savings impact of converting life
insurance policies into long term care benefit plans on the Florida Medicaid
budget. In their analysis, CEFA “scored”
the annual savings for Florida’s tax payers at approximately $150 million. The savings come from extending the time
Medicaid applicants with a life insurance policy can remain private pay, delaying
entry onto Medicaid by first converting their policy to a private, long term
care benefit account. Conclusion:
According
to the NAIC, 153 million Americans own $27.2 trillion worth of in-force life
insurance policy death benefits—that is triple the amount of home equity in the
United States today! The insurance
industry prices and makes profits from the fact that millions of people are
paying billions of dollars in premium payments for policies that in the end
will be abandoned. Too few policy
owners’ possess the knowledge of how insurance works, and when their original
need for a policy has run its course the vast majority of owners simply abandon
what may be one of the most valuable assets they own—for nothing in return. 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 Long Term Care Conversion option is a much better choice than abandoning a
policy.
Providers of long term care services such as nursing homes,
assisted living communities and home health agencies have been quick to embrace
the Long Term Care Conversion option as an alternative form of long term care
funding. 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. Media attention, as well as legislative and
market activities across the country clearly point to the growing realization
that life insurance policies are an asset well suited to help pay for long term
care and it is in the best interest of the consumer to make sure they are
educated about their legal rights to take advantage of the “Conversion to a
Long term Care Benefit Plan” funding option.
