Center for Economic Forecasting and Analysis (CEFA) estimates annual savings from policy conversions over $150 million to Florida Medicaid and Tax Payers
Since the National Conference of Insurance Legislators (NCOIL) unanimously passed the Life Insurance Consumer Disclosure Model Law in 2010, states all across the country have been looking at the cost savings impact on stressed Medicaid budgets by converting life insurance policies into long term care benefit plans. The policy conversion option was one of the consumer protection disclosure requirements included in NCOIL’s model law, and the nursing home and assisted living industries have been quick to adopt this funding option to help beleaguered families struggling with the costs of long term care across the United States. Life Insurance is an unqualified asset for Medicaid eligibility and it has been standard practice to lapse or surrender a policy as part of a Medicaid spend down plan. With billions in face value being abandoned, NCOIL and state law makers have come to realize that a better option for seniors, the long term care industry, and tax payers would be to convert these policies instead.
According to The Center for Economic Forecasting and Analysis (CEFA): In Florida, the Department of Elder Affair’s “Comprehensive Assessment and Review for Long-Term Care Services (CARES) Program” determines medical eligibility, and the Department of Children and Families “Economic Self-Sufficiency (ACCESS) Program” determines financial eligibility. On registering for Medicaid with ACCESS, applicants have to disclose assets and income. In particular, 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.
Medicaid budgets in every state are under extreme pressure to balance shrinking revenues and the demands of a growing elderly population requiring long term care services. Compounding this problem are across the board cuts of 11.1% for all long term care related expenditures the Center for Medicare and Medicaid Services (CMS), the federal government agency which manages the two entitlement programs, instituted for 2012.
Medicaid already reimburses at rates 1/3 lower than private pay rates, and this cut by CMS is an additional 11.1% reduction to the bottom line of every long term care service provider in the United States. Yet demand for services is increasing at an alarming rate. Ten thousand baby boomers a day started turning 65 on January 1, 2011-- and that pace will continue uninterrupted for twenty more years. The government and the long term care industry are desperately looking for innovative, private market solutions to help bridge this widening chasm.
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 CEFA, the bill introduced in both the Florida House and Senate, 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.
CEFA’s economic impact study released in January, 2012, measures the cost saving implications of private market policy conversions for Florida tax payers and the state Medicaid budget through passage of HB1055. 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.
The CEFA economic impact study does not take into account the tax advantaged status of policy conversions into long term care benefit plans for the consumer, nor did it explore the impact of new tax revenue for the state. By adding new taxable revenue being received by the long term care facilities in the form of extended private pay dollars that otherwise would not have existed, the state could not only be saving over $150 million annually but adding as much as $50 million in new revenue taxed at the corporate rate.
Pressure on the Medicare and Medicaid safety nets are growing daily (literally by 10,000 people per day) and it is imperative that private market alternatives are embraced as quickly as possible. The primary champion for this consumer protection disclosure law has been the Florida Health Care Association representing nursing homes and assisted living communities throughout the state. They recognize that it is in the better interest of the consumer to be fully informed of their options to use a life insurance policy to help pay for long term care as an alternative to abandoning the policy. It is also in the best interest of tax payers to extend the spend down period of a life insurance policy by converting it to its fair market value, allowing someone to remain private pay for as long as possible.
Informing the consumer of their legal right to use their own property (a life insurance policy) to its maximum utility as a means to pay for long term care is an irrefutable positive. As numerous states prepare to introduce similar legislation to Florida’s HB1055; it appears that the option to convert life insurance policies into long term care benefit plans is growing rapidly into a favored option for funding long term care in the United States.
Monday, January 23, 2012
Friday, December 30, 2011
2012--Year One of the Silver Tsunami Comes to an End
2011 was a benchmark year for the Baby Boom generation. By the time the clock strikes mid-night and we welcome 2012, almost 4 million Baby Boomers will have turned 65 years of age. During the 365 days of 2011, ten thousand Americans turned 65 each and every day. 2012 is only the second of a twenty year journey where that pace continues annually until it ends with almost 80 million Baby Boomers crossing the threshold of age 65.
What other benchmarks occurred in 2011?
• MetLife exited the long term care insurance market, and additional departures from the market are anticipated this year;
• The CLASS Act was enacted and then killed in the midst of a Medicaid funding crisis to pay for costs of long term care across the United States;
• Medicaid spent $427 billion prompting CMS to summarily cut all long term care funding by Medicare and Medicaid across the board 11.1%;
• We saw equity in American homes drop to under 50% for the first time in our nation’s history to just under $10 trillion, and by comparison, in-force life insurance now stands at almost $30 trillion;
• NCOIL passed the Life Insurance Consumer Disclosure Model Law to attack the massive problem of seniors abandoning life insurance policies because they are unaware of alternative options;
• State legislatures started looking at how converting life insurance policies into long term care benefit plans could save tax payers money by extending the spend down period before Medicaid eligibility;
• The Florida Legislature introduced a first in the Nation consumer protection bill (HB 1055) that provides for conversion of a life insurance policy into a long term care benefit plan as a Medicaid eligibility requirement, use of accelerated death benefits to pay for nursing home (SNF) costs, and mandates the NCOIL Life Insurance Consumer Disclosure Model Law.
What we are seeing as we enter 2012, is a growing awareness that this $30 trillion pool of in-force life insurance policies is an asset base of immense proportions and a source for long term care funding solutions. But, the policies are in the hands of owners that for the most part have no understanding of their legal ownership rights and the variety of options available to use their property while still alive. Seniors in particular have been the most vulnerable to lack of information, and therefor disproportionately abandon life insurance policies in their final years.
This lack of information coupled with difficulty affording premium payments, disappearance of the original insurable interest when the policy was initiated (the children have grown up and/or lack of spouse), and life insurance ownership counting against Medicaid eligibility all conspire to push seniors to needlessly abandon policies. Consumer protection measures such as the NCOIL Model Law and Florida legislation, long term care funding options such as policy conversions, and education efforts spear headed by the assisted living and nursing home industry will have a major impact in 2012.
This is the year when policy owners will start to come out of the dark in large numbers. As they become better informed about their legal rights of ownership and alternatives to policy abandonment, they will realize that a life insurance policy they are about to discard can be put to much better use helping them pay for long term care. And based on the growing demographic tide, ongoing economic malaise, cuts by the government in Medicare and Medicaid (as well as elimination of programs like CLASS act), and the very challenging marketplace for long term care insurance-- the emergence of another private market funding solution for long term care services comes not a moment too soon.
If 2011 was the year of challenges and a search for solutions; 2012 will be the year of awareness and implementing solutions.
2011 was a benchmark year for the Baby Boom generation. By the time the clock strikes mid-night and we welcome 2012, almost 4 million Baby Boomers will have turned 65 years of age. During the 365 days of 2011, ten thousand Americans turned 65 each and every day. 2012 is only the second of a twenty year journey where that pace continues annually until it ends with almost 80 million Baby Boomers crossing the threshold of age 65.
What other benchmarks occurred in 2011?
• MetLife exited the long term care insurance market, and additional departures from the market are anticipated this year;
• The CLASS Act was enacted and then killed in the midst of a Medicaid funding crisis to pay for costs of long term care across the United States;
• Medicaid spent $427 billion prompting CMS to summarily cut all long term care funding by Medicare and Medicaid across the board 11.1%;
• We saw equity in American homes drop to under 50% for the first time in our nation’s history to just under $10 trillion, and by comparison, in-force life insurance now stands at almost $30 trillion;
• NCOIL passed the Life Insurance Consumer Disclosure Model Law to attack the massive problem of seniors abandoning life insurance policies because they are unaware of alternative options;
• State legislatures started looking at how converting life insurance policies into long term care benefit plans could save tax payers money by extending the spend down period before Medicaid eligibility;
• The Florida Legislature introduced a first in the Nation consumer protection bill (HB 1055) that provides for conversion of a life insurance policy into a long term care benefit plan as a Medicaid eligibility requirement, use of accelerated death benefits to pay for nursing home (SNF) costs, and mandates the NCOIL Life Insurance Consumer Disclosure Model Law.
What we are seeing as we enter 2012, is a growing awareness that this $30 trillion pool of in-force life insurance policies is an asset base of immense proportions and a source for long term care funding solutions. But, the policies are in the hands of owners that for the most part have no understanding of their legal ownership rights and the variety of options available to use their property while still alive. Seniors in particular have been the most vulnerable to lack of information, and therefor disproportionately abandon life insurance policies in their final years.
This lack of information coupled with difficulty affording premium payments, disappearance of the original insurable interest when the policy was initiated (the children have grown up and/or lack of spouse), and life insurance ownership counting against Medicaid eligibility all conspire to push seniors to needlessly abandon policies. Consumer protection measures such as the NCOIL Model Law and Florida legislation, long term care funding options such as policy conversions, and education efforts spear headed by the assisted living and nursing home industry will have a major impact in 2012.
This is the year when policy owners will start to come out of the dark in large numbers. As they become better informed about their legal rights of ownership and alternatives to policy abandonment, they will realize that a life insurance policy they are about to discard can be put to much better use helping them pay for long term care. And based on the growing demographic tide, ongoing economic malaise, cuts by the government in Medicare and Medicaid (as well as elimination of programs like CLASS act), and the very challenging marketplace for long term care insurance-- the emergence of another private market funding solution for long term care services comes not a moment too soon.
If 2011 was the year of challenges and a search for solutions; 2012 will be the year of awareness and implementing solutions.
Friday, December 23, 2011
Making up the Difference
As Super Committee falters, mandated budget reductions creates further pressure on the funding of long term care
The Super Committee could not overcome partisan differences over spending cuts and new revenues (taxes) within their mandated deadline and conceded defeat. That unfortunate outcome triggers mandated reductions in the federal budget of $1.3 trillion that will have an immediate impact on Medicare and Medicaid. This will be particularly disruptive for seniors and long term care providers already trying to absorb the 11.1% rate reduction that CMS instituted in October, 2011. After the demise of the CLASS Act, the long term care funding infrastructure of the United States is facing extreme pressure. Lackluster sales, rate increases and carrier casualties in the LTCi market combined with additional entitlement cuts as a result of the Super Committee outcome will conspire to make an already precarious situation worse.
Side Bar 1
Most people do not plan for Long Term Care until it is too late:
- 13% actively plan for how they will live as they grow older and frailer
- 40% first begin to actively plan following a “near catastrophic” health event
- 47% must make long term care decisions in a very short period of time, usually while in the hospital
- 75% exhaust all of their savings and assets while still alive trying to pay for Long Term Care
Side Bar 2
Most people do not understand the costs of Long Term Care and how to pay:
- 92% incorrectly estimate the monthly cost of a nursing home
- 77% incorrectly estimate the monthly cost of an assisted living facility
- 45% incorrectly believe “Medigap” covers assisted living costs
- 52% incorrectly believe Medicare covers assisted living costs
- 59% incorrectly think Medicare will pay for extended nursing home stay
Further compounding the problem is the fact that 10,000 Baby Boomers started turning 65 on a daily basis this year and that pace will continue uninterrupted for the next 20 years. The availability of public dollars to pay is shrinking while demand for long term care services and the costs of care continues to rise annually.
According to the 2010 MetLife Mature Markets Institute Annual Study, costs for all forms of long term care services continue to rise:
- The national average cost of staying in a semi-private room in a nursing home grew to $198 per day / $72,279 annually and a private room at $229 per day / $83,585 annually.
- The national average cost of living in an Alzheimer’s unit is $228 per day / $83,220 annually.
- The national average cost of living in an assisted living facility reached $3,131 per month / $39,516 annually.
- The national average cost for private-pay home healthcare is now at $21 per hour.
People do not understand and are not prepared to pay the costs of long term care. In years past, seniors could rely either on the government, family, or equity in assets such as a home to offset a lack of savings. In today’s new economic reality, family members are struggling to take care of themselves, the government is making cuts and building barriers to entry for long term care coverage, and the value of assets such as a home have been eviscerated. In fact, today there is currently three times more in-force life insurance in the United States at almost $30 trillion (NAIC) than there is home equity with less than $10 trillion (Zillow Home Equity Index).
For the first time in American history there is more debt than equity in America’s homes. For seniors unprepared for long term care this new reality is a big problem. One of the most reliable sources of long term care funding for years has been home equity and then government backstops once assets have been depleted. This mix is now severely disrupted and a search for additional assets to help unprepared seniors pay for long term care is on.
One non-depreciating asset that has been getting more attention as a resource to help pay the costs of long term care is life insurance. Life insurance is legally recognized as personal property and the owner has the right to use this asset in a number of ways including converting the policy to pay for long term care while still alive. Policy owners for the most part do not understand their legal rights of ownership and the various options available to them. 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. The shame of this situation for the consumer is that there are numerous options for them to explore before surrendering or lapsing a policy.
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 annually when they unanimously passed the Life Insurance Consumer Disclosure Model Act in November, 2010. The law requires that life insurance companies inform policy holders above the age of 60, or with a terminal or chronic condition, that there are specific alternatives to the lapse or surrender of a life insurance policy. 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."
The disclosure law is an important consumer protection victory for people requiring long term care because it will increase their awareness about the best use of a life insurance policy’s death benefit while still alive. The senior care industry and law makers are recognizing the opportunity to convert life policies into a method to pay for the high costs of senior housing and/or long term care. Among the options specifically included in the NCOIL Model Law is for a policy owner to “convert a policy into a long term care benefit plan”. For families unable or unwilling to keep their policy in-force by maintaining premium payments, the conversion option to pay for long term care is a much better choice than abandoning the policy.
States have been taking action in support of consumer rights to use life insurance policies to pay for long term care. In addition to those states adopting the NCOIL Consumer Disclosure Model Law; New York passed a law mandating that the owner of a policy with an accelerated death benefit (ADB) rider can trigger the benefit if they have been living in a nursing home for at least three months. There are 153 million owners of life insurance policies in the United States. Comparatively, there are 8 million owners of long term care insurance policies. With that disparity as a back drop, as many as a dozen other states are now looking at passing laws that combine conversion of a life insurance policy of any kind to a “long term care benefit plan”, the disclosure requirements of the NCOIL model, and the ADB trigger for nursing home residents.
The adoption of laws of this type in the states is a direct response to the explosion of Baby Boomers reaching retirement age, anaemic sales and significant disruption in the long term care insurance market, and a realization that billions of dollars worth of life insurance is abandoned every year by people who do not know their legal rights or options.
Providers of long term care services such as nursing homes, assisted living communities and home health agencies, as well as state governments, are realizing that there is tremendous value for the consumer in converting life insurance policies to help pay for the costs of long term care. By converting a life insurance policy instead of abandoning it, the policy owner’s care can be covered by the monthly long term care benefit payout and the life insurance asset can be spent-down in a Medicaid compliant fashion.
“Our goal at Emeritus is to ensure that seniors are properly cared for, and part of that goal is to help families with the financial decisions and details involved in caring for their loved ones,” said Jayne Sallerson, EVP, Sales & Marketing at Emeritus Senior Living (NYSE: ESC), the largest assisted living provider in the world. “Many seniors and families are unaware that their life insurance policies are valuable assets and can be converted to pay for long term care, and as a result some let active policies lapse. We hope that we can help educate seniors about their resources, so that more seniors can have access to the long term care that they need.”
With traditional resources to pay for long term care on the decline, it will take creative private market solutions and the use of non-traditional assets to make up the difference.
The Super Committee could not overcome partisan differences over spending cuts and new revenues (taxes) within their mandated deadline and conceded defeat. That unfortunate outcome triggers mandated reductions in the federal budget of $1.3 trillion that will have an immediate impact on Medicare and Medicaid. This will be particularly disruptive for seniors and long term care providers already trying to absorb the 11.1% rate reduction that CMS instituted in October, 2011. After the demise of the CLASS Act, the long term care funding infrastructure of the United States is facing extreme pressure. Lackluster sales, rate increases and carrier casualties in the LTCi market combined with additional entitlement cuts as a result of the Super Committee outcome will conspire to make an already precarious situation worse.
Side Bar 1
Most people do not plan for Long Term Care until it is too late:
- 13% actively plan for how they will live as they grow older and frailer
- 40% first begin to actively plan following a “near catastrophic” health event
- 47% must make long term care decisions in a very short period of time, usually while in the hospital
- 75% exhaust all of their savings and assets while still alive trying to pay for Long Term Care
Side Bar 2
Most people do not understand the costs of Long Term Care and how to pay:
- 92% incorrectly estimate the monthly cost of a nursing home
- 77% incorrectly estimate the monthly cost of an assisted living facility
- 45% incorrectly believe “Medigap” covers assisted living costs
- 52% incorrectly believe Medicare covers assisted living costs
- 59% incorrectly think Medicare will pay for extended nursing home stay
Further compounding the problem is the fact that 10,000 Baby Boomers started turning 65 on a daily basis this year and that pace will continue uninterrupted for the next 20 years. The availability of public dollars to pay is shrinking while demand for long term care services and the costs of care continues to rise annually.
According to the 2010 MetLife Mature Markets Institute Annual Study, costs for all forms of long term care services continue to rise:
- The national average cost of staying in a semi-private room in a nursing home grew to $198 per day / $72,279 annually and a private room at $229 per day / $83,585 annually.
- The national average cost of living in an Alzheimer’s unit is $228 per day / $83,220 annually.
- The national average cost of living in an assisted living facility reached $3,131 per month / $39,516 annually.
- The national average cost for private-pay home healthcare is now at $21 per hour.
People do not understand and are not prepared to pay the costs of long term care. In years past, seniors could rely either on the government, family, or equity in assets such as a home to offset a lack of savings. In today’s new economic reality, family members are struggling to take care of themselves, the government is making cuts and building barriers to entry for long term care coverage, and the value of assets such as a home have been eviscerated. In fact, today there is currently three times more in-force life insurance in the United States at almost $30 trillion (NAIC) than there is home equity with less than $10 trillion (Zillow Home Equity Index).
For the first time in American history there is more debt than equity in America’s homes. For seniors unprepared for long term care this new reality is a big problem. One of the most reliable sources of long term care funding for years has been home equity and then government backstops once assets have been depleted. This mix is now severely disrupted and a search for additional assets to help unprepared seniors pay for long term care is on.
One non-depreciating asset that has been getting more attention as a resource to help pay the costs of long term care is life insurance. Life insurance is legally recognized as personal property and the owner has the right to use this asset in a number of ways including converting the policy to pay for long term care while still alive. Policy owners for the most part do not understand their legal rights of ownership and the various options available to them. 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. The shame of this situation for the consumer is that there are numerous options for them to explore before surrendering or lapsing a policy.
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 annually when they unanimously passed the Life Insurance Consumer Disclosure Model Act in November, 2010. The law requires that life insurance companies inform policy holders above the age of 60, or with a terminal or chronic condition, that there are specific alternatives to the lapse or surrender of a life insurance policy. 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."
The disclosure law is an important consumer protection victory for people requiring long term care because it will increase their awareness about the best use of a life insurance policy’s death benefit while still alive. The senior care industry and law makers are recognizing the opportunity to convert life policies into a method to pay for the high costs of senior housing and/or long term care. Among the options specifically included in the NCOIL Model Law is for a policy owner to “convert a policy into a long term care benefit plan”. For families unable or unwilling to keep their policy in-force by maintaining premium payments, the conversion option to pay for long term care is a much better choice than abandoning the policy.
States have been taking action in support of consumer rights to use life insurance policies to pay for long term care. In addition to those states adopting the NCOIL Consumer Disclosure Model Law; New York passed a law mandating that the owner of a policy with an accelerated death benefit (ADB) rider can trigger the benefit if they have been living in a nursing home for at least three months. There are 153 million owners of life insurance policies in the United States. Comparatively, there are 8 million owners of long term care insurance policies. With that disparity as a back drop, as many as a dozen other states are now looking at passing laws that combine conversion of a life insurance policy of any kind to a “long term care benefit plan”, the disclosure requirements of the NCOIL model, and the ADB trigger for nursing home residents.
The adoption of laws of this type in the states is a direct response to the explosion of Baby Boomers reaching retirement age, anaemic sales and significant disruption in the long term care insurance market, and a realization that billions of dollars worth of life insurance is abandoned every year by people who do not know their legal rights or options.
Providers of long term care services such as nursing homes, assisted living communities and home health agencies, as well as state governments, are realizing that there is tremendous value for the consumer in converting life insurance policies to help pay for the costs of long term care. By converting a life insurance policy instead of abandoning it, the policy owner’s care can be covered by the monthly long term care benefit payout and the life insurance asset can be spent-down in a Medicaid compliant fashion.
“Our goal at Emeritus is to ensure that seniors are properly cared for, and part of that goal is to help families with the financial decisions and details involved in caring for their loved ones,” said Jayne Sallerson, EVP, Sales & Marketing at Emeritus Senior Living (NYSE: ESC), the largest assisted living provider in the world. “Many seniors and families are unaware that their life insurance policies are valuable assets and can be converted to pay for long term care, and as a result some let active policies lapse. We hope that we can help educate seniors about their resources, so that more seniors can have access to the long term care that they need.”
With traditional resources to pay for long term care on the decline, it will take creative private market solutions and the use of non-traditional assets to make up the difference.
Wednesday, November 2, 2011
Chris Orestis Interview at Senior Market Advisor VIDEO
Long term care funding options with Chris Orestis
Link to VIDEO: http://www.producersweb.com/r/pwebmc/d/contentFocus?pcID=8b6b962275920289cc1c2b4973480373#
By Paul Wilson, ProducersWEB
I recently sat down with Chris Orestis, a 15 year veteran of both the insurance and long term care industries. Chris spent 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). He is an expert on insurance and long term care issues, and is a frequent speaker, featured columnist and contributing editor to a number of industry publications.
His company, Life Care Funding Group, 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 to cover the costs of skilled nursing home care, assisted living, home health care and hospice.
In the first part of the interview, Chris talks about the current state of the long term care insurance industry. He also discusses the "wake-up call" facing producers and carriers and details some of the challenges, opportunities and responsibilities resulting from the current economic climate. He goes on to explain his recent involvement in the passage of the National Conference of Insurance Legislator's (NCOIL) Life Insurance Consumer Disclosure Model Law, which ensures policy owners "will be informed that they have a number of options to consider first that could make a significant difference in their lives, and at a time when they need it most.”
In the second part of the video, Chris provides further detail about the NCOIL Model Law and its effects on the industry, and talks about his company's partnerships with assisted living communities and nursing homes to help clients convert their life insurance policies into long term care benefit plans. Finally, he looks into his crystal ball and gives his best guess as to the future of the life insurance industry, LTCI industry and disability insurance.
Link to VIDEO: http://www.producersweb.com/r/pwebmc/d/contentFocus?pcID=8b6b962275920289cc1c2b4973480373#
By Paul Wilson, ProducersWEB
I recently sat down with Chris Orestis, a 15 year veteran of both the insurance and long term care industries. Chris spent 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). He is an expert on insurance and long term care issues, and is a frequent speaker, featured columnist and contributing editor to a number of industry publications.
His company, Life Care Funding Group, 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 to cover the costs of skilled nursing home care, assisted living, home health care and hospice.
In the first part of the interview, Chris talks about the current state of the long term care insurance industry. He also discusses the "wake-up call" facing producers and carriers and details some of the challenges, opportunities and responsibilities resulting from the current economic climate. He goes on to explain his recent involvement in the passage of the National Conference of Insurance Legislator's (NCOIL) Life Insurance Consumer Disclosure Model Law, which ensures policy owners "will be informed that they have a number of options to consider first that could make a significant difference in their lives, and at a time when they need it most.”
In the second part of the video, Chris provides further detail about the NCOIL Model Law and its effects on the industry, and talks about his company's partnerships with assisted living communities and nursing homes to help clients convert their life insurance policies into long term care benefit plans. Finally, he looks into his crystal ball and gives his best guess as to the future of the life insurance industry, LTCI industry and disability insurance.
Thursday, October 27, 2011
A Roundtable Discussion -- Consumer Disclosure Law: The Changing Face of Long Term Care Funding
Following the panel session entitled Consumer Disclosure Law: The Changing Face of Long Term Care Funding on August 25, 2011 at the Annual Senior Market Advisor Expo in Las Vegas, the panelists were all asked a series of follow up questions about the topic area discussed during the session.
Representatives from politics, senior living, insurance producers and private market funding solutions came together to discuss the crisis situation for seniors attempting to pay the costs of long term care in today’s environment.
Session Panelists:
• Chris Orestis, CEO of Life Care Funding Group as host and moderator
• Jayne Sallerson Executive Vice President of Emeritus Senior Living
• Rep. Rob Damron (KY) immediate past president of the National Conference of Insurance Legislators (NCOIL)
• David Kitaen, CLTC
Question- What are some of the factors changing the face of long term care funding today in the United States?
Answer- (Chris Orestis) Our country has begun a demographic sea change with 10,000 Baby Boomers turning 65 every day. This started on January 1st, 2011 and will continue uninterrupted for the next 20 years! The pressure this is creating in how we will pay for long term care led Federal Reserve Chairman Ben Bernanke to declare the aging population and exploding cost of health care as the #1 challenge facing the U.S. economy and government budgets.
Question- How has the government reacted to this demographic sea change?
Answer- (Chris Orestis) The current economic crisis could not have happened at a worse time and we see it in the news everyday. Just as the Baby Boomers started qualifying for Medicare and Social Security, this massive surge in the aging population is forcing the government to enact swift and draconian cuts to Medicare and Medicaid. There is not a budget proposal in Washington, DC without cutting hundreds of billions in Medicaid spending. CMS announced in August that as of October, 2011 they would institute an 11.1% across the board reduction in expenditures for all long term care related programs. This is an unprecedented reduction and the consumer is going to be forced to dig into their pockets to make up for it.
Question- As Executive Vice President for the largest assisted living company in the world, what do you see as key challenges families are facing in today’s environment when trying to pay for senior living and long term care?
Answer- (Jayne Sallerson) Equity in homes of most seniors has eroded and many can’t sell anyway, pensions and retirement plans have lost tremendous value, and most have not planned with products such as long term care insurance. Too few families plan for long term care or even understand the differences between assisted living and skilled nursing, Medicare and Medicaid, Medigap and Long Term Care Insurance and how all of it works. Unfortunately most families just don’t deal with long term care until they are in a crisis mode and have very little time and even fewer options. Many people are trapped in their homes and/or are getting insufficient or no care whatsoever based on their conditions and declining ability to live independently and safely.
Making matters worse, programs like Medicare and Medicaid are experiencing huge cuts and the responsibility to pay is being pushed back on the individual and their family. We are seeing more emphasis on families covering long term care expenses with private pay dollars, but most have no idea what their options are and where to turn for help.
Question- As one of the first and longest active LTCi producers in the country, how do you view the current state of affairs for seniors and long term care?
Answer- (Dave Kitaen) The combination of the toughest economy since the great depression, a growing senior population, and cuts to Medicare and Medicaid are making things very difficult for seniors and families confronting the need for long term care. This should be the boom years for LTCi with the highest sales levels on record, but sales have not been growing and companies like MetLife have left the market. MetLife leaving the market is like General Motors announcing they no longer will be selling cars.
The costs of long term care services rises every year but the ability of seniors to pay has been declining since the economic crash of 2008. Seniors need help understanding all of their financial options and how to get full use of any available assets.
Question- As president of the National Conference of Insurance Legislators (NCOIL), was this situation with long term care funding one of the factors contributing to passage of the Life Insurance Consumer Disclosure Model Law?
Answer- (Rep. Rob Damron) Yes, we saw the billions of dollars in life insurance policies owned by seniors being abandoned by the owners ever year. These seniors did not understand their legal rights of ownership or available options to use these policies in a better way such as to help pay for their costs of long term care. The motivation behind this model law is to educate policy owners that they have options such as converting their life insurance policy to a long term care benefit plan that can be set up to help pay for their costs of long term care every month. We would rather see these policies being used by their owners to address their long tem care needs than be abandoned with the entire policy value going to the insurance company’s bottom line as profit.
Question- Life Care Funding Group has been an active supporter of the model law, what do you hope is accomplished as the model law is adopted in states around the country?
Answer- (Chris Orestis) We want to see the high lapse and surrender rate of life insurance policies by seniors reversed. We believe this will happen as they come to understand their legal ownership rights and options to use the policies as a tool to help them pay for long term care. Billions of dollars in life insurance could be converted instead of abandoned and then used to help pay for long term care costs. By giving the consumer access to information about their legal rights and options as a policy owner they can make informed decisions about best use of an asset they already own. In today’s environment it is important that consumers know they can convert a life insurance policy to a long term care benefit plan. It is a Medicaid qualified spend down of an asset they have been needlessly abandoning. Now instead of abandoning a policy they own and have paid premiums sometimes for decades, it can sustain a person’s long term care needs at private pay levels for months and years.
Question- What are LTC providers doing to educate and help consumers?
Answer- (Jayne Sallerson) Emeritus has been promoting “Financial Solutions” to the consumer to help pay for costs of housing and care for many years. We educate the consumer at each of our over 550 communities across the United States about the availability of options and the importance of being financially capable. We have partnered with companies like Life Care Funding Group, make this information available on our website, and we discuss it in the press and participate in public forums such as this on a regular basis. Despite our efforts and the efforts of many others, we find the vast majority of consumers are uninformed and unprepared when it comes to this point in their lives. We plan to be active supporters of the NCOIL model law so seniors understand they should not be abandoning life insurance policies when they could be converting them to an Assurance Benefit plan to help pay for senior housing and long term care.
Question- What more do advisors need to do help seniors in this situation?
Answer- (David Kitaen) LTCi still has a role to play in helping seniors pay for long term care but it is not a magic bullet and other solutions will be important as well. It is hard to ignore the fact that 153 million Americans own $10 trillion worth of life insurance and seniors are abandoning billions of dollars of policies every year. Converting life insurance policies into a long term care benefit plan is a Medicaid qualified spend down, it is written into the NCOIL law and senior care providers all over the country accept the benefit plan as a way to help pay for senior housing and long term care. An Assurance Benefit plan can address immediate needs quickly. Advisors need to be informing clients that if they have a life insurance policy they should not abandon them but instead hang onto the policy because they can convert it when they have a need to help pay for assisted living, home health and nursing home care.
Question- Is an Assurance Benefit plan an insurance policy?
Answer- (Chris Orestis) No, it is not LCTI, it is not a hybrid policy or annuity and it is not an accelerated death benefit. It is the conversion of an in-force life insurance policy to a benefit plan that is set up as a dedicated long term care account administered specifically to help pay monthly costs of assisted living, home healthcare and nursing home care. For families confronting a long term care crisis speed is of the essence, so the enrollment process is designed to be quick and uncomplicated for the policy owner bypassing the carrier all together with enrollment completed in 30-60 days.
Question- Can you tell us about your experience using the Assurance Benefit conversion for one of your clients?
Answer- (David Kitaen) I had an 81- year old male client with a $100,000 UL policy he was five days away from lapsing when I contacted Life Care Funding Group about enrolling him in the Assurance Benefit to pay for his long term care costs. Over about a 45 day period he was enrolled in the Assurance Benefit with a policy conversion amount of $35,000. My client is now receiving a $1,700 monthly benefit being sent to his care provider of choice for the next 15 months and has a $5,000 final expense benefit in place for funereal costs in the future. He is now receiving home healthcare as he starts making the transition to assisted living. When I was with the family the day we signed the enrollment papers, my client and his two sons all actually gave me hugs and thanked me for so quickly taking a policy they were about to throw away and instead turned it into a long term care benefit that is covering them today.
Question- What do you see as the momentum for passage of the Disclosure Law around the county in light of the current economic crisis to fund long term care and what can agents/advisors do to help?
Answer- (Rep. Rob Damron) Cuts to Medicare and Medicaid will make private pay options such as use of a life insurance to pay for long term care important. Remember, these are our tax dollars we are talking about, and for every person able to extend their ability to pay for long term care and stay off of Medicaid a little bit longer the tax payers of this country are saving money. The Life insurance industry opposes the Model Law because if less policies are abandoned it will cut into their profits
I’m not just an elected official and a tax payer; I am an agent/advisor myself. Every one of us needs to contact their state senate and legislators to express support for this model law so consumers can get access to information about their legal rights and options as a policy owner. Other industries such as the long term care providers support this model law and they will be actively lobbying to see measures that promote private pay options move forward. One of the requirements of the model law is that agents and advisors are part of the process to inform consumers about their options—and that creates an opportunity for every one of us supporting this measure.
Question- What is your prediction for where things are going?
Answer- (Chris Orestis) Baby Boomers started turning 65 this year at a pace of 10,000people every day and that will continue uninterrupted for the next 20 straight years.
That will cause a lot of stress on the system that programs like Social Security, Medicare and Medicaid will have difficulty handling and moves like NCOIL made will be more common. The responsibility to pay for senior housing and long term care will continue to shift back to the consumer and their family, but the economic crisis will make this a difficult challenge. The ability to tap into private pay options and billions of dollars every year in available life insurance policies will be an important part of the equation that consumers, the long term care providers and political leaders will not be able to ignore.
Representatives from politics, senior living, insurance producers and private market funding solutions came together to discuss the crisis situation for seniors attempting to pay the costs of long term care in today’s environment.
Session Panelists:
• Chris Orestis, CEO of Life Care Funding Group as host and moderator
• Jayne Sallerson Executive Vice President of Emeritus Senior Living
• Rep. Rob Damron (KY) immediate past president of the National Conference of Insurance Legislators (NCOIL)
• David Kitaen, CLTC
Question- What are some of the factors changing the face of long term care funding today in the United States?
Answer- (Chris Orestis) Our country has begun a demographic sea change with 10,000 Baby Boomers turning 65 every day. This started on January 1st, 2011 and will continue uninterrupted for the next 20 years! The pressure this is creating in how we will pay for long term care led Federal Reserve Chairman Ben Bernanke to declare the aging population and exploding cost of health care as the #1 challenge facing the U.S. economy and government budgets.
Question- How has the government reacted to this demographic sea change?
Answer- (Chris Orestis) The current economic crisis could not have happened at a worse time and we see it in the news everyday. Just as the Baby Boomers started qualifying for Medicare and Social Security, this massive surge in the aging population is forcing the government to enact swift and draconian cuts to Medicare and Medicaid. There is not a budget proposal in Washington, DC without cutting hundreds of billions in Medicaid spending. CMS announced in August that as of October, 2011 they would institute an 11.1% across the board reduction in expenditures for all long term care related programs. This is an unprecedented reduction and the consumer is going to be forced to dig into their pockets to make up for it.
Question- As Executive Vice President for the largest assisted living company in the world, what do you see as key challenges families are facing in today’s environment when trying to pay for senior living and long term care?
Answer- (Jayne Sallerson) Equity in homes of most seniors has eroded and many can’t sell anyway, pensions and retirement plans have lost tremendous value, and most have not planned with products such as long term care insurance. Too few families plan for long term care or even understand the differences between assisted living and skilled nursing, Medicare and Medicaid, Medigap and Long Term Care Insurance and how all of it works. Unfortunately most families just don’t deal with long term care until they are in a crisis mode and have very little time and even fewer options. Many people are trapped in their homes and/or are getting insufficient or no care whatsoever based on their conditions and declining ability to live independently and safely.
Making matters worse, programs like Medicare and Medicaid are experiencing huge cuts and the responsibility to pay is being pushed back on the individual and their family. We are seeing more emphasis on families covering long term care expenses with private pay dollars, but most have no idea what their options are and where to turn for help.
Question- As one of the first and longest active LTCi producers in the country, how do you view the current state of affairs for seniors and long term care?
Answer- (Dave Kitaen) The combination of the toughest economy since the great depression, a growing senior population, and cuts to Medicare and Medicaid are making things very difficult for seniors and families confronting the need for long term care. This should be the boom years for LTCi with the highest sales levels on record, but sales have not been growing and companies like MetLife have left the market. MetLife leaving the market is like General Motors announcing they no longer will be selling cars.
The costs of long term care services rises every year but the ability of seniors to pay has been declining since the economic crash of 2008. Seniors need help understanding all of their financial options and how to get full use of any available assets.
Question- As president of the National Conference of Insurance Legislators (NCOIL), was this situation with long term care funding one of the factors contributing to passage of the Life Insurance Consumer Disclosure Model Law?
Answer- (Rep. Rob Damron) Yes, we saw the billions of dollars in life insurance policies owned by seniors being abandoned by the owners ever year. These seniors did not understand their legal rights of ownership or available options to use these policies in a better way such as to help pay for their costs of long term care. The motivation behind this model law is to educate policy owners that they have options such as converting their life insurance policy to a long term care benefit plan that can be set up to help pay for their costs of long term care every month. We would rather see these policies being used by their owners to address their long tem care needs than be abandoned with the entire policy value going to the insurance company’s bottom line as profit.
Question- Life Care Funding Group has been an active supporter of the model law, what do you hope is accomplished as the model law is adopted in states around the country?
Answer- (Chris Orestis) We want to see the high lapse and surrender rate of life insurance policies by seniors reversed. We believe this will happen as they come to understand their legal ownership rights and options to use the policies as a tool to help them pay for long term care. Billions of dollars in life insurance could be converted instead of abandoned and then used to help pay for long term care costs. By giving the consumer access to information about their legal rights and options as a policy owner they can make informed decisions about best use of an asset they already own. In today’s environment it is important that consumers know they can convert a life insurance policy to a long term care benefit plan. It is a Medicaid qualified spend down of an asset they have been needlessly abandoning. Now instead of abandoning a policy they own and have paid premiums sometimes for decades, it can sustain a person’s long term care needs at private pay levels for months and years.
Question- What are LTC providers doing to educate and help consumers?
Answer- (Jayne Sallerson) Emeritus has been promoting “Financial Solutions” to the consumer to help pay for costs of housing and care for many years. We educate the consumer at each of our over 550 communities across the United States about the availability of options and the importance of being financially capable. We have partnered with companies like Life Care Funding Group, make this information available on our website, and we discuss it in the press and participate in public forums such as this on a regular basis. Despite our efforts and the efforts of many others, we find the vast majority of consumers are uninformed and unprepared when it comes to this point in their lives. We plan to be active supporters of the NCOIL model law so seniors understand they should not be abandoning life insurance policies when they could be converting them to an Assurance Benefit plan to help pay for senior housing and long term care.
Question- What more do advisors need to do help seniors in this situation?
Answer- (David Kitaen) LTCi still has a role to play in helping seniors pay for long term care but it is not a magic bullet and other solutions will be important as well. It is hard to ignore the fact that 153 million Americans own $10 trillion worth of life insurance and seniors are abandoning billions of dollars of policies every year. Converting life insurance policies into a long term care benefit plan is a Medicaid qualified spend down, it is written into the NCOIL law and senior care providers all over the country accept the benefit plan as a way to help pay for senior housing and long term care. An Assurance Benefit plan can address immediate needs quickly. Advisors need to be informing clients that if they have a life insurance policy they should not abandon them but instead hang onto the policy because they can convert it when they have a need to help pay for assisted living, home health and nursing home care.
Question- Is an Assurance Benefit plan an insurance policy?
Answer- (Chris Orestis) No, it is not LCTI, it is not a hybrid policy or annuity and it is not an accelerated death benefit. It is the conversion of an in-force life insurance policy to a benefit plan that is set up as a dedicated long term care account administered specifically to help pay monthly costs of assisted living, home healthcare and nursing home care. For families confronting a long term care crisis speed is of the essence, so the enrollment process is designed to be quick and uncomplicated for the policy owner bypassing the carrier all together with enrollment completed in 30-60 days.
Question- Can you tell us about your experience using the Assurance Benefit conversion for one of your clients?
Answer- (David Kitaen) I had an 81- year old male client with a $100,000 UL policy he was five days away from lapsing when I contacted Life Care Funding Group about enrolling him in the Assurance Benefit to pay for his long term care costs. Over about a 45 day period he was enrolled in the Assurance Benefit with a policy conversion amount of $35,000. My client is now receiving a $1,700 monthly benefit being sent to his care provider of choice for the next 15 months and has a $5,000 final expense benefit in place for funereal costs in the future. He is now receiving home healthcare as he starts making the transition to assisted living. When I was with the family the day we signed the enrollment papers, my client and his two sons all actually gave me hugs and thanked me for so quickly taking a policy they were about to throw away and instead turned it into a long term care benefit that is covering them today.
Question- What do you see as the momentum for passage of the Disclosure Law around the county in light of the current economic crisis to fund long term care and what can agents/advisors do to help?
Answer- (Rep. Rob Damron) Cuts to Medicare and Medicaid will make private pay options such as use of a life insurance to pay for long term care important. Remember, these are our tax dollars we are talking about, and for every person able to extend their ability to pay for long term care and stay off of Medicaid a little bit longer the tax payers of this country are saving money. The Life insurance industry opposes the Model Law because if less policies are abandoned it will cut into their profits
I’m not just an elected official and a tax payer; I am an agent/advisor myself. Every one of us needs to contact their state senate and legislators to express support for this model law so consumers can get access to information about their legal rights and options as a policy owner. Other industries such as the long term care providers support this model law and they will be actively lobbying to see measures that promote private pay options move forward. One of the requirements of the model law is that agents and advisors are part of the process to inform consumers about their options—and that creates an opportunity for every one of us supporting this measure.
Question- What is your prediction for where things are going?
Answer- (Chris Orestis) Baby Boomers started turning 65 this year at a pace of 10,000people every day and that will continue uninterrupted for the next 20 straight years.
That will cause a lot of stress on the system that programs like Social Security, Medicare and Medicaid will have difficulty handling and moves like NCOIL made will be more common. The responsibility to pay for senior housing and long term care will continue to shift back to the consumer and their family, but the economic crisis will make this a difficult challenge. The ability to tap into private pay options and billions of dollars every year in available life insurance policies will be an important part of the equation that consumers, the long term care providers and political leaders will not be able to ignore.
Healthcare Policy Synopsis: Super Committee holds fate of Medicare and Medicaid in its hands
“The two most important driving forces for the federal budget are the aging of the U.S. population and rapidly rising health-care costs.”
- Federal Reserve Chairman Ben Bernanke
Law makers from both sides of the aisle have come together to create a “Super Committee” comprised of six Democrats and six Republicans, half come from the House of Representatives and half come from the Senate. The members of the Super Committee are tasked with finding at least $1.5 Trillion in budget cuts over 10 years. The members of the Committee are Senators Murray (D-WA, Co-Chair), Kerry (D-MA), Baucus (D-MT), Toomey (R-PA), Portman (R-OH), Kyl (R-AZ); and from the House side, Representatives Hensarling (R-TX, Co-Chair), Upton (R-MI), Camp (R-MI), Van Hollen (D-MD), Clyburn (D-SC), Becerra (D-CA).
The Super Committee must present their recommendations to Congress by November 23 to face an up or down vote before Christmas. The question for Christmas this year is which groups will be visited by St. Nick and which will meet the Grinch. Some very tough decisions need to be made and no area is protected. Adding to the pressure of the situation is the fact that if Congress rejects the recommendations of the Super Committee then automatic cuts of $1.2 Trillion as well as possible tax increases will be enacted across the entire federal budget sparing no one.
Reports are that the Committee is struggling to meet its goal because they are facing deadlocks over how to handle a mix of cuts and taxes to bolster two of the biggest budget areas of our country—Medicare and Medicaid. Republicans want to enact deep cuts to these programs without any increased revenues offset by taxes. Democrats will not agree to any changes to these popular programs without new revenues as part of the comprise package. Democrats view this as a matter of fairness particularly for the most vulnerable populations such as seniors, the poor and the disabled. Republicans view the situations as a matter of principle and are united behind their steadfast refusal to include raising taxes as part of any package to get the nation’s budget and debt problems under control.
The Super Committee is looking at examples from other efforts to address this problem that have been undertaken over the last couple of years. Alan Simpson and Erskine Bowles co-chaired a bi-partisan commission and released their recommendations in 2010 on how to reduce the nation’s budget deficit and accumulating debt crisis by $4 Trillion through 2020. They recommended a series of aggressive cuts and new tax revenues. Restructuring and significant cuts to Medicare and Medicaid funding for long term care services was a major element of their plan, and it is expected it will be as well for the Super Committee. Coupled with the recently enacted 11.1% across the board reduction in reimbursements enacted by CMS for all long term care expenses, seniors are looking at shouldering a significant portion of any reductions.
Families already under enormous economic pressure will find it even more difficult to pay for long term care services for loves ones. Government dollars will pay for less and it will become more difficult to qualify. It has become more important than at any time in our nation’s history to prepare for the costs of long term care and make use of programs such as long term care insurance, life insurance policy conversions to long term care benefit plans, and other financial vehicles to ensure sufficient private pay dollars are available when the time comes.
The view of health policy experts on the Super Committee’s efforts speaks to the major influence healthcare spending has on our nation’s budget and economic future:
Nina Owcharenko, Director of the Center for Health Policy Studies at The Heritage Foundation: "[i]f the goal is producing $1.2 trillion to $1.5 trillion in 10-year savings, the Joint Select Committee on Deficit Reduction must think big and produce recommendations with real substance. Medicare faces a flood of more than 77 million baby boomers joining the program over the next 20 years. The Medicare trustees' annual report continues to warn of the program's unsustainable and unfunded obligations. Meanwhile, Medicaid is draining state budgets, taking more resources away from other important programs such as education and transportation. Nothing could be truer than dealing with the health care savings component. ... They should make measurable progress in restructuring the health care system toward a sustainable, consumer-based model -- not just meet a fiscal target and call it reform."
David Kendall, senior fellow for health and fiscal policy at Third Way, a think tank that creates and advances moderate policy and political ideas: "The rising cost of health care is squeezing the federal budget, making it a common enemy. Over the next 40 years, the cost of Medicare will roughly double in real terms and the number of beneficiaries also will double, while the number of taxpayers will grow by only one-third. For Republicans, spiraling costs have placed them in the increasingly untenable position of proposing steep Medicare cuts in order to avoid tax increases in their budget proposals. Democrats are looking at a budget where health care spending crowds out other progressive priorities such as education, housing and public investments in general. The best way to save money in Medicare and Medicaid is to lower costs throughout the health care system. In the comics, super heroes and their rivals occasionally enter an uneasy alliance against a common enemy. In the face of a looming fiscal crisis, can the two parties use the super committee to follow suit?"
The Super Committee has until Thanksgiving to submit their recommendations to Congress and it must be acted upon within a month’s time. When the Super Committee concept was established, a punitive measure was put in place to make sure partisan bickering and gridlock could not conspire to snuff out this effort. The specter of the $1.2 trillion mandated cuts that will immediately impact every budget area of this country, including defense spending and entitlement programs, was intended to be so harsh that it would force Washington, DC to get out of its own way and allow the Super Committee to accomplish its mission. No one wants to see the looming cuts automatically enacted if the Super Committee fails and/or Congress votes down its recommendations before the end of the year.
As a nation, we have truly arrived at the point where we can no longer kick the can down the road. We have all been enjoying a fantastic dinner party for years but the check is now on the table and everyone has to get out their wallets to help pay. The question for seniors and families faced with long term care expenses—have you prepared for this day (are you even paying attention!?) and do you understand all of your available options to help cover the costs?
- Federal Reserve Chairman Ben Bernanke
Law makers from both sides of the aisle have come together to create a “Super Committee” comprised of six Democrats and six Republicans, half come from the House of Representatives and half come from the Senate. The members of the Super Committee are tasked with finding at least $1.5 Trillion in budget cuts over 10 years. The members of the Committee are Senators Murray (D-WA, Co-Chair), Kerry (D-MA), Baucus (D-MT), Toomey (R-PA), Portman (R-OH), Kyl (R-AZ); and from the House side, Representatives Hensarling (R-TX, Co-Chair), Upton (R-MI), Camp (R-MI), Van Hollen (D-MD), Clyburn (D-SC), Becerra (D-CA).
The Super Committee must present their recommendations to Congress by November 23 to face an up or down vote before Christmas. The question for Christmas this year is which groups will be visited by St. Nick and which will meet the Grinch. Some very tough decisions need to be made and no area is protected. Adding to the pressure of the situation is the fact that if Congress rejects the recommendations of the Super Committee then automatic cuts of $1.2 Trillion as well as possible tax increases will be enacted across the entire federal budget sparing no one.
Reports are that the Committee is struggling to meet its goal because they are facing deadlocks over how to handle a mix of cuts and taxes to bolster two of the biggest budget areas of our country—Medicare and Medicaid. Republicans want to enact deep cuts to these programs without any increased revenues offset by taxes. Democrats will not agree to any changes to these popular programs without new revenues as part of the comprise package. Democrats view this as a matter of fairness particularly for the most vulnerable populations such as seniors, the poor and the disabled. Republicans view the situations as a matter of principle and are united behind their steadfast refusal to include raising taxes as part of any package to get the nation’s budget and debt problems under control.
The Super Committee is looking at examples from other efforts to address this problem that have been undertaken over the last couple of years. Alan Simpson and Erskine Bowles co-chaired a bi-partisan commission and released their recommendations in 2010 on how to reduce the nation’s budget deficit and accumulating debt crisis by $4 Trillion through 2020. They recommended a series of aggressive cuts and new tax revenues. Restructuring and significant cuts to Medicare and Medicaid funding for long term care services was a major element of their plan, and it is expected it will be as well for the Super Committee. Coupled with the recently enacted 11.1% across the board reduction in reimbursements enacted by CMS for all long term care expenses, seniors are looking at shouldering a significant portion of any reductions.
Families already under enormous economic pressure will find it even more difficult to pay for long term care services for loves ones. Government dollars will pay for less and it will become more difficult to qualify. It has become more important than at any time in our nation’s history to prepare for the costs of long term care and make use of programs such as long term care insurance, life insurance policy conversions to long term care benefit plans, and other financial vehicles to ensure sufficient private pay dollars are available when the time comes.
The view of health policy experts on the Super Committee’s efforts speaks to the major influence healthcare spending has on our nation’s budget and economic future:
Nina Owcharenko, Director of the Center for Health Policy Studies at The Heritage Foundation: "[i]f the goal is producing $1.2 trillion to $1.5 trillion in 10-year savings, the Joint Select Committee on Deficit Reduction must think big and produce recommendations with real substance. Medicare faces a flood of more than 77 million baby boomers joining the program over the next 20 years. The Medicare trustees' annual report continues to warn of the program's unsustainable and unfunded obligations. Meanwhile, Medicaid is draining state budgets, taking more resources away from other important programs such as education and transportation. Nothing could be truer than dealing with the health care savings component. ... They should make measurable progress in restructuring the health care system toward a sustainable, consumer-based model -- not just meet a fiscal target and call it reform."
David Kendall, senior fellow for health and fiscal policy at Third Way, a think tank that creates and advances moderate policy and political ideas: "The rising cost of health care is squeezing the federal budget, making it a common enemy. Over the next 40 years, the cost of Medicare will roughly double in real terms and the number of beneficiaries also will double, while the number of taxpayers will grow by only one-third. For Republicans, spiraling costs have placed them in the increasingly untenable position of proposing steep Medicare cuts in order to avoid tax increases in their budget proposals. Democrats are looking at a budget where health care spending crowds out other progressive priorities such as education, housing and public investments in general. The best way to save money in Medicare and Medicaid is to lower costs throughout the health care system. In the comics, super heroes and their rivals occasionally enter an uneasy alliance against a common enemy. In the face of a looming fiscal crisis, can the two parties use the super committee to follow suit?"
The Super Committee has until Thanksgiving to submit their recommendations to Congress and it must be acted upon within a month’s time. When the Super Committee concept was established, a punitive measure was put in place to make sure partisan bickering and gridlock could not conspire to snuff out this effort. The specter of the $1.2 trillion mandated cuts that will immediately impact every budget area of this country, including defense spending and entitlement programs, was intended to be so harsh that it would force Washington, DC to get out of its own way and allow the Super Committee to accomplish its mission. No one wants to see the looming cuts automatically enacted if the Super Committee fails and/or Congress votes down its recommendations before the end of the year.
As a nation, we have truly arrived at the point where we can no longer kick the can down the road. We have all been enjoying a fantastic dinner party for years but the check is now on the table and everyone has to get out their wallets to help pay. The question for seniors and families faced with long term care expenses—have you prepared for this day (are you even paying attention!?) and do you understand all of your available options to help cover the costs?
Funding Long Term Care: New Legislation Supports Use of Life Policies to Pay for LTC
Cuts to Medicare and Medicaid funding specifically for long term care services coupled with the growing Boomer and senior population of this country are driving the need to fund more and more LTC costs through private pay dollars. Unfortunately, there is a lack of consumer awareness about how LTC funding works and the facts about private market funding options. There is more than $20 trillion of in-force life insurance in the United States (NAIC, 2010) but insurance carriers are resistant to inform policy owners about their legal rights of ownership, and a majority of these uniformed seniors allow their policies to lapse or surrender without ever being aware of other options to use life insurance to pay for long term care services.
Legislative Support for Private Pay Options
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 every year when they unanimously passed the Life Insurance Consumer Disclosure Model Act in November, 2010. The law’s intent is to make sure that insurance carriers disclose to their policy owners that they have alternative options to consider beyond lapse or surrender of a policy. NCOIL President Rob Damron (KY), upon adoption of the model, said, “It is imperative that policy holders understand that they have alternatives to merely to lapsing or surrendering their policy.” States are looking to private market funding solutions to help keep Medicaid expenditures down and help overcome the long term care funding crisis—and this is a big move in that direction.
Among the options in the law is the right to “convert a life insurance policy into a long term care benefit plan”. Any form of life insurance can qualify for a policy conversion to pay directly for the costs of long term care in a nursing home, assisted living and home healthcare. Life Insurance is an unqualified asset for Medicaid eligibility and the Assurance Benefit policy conversion is considered a “qualified spend down”. This option also allows the owner to preserve a portion of the death benefit throughout the spend down period, protecting it from Medicaid Recovery legal action against the estate.
Medicaid Spend Down of an Unqualified Asset
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. All transfers made by the applicant or the applicant’s spouse subsequent to January 1, 2010, whether from an individual or to an individual or from a trust or to a trust, have a five year look-back period.
A life insurance policy is legally recognized as an asset of the policy owner and 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 Medicaid applications specifically ask if the applicant owns life insurance and full policy details. Failure to disclose and comply is fraud.
Transferring ownership of a life insurance policy for less than its fair market value would be a violation of Medicaid’s asset transfer and look back requirements. A policy can be surrendered for its cash value to be spent down on care or a policy can be converted for its market value and the benefit of that conversion can be used to pay for long term care as a qualified spend down. If a transfer of assets for less than fair market value is found, the State must withhold payment for nursing facility care (and certain other long-term care services) for a period of time referred to as the “penalty period”.
The length of the penalty period is determined by dividing the value of the transferred asset by the average monthly private-pay rate for nursing facility care in the State. Example: A transferred asset worth $90,000, divided by a $3,000 average monthly private-pay rate, results in a 30-month penalty period. There is no limit to the length of the penalty period. (Section 1917(c) of the Social Security Act; U.S. Code Reference 42 U.S.C. 1396p(c))
The Omnibus Budget Reconciliation Act (OBRA) of 1993 defines estate and requires each state to seek adjustment or recovery of amounts correctly paid by the state for certain people with Medicaid. The state must, at a minimum, seek recovery for services provided to a person of any age in a nursing facility or other medical institution. The State may at its option recover amounts up to the total amount spent on the individual's behalf for medical assistance for other services under the state's plan. For individuals age 55 or older, 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. States have the option of recovering payments for all other Medicaid services provided to these individuals.
Mandating Options to Help Seniors pay for Long Term Care
Millions more seniors own life insurance then LTCi and for many their policy is an unneeded, undervalued, and illiquid asset. Senior policy owners and their family prefer using the life insurance asset in a productive way to help solve their financial and healthcare challenge instead of lapsing or surrendering it-- and most would prefer to stay off of Medicaid if given the financial option.
With mandated access to information and resources, those most in need of financial solutions can make an informed decision about what is the more important priority for them— the value of a death benefit and keeping the policy in force, or the value of a living benefit and converting the policy to its present day value to pay for long term care.
By converting an existing life insurance policy to a long term care Assurance 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 Assurance 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 (private pay rates are at higher levels of 30% or more than Medicaid and is preferred by long term care providers). Medicaid reimbursements are less than the actual cost of care and are restrictive in what is allowed for coverage. Assisted living is not covered at all and home health coverage is limited and subject to change. The primary source of care for a Medicaid patient is a nursing home. Conversion of a life insurance policy to an Assurance Benefit allows for maximum choice of care options, and preservation of a partial death benefit instead of 100% abandonment.
Conclusion
People need to arm themselves with information about how the system works and what kind of funding options (and limitations) they have to work with. And, people need to stop waiting until the last minute to plan for their inevitable time in long term care. In one form or another, (home or facility based) as people age and/or become frail they will need someone to help care for them. That care will cost money and that money has to come from somewhere. As the government makes it harder and harder to access funding, people need to prepare to bear much of the financial burden on their own. To ensure quality of life and dignity when the time for long term care arrives; people must make the effort today to understand how the process works and what kind of private pay financial options are out there.
Federal and state budgets can only accommodate so much, and when dollars are shrinking while populations are growing it becomes pretty simple math to see that something has to give. If history is our guide, then it will be the individual who ends up giving the most. For people to come even close to meeting their expectations for a high level of senior housing and care it will require a firm grasp of the options available and a plan to take action before its too late. Now is the time to prepare by understanding the funding options that are available to help cover the costs long term care as the responsibility shifts more and more to the individual.
Legislative Support for Private Pay Options
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 every year when they unanimously passed the Life Insurance Consumer Disclosure Model Act in November, 2010. The law’s intent is to make sure that insurance carriers disclose to their policy owners that they have alternative options to consider beyond lapse or surrender of a policy. NCOIL President Rob Damron (KY), upon adoption of the model, said, “It is imperative that policy holders understand that they have alternatives to merely to lapsing or surrendering their policy.” States are looking to private market funding solutions to help keep Medicaid expenditures down and help overcome the long term care funding crisis—and this is a big move in that direction.
Among the options in the law is the right to “convert a life insurance policy into a long term care benefit plan”. Any form of life insurance can qualify for a policy conversion to pay directly for the costs of long term care in a nursing home, assisted living and home healthcare. Life Insurance is an unqualified asset for Medicaid eligibility and the Assurance Benefit policy conversion is considered a “qualified spend down”. This option also allows the owner to preserve a portion of the death benefit throughout the spend down period, protecting it from Medicaid Recovery legal action against the estate.
Medicaid Spend Down of an Unqualified Asset
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. All transfers made by the applicant or the applicant’s spouse subsequent to January 1, 2010, whether from an individual or to an individual or from a trust or to a trust, have a five year look-back period.
A life insurance policy is legally recognized as an asset of the policy owner and 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 Medicaid applications specifically ask if the applicant owns life insurance and full policy details. Failure to disclose and comply is fraud.
Transferring ownership of a life insurance policy for less than its fair market value would be a violation of Medicaid’s asset transfer and look back requirements. A policy can be surrendered for its cash value to be spent down on care or a policy can be converted for its market value and the benefit of that conversion can be used to pay for long term care as a qualified spend down. If a transfer of assets for less than fair market value is found, the State must withhold payment for nursing facility care (and certain other long-term care services) for a period of time referred to as the “penalty period”.
The length of the penalty period is determined by dividing the value of the transferred asset by the average monthly private-pay rate for nursing facility care in the State. Example: A transferred asset worth $90,000, divided by a $3,000 average monthly private-pay rate, results in a 30-month penalty period. There is no limit to the length of the penalty period. (Section 1917(c) of the Social Security Act; U.S. Code Reference 42 U.S.C. 1396p(c))
The Omnibus Budget Reconciliation Act (OBRA) of 1993 defines estate and requires each state to seek adjustment or recovery of amounts correctly paid by the state for certain people with Medicaid. The state must, at a minimum, seek recovery for services provided to a person of any age in a nursing facility or other medical institution. The State may at its option recover amounts up to the total amount spent on the individual's behalf for medical assistance for other services under the state's plan. For individuals age 55 or older, 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. States have the option of recovering payments for all other Medicaid services provided to these individuals.
Mandating Options to Help Seniors pay for Long Term Care
Millions more seniors own life insurance then LTCi and for many their policy is an unneeded, undervalued, and illiquid asset. Senior policy owners and their family prefer using the life insurance asset in a productive way to help solve their financial and healthcare challenge instead of lapsing or surrendering it-- and most would prefer to stay off of Medicaid if given the financial option.
With mandated access to information and resources, those most in need of financial solutions can make an informed decision about what is the more important priority for them— the value of a death benefit and keeping the policy in force, or the value of a living benefit and converting the policy to its present day value to pay for long term care.
By converting an existing life insurance policy to a long term care Assurance 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 Assurance 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 (private pay rates are at higher levels of 30% or more than Medicaid and is preferred by long term care providers). Medicaid reimbursements are less than the actual cost of care and are restrictive in what is allowed for coverage. Assisted living is not covered at all and home health coverage is limited and subject to change. The primary source of care for a Medicaid patient is a nursing home. Conversion of a life insurance policy to an Assurance Benefit allows for maximum choice of care options, and preservation of a partial death benefit instead of 100% abandonment.
Conclusion
People need to arm themselves with information about how the system works and what kind of funding options (and limitations) they have to work with. And, people need to stop waiting until the last minute to plan for their inevitable time in long term care. In one form or another, (home or facility based) as people age and/or become frail they will need someone to help care for them. That care will cost money and that money has to come from somewhere. As the government makes it harder and harder to access funding, people need to prepare to bear much of the financial burden on their own. To ensure quality of life and dignity when the time for long term care arrives; people must make the effort today to understand how the process works and what kind of private pay financial options are out there.
Federal and state budgets can only accommodate so much, and when dollars are shrinking while populations are growing it becomes pretty simple math to see that something has to give. If history is our guide, then it will be the individual who ends up giving the most. For people to come even close to meeting their expectations for a high level of senior housing and care it will require a firm grasp of the options available and a plan to take action before its too late. Now is the time to prepare by understanding the funding options that are available to help cover the costs long term care as the responsibility shifts more and more to the individual.
Subscribe to:
Posts (Atom)
