WHITE PAPER

THE GROWING USE OF LIFE INSURANCE POLICY CONVERSIONS AS AN ALTERNATIVE RESOURCE TO FUND LONG TERM CARE

Issue Brief

The United States Supreme Court codified as law the legal right of property ownership for life insurance policies in 1911.  The owner of a policy has the legally protected right to convert their asset from a life insurance policy into a long care benefit plan by accessing the private, secondary market.  There is almost $30 trillion of in-force life insurance today in the United States.  Comparatively, there is less than $10 trillion of home equity today in the United States and the amount of in-force long term care insurance is only in the billions.  At a time when LTCi sales should have been exploding, the market instead has been suffering from significant disruption with rate increases on existing policies and major carriers such as MetLife ceasing to sell policies.  Additionally, the economy’s impact on the housing market has seriously dampened the ability of seniors to access home equity to pay for long term care which for years was the primary source to fund long term care, and part of a Medicaid spend down regimen, but that has not been the case since 2008.  As for owners of life insurance; the middle class, “small face” policy owner with under $500,000 of death benefit cannot access the life settlement market as an option either. 

With 10,000 Baby Boomers turning 65 every day, the United States has officially reached the “long term care funding crisis” era.  New approaches to fund long term care must be encouraged, and converting life insurance policies is an option quickly gaining ground.  Unfortunately, owners of life insurance policies are not aware of their legal rights and options and millions of seniors are stranded with polices that have outlived their insurable interest, they can no longer afford, and are counted against them as a dis-qualifying asset for Medicaid eligibility.  But, legislative leaders across the country are taking action with consumer protection disclosure laws and legislation to encourage consumers to convert their life insurance to pay for long term care as an alternative to abandoning their policies.

Life insurance is an unqualified asset for Medicaid eligibility, and billions worth of policies are regularly abandoned by uninformed seniors as they enter their “long term care years”.  Converting a life insurance policy into a long term care “Assurance Benefit” plan is a Medicaid qualified spend down of the policy, and it extends the time a person remains “private pay” before going onto Medicaid.  States are under tremendous budget pressure to keep pace with exploding demand to cover long term care needs with tax payer money, and they are quickly realizing the savings that can be found for their beleaguered budgets by delaying entry onto Medicaid through the use of Medicaid qualified policy conversions.

The Assurance Benefit is not a long term care insurance policy, annuity, any form of hybrid life/LTCi policies, or an accelerated death benefit-- it is actually the exchange of a life insurance policy for a long term care benefit plan at the time that care needs to be paid.  The Assurance Benefit is a unique financial option for seniors because there are no wait periods, no care limitations, no costs to apply, no requirement to be terminally ill, and there are no premium payments. Policy owners use their legal right to convert an in-force life insurance policy to enroll in the benefit plan and are able to immediately direct payments to cover their senior housing and long term care costs. 

It is in the better interest of seniors and their family to convert a death benefit into a long term care benefit and then apply the maximum private market value of the policy towards their health care needs.  If a policy can be converted into the means to cover the costs of long term care for an extended period, and keep the insured off of Medicaid that much longer, it is in their best interest and that of the state’s tax payers.  The Assurance Benefit policy conversion is a private sector solution that addresses the financial needs of the senior and can also help stressed state budgets by extending the spend down period for a senior before they would go onto Medicaid.  

Introduction: The Medicaid Problem Grows

Medicaid was created on July 30^th, 1965 as a part of President Lyndon Johnson’s “Great Society”.  At that time the entire GDP of the United States was $791.1 billion, and no one could have predicted that by 2009 the U.S. would spend over $2 trillion on health care in a single year.  Ironically, the last of the baby boom generation had been born by the time Medicare and Medicaid was first enacted, and on January 1, 2011, 10,000 Baby Boomers started turning 65 every day at a pace that will continue uninterrupted for twenty straight years.  The combination of this demographic “Silver Tsunami” and a fractured U.S. economy could not have come at a worse time for the big three entitlement programs.  Social Security, Medicare and Medicaid are all in the red and creating havoc for government budgets at the federal and state levels.   According to Chairman Ben Bernanke, this has become the number one concern of the Federal Reserve about the U.S. economy. 

2010 National Average Annual Costs of Long Term Care

-        Skilled Nursing Facility (SNF): $83,585

-        Assisted Living Facility (ALF): $39,516

-        Alzheimer’s Unit: $85,045

-        Home Healthcare: $43,065

State budgets have been impacted particularly hard by shrinking tax dollars and growing Medicaid enrollment brought on by the economic crisis and an aging population.  Over 10 million Americans now require long term care annually and Medicaid is the primary source of coverage.  According to the Kaiser Family Foundation, Medicaid spent $427 billion in 2011, paying for 43% of all long term care services while 31% was covered “private pay”. 

Private Market Solution: A $30 Trillion Funding Source

According to the NAIC, there is $27.2 trillion of in-force life insurance in the hands of 152 million Americans.  That is a huge population of asset owners who for the most part do not understand their legal rights of ownership and the usage options available to them.  The insurance industry makes immense profits from the fact that millions of these people are paying billions of dollars in premium payments for policies that in the end will be abandoned.  Too few policy owners’ understand their legal rights of ownership and do not possess the knowledge of how insurance works.  When their original need for a policy has run its course, the vast majority of owners simply walk away from what may be one of the most valuable assets they own—for nothing in return.

Fast Fact: 153 million Americans own $27.2 trillion worth of life policies (that is almost triple the amount of home equity in the U.S. today)

Far too many life insurance policies owned by seniors will never pay a death benefit because they are allowed to either expire, lapse or are surrendered for cash value.  The shame of this situation for the consumer is that there are numerous options for them to explore before abandoning a policy.  Life insurance is legally recognized as personal property and the owner has the right to use their asset in a number of ways including converting the policy to a long term care benefit plan while still alive.

Conning and Company, the insurance industry research organization, released a white paper in 2009 as part of their Strategic Research Series and in it they analyzed the growing impact of Life Care Funding Group’s use of life insurance policies to pay for long term care.  In the paper they surmised, “What is new is the concerted effort to integrate life insurance policies and long term care providers.  This is a recent development involving – Life Care Funding Group.  This new source of funds represents a potential alignment of long term care providers and state governments. Both state governments and the long term care industry are working to find a solution to the budgetary threat to Medicaid created as aging Baby Boomers impoverish themselves in order to have the state pay for long term care”.

Legislative and market activities across the country point to the growing realization that life insurance policies can be converted to help pay for long term care.  A major challenge is that too few seniors realize their policy could be used for purposes other than a death benefit—but as Conning and Company predicted; word is starting to spread among policy owners, the long term care industry and law makers.

Consumer Rights: Converting Life Insurance to Pay Long Term Care

The Supreme Court case of Grigbsy v. Russell (1911) established a life insurance policy owner’s right to transfer or convert the use of an insurance policy. Justice Oliver Wendell Holmes noted in his opinion that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner could transfer without limitation. Wrote Holmes, “Life insurance has become in our days one of the best recognized forms of investment and self-compelled saving.” This opinion placed the ownership rights in a life insurance policy on the same legal footing as more traditional investment property such as real estate, stocks and bonds. As with these other types of personal property, a life insurance policy is an asset and can be converted to another use or transferred at the discretion of the policy owner.

Fast Fact: The owner of a policy has the legal property ownership rights to convert a policy based on its fair market value.

A policy owner’s legal right to convert an existing life insurance policy into a long term care benefit plan, also known as an Assurance Benefit Plan, is not to be confused with a long term care insurance policy, accelerated death benefit (ADB) rider, annuity, or a hybrid life/LTCi product.  This Assurance Benefit conversion option allows for the actual private market exchange of a life insurance policy for a long term care benefit plan at the time of care.  Any form of life insurance can qualify for conversion: universal life, whole life, term life, and group life.  The benefit plan will pay for any form of long term care: home health, assisted living, and nursing home care.

The Assurance Benefit plan is a private market funding option and is not issued by a carrier, not restricted to polices that contain a conversion or accelerated death benefit rider, and is not restricted to the issuing carrier.  Unlike long term care insurance, there are no wait periods to receive Assurance Benefit payments.  Once a policy is converted by the owner, the long term care benefit payments begin immediately and the enrollee is relieved of any responsibility to pay any more premiums.  The Assurance Benefit plan is an irrevocable long term care funding account administered by a third party ensuring the funds are protected for the recipient of care, and the payments are made every month directly to the care provider.  Every Assurance Benefit account also has the added protection for the enrollee of providing a final expense benefit to help cover funeral expenses.  Lastly, if the insured should pass away before the benefit amount is exhausted, then any remaining balance is paid to the family or named beneficiary as a final lump sum payment.

The Assurance Benefit policy conversion meets the IRS standard for tax deductible status based on the use of funds dedicated to pay for long term care services.  The Assurance Benefit also meets the HIPAA standards for tax exempt status based on the physical and cognitive impairments of enrollees. 

A)    Any tax implications for capital gains realized (e.g. through a policy conversion) would be offset by deductions based on spending the money for “the entire cost of maintenance in a nursing home or home for the aged” (sec. 1016 U.S. Master Tax Code 2008).

B)    The Health Insurance Portability and Accountability Act (HIPAA) also carved out an exemption for chronically ill persons to receive benefits tax free, subject to certain limitations.

A chronically ill person is someone who has been certified by a physician in the past 12 months:

1) to be unable to perform, as the result of the loss of functional capacity, at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for at least 90 days; or

2) has a similar level of disability as defined by the Secretary of the Treasury; or

3) requires substantial supervision to protect the person from threats to health and safety due to severe cognitive impairment. For chronically ill persons, amounts paid with respect to a life insurance contract are excludable only if: 1) the payment is for actual costs of qualified long term care that are not defrayed by insurance payments or otherwise; and 2) payment is not made for expenses that are reimbursable under Medicare. In addition, payments made to chronically ill persons on a per diem, or other periodic basis, are excludable but only to the extent that they do not exceed $180 per day, indexed for inflation.

The Assurance Benefit conversion option is designed to serve a large but ignored population.  For the large population of middle market policy owners with polices under $500,000 of death benefit value; the viatical and life settlement market has no interest in policies of this size, and they tend to not underwrite people with an immediate need for long term care.  The vast majority of these overlooked policy owners unfortunately end up either lapsing or surrendering their in-force life insurance because they can no longer afford to pay the premiums and/or they are on a Medicaid spend down path.  Owners of small face policies with an immediate need for long term care are not candidates for a viatical, life settlement or annuity and it is too late for them to purchase a long term care insurance policy.  As an alternative to policy lapse or surrender, the Assurance Benefit is an immediate option to use their policy to pay for long term care.  The in-force life insurance policy can be converted to a long term care benefit account in as little time as 30 days and then administered by a third party with payments made every month directly to the enrollee’s choice of long term care provider: home health, assisted living, or nursing home.  

Fast Fact: Billions of dollars of life insurance policies are abandoned by seniors because they can no longer afford the premiums and/or they are on a Medicaid spend-down path.

For families with the need to pay for long term care, but are unable or unwilling to keep their life insurance policy in-force by maintaining premium payments, the Assurance Benefit conversion option is a much better choice than abandoning a policy.  Policy owners use their legal right to convert an in-force life insurance policy to enroll in the benefit plan and are able to immediately fund their care through a guaranteed monthly payment stream for the entire benefit period.  Providers of long term care services such as nursing homes, assisted living communities and home health agencies have been quick to embrace this alternative form of payment.  State governments too are realizing that there is tremendous value to be found by converting life insurance policies to help pay for the costs of long term care.

Life insurance is an unqualified asset for Medicaid applicants and it has been standard practice to abandon a life insurance policy if it is within the legally required five year look back spend-down period.  But now, by converting a life insurance policy instead of abandoning it, the policy owner’s care can be covered as a private pay patient by the long term care benefit plan over an extended time frame.  Instead of abandoning the policy and going immediately onto Medicaid, the life insurance asset is spent-down in a Medicaid compliant fashion—while preserving a portion of the death benefit for the family during the extended time period. 

Medicaid Eligibility: Life Insurance is a Disqualifying Asset

Because a life insurance policy is legally recognized as an asset of the policy owner, it counts against them when qualifying for Medicaid.  If a policy has anything more than a minimal amount of cash value (usually in the range of $2,000) it must be liquidated and that money spent towards cost of care before the owner will qualify for Medicaid.  All state Medicaid applications specifically ask if the applicant owns life insurance and full policy details.  Failure to disclose and comply is fraud.

Some states allow for a final expense policy to be kept or transferred to a funeral home (the funeral home would keep the entire death benefit).  Medicaid recovery units have become much more forceful about looking for life insurance policy death benefits (declared or undeclared) that have paid out to families after the death of a Medicaid recipient.  Medicaid budgets are now facing extreme pressure and asset recovery efforts can be very aggressive.  Recovering the entire cost of care through legal action by going after the death benefit payment paid to the estate and surviving family is federally mandated by the Omnibus Budget Reconciliation Act (OBRA) of 1993.  This law requires each state to seek adjustment or recovery of amounts correctly paid by the state for people covered by Medicaid. The state must, at a minimum, seek recovery for services provided to a person of any age in a nursing facility, intermediate care facility for the mentally retarded, or other medical institution. States are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services.

Fast Fact: Life insurance policies are an unqualified asset for Medicaid eligibility and the owners must either surrender the policy or be subject to costly recovery actions by the Medicaid department

According to a Government Accounting Office (GAO) study in 2007, 38% of Medicaid applicants owned a life insurance policy that needed to be liquidated to qualify.  When an individual applies for Medicaid, the State conducts a "look back" to find transfers of assets for 60 months prior to the date the individual is institutionalized or, if later, the date he or she applies for Medicaid.  Transferring ownership of an asset for less than its fair market value would be a violation of Medicaid’s asset transfer and look back requirements.  A life insurance policy can be surrendered for its cash value to be spent down on care, or a policy can be converted for its fair market value and the full benefit of that conversion can be used to pay for long term care as a qualified spend down.

The owner of one or more policies has a variety of options to consider:

• A policy with more than a minimal amount of cash value must be surrendered back to the insurance company with the proceeds spent down on care.
• A policy with no cash value does not need to be liquidated but the death benefit will be subject to federally required Medicaid recovery efforts to return the amount of money spent on care.
• Many states will exempt a small “final expense” policy if the full death benefit value is assigned to a funeral home.
• Third-Party Assignment or Transfer of a life insurance policy for less than its fair market value is a violation of asset transfer rules if done within the 60 month look back period.
• A policy owner has the legal right to convert a life insurance policy into a long term care benefit plan at its fair market value and extend their spend down period by covering cost of care as private pay while preserving a portion of the death benefit until exhausted.

The policy conversion option is considered a “qualified spend down” of a life insurance policy asset for Medicaid eligibility.   By converting an existing life insurance policy to a long term care benefit plan, the owner is spending down the asset towards their cost of care in a Medicaid compliant manner while still preserving a portion of the death benefit.  If the insured passes away while spending down via their benefit enrollment, any remaining death benefit would pay out to the designated beneficiary without being subject to Medicaid recovery.  Enrollees able to now use non-Medicaid dollars are allowing themselves to access the best level of care and options by remaining a “private pay” patient for as long as possible. Conversion of a life insurance policy allows for maximum choice of care options, and preservation of a partial death benefit instead of 100% abandonment.

Long term care providers prefer private pay patients over Medicaid recipients.  A new report released by the American Health Care Association (AHCA) indicates that due to major state budget deficits and adjustments to Medicare and Medicaid reimbursements, long-term care facilities will see historically low Medicaid reimbursements.  It is estimated that unreimbursed Medicaid funds to nursing homes exceeded $6.3 billion in 2011 – a $19.55 shortfall per patient, per day on average.  An individual with the ability to sustain themselves as a private pay patient will have more care and housing options to choose from.

In addition to the policy owner and the long term care provider, there are also advantages for state governments and their maxed out Medicaid budgets.  Policy owners that convert their life policies instead of allowing them to lapse or be surrendered represent an opportunity to extend the spend down period of their asset.  By converting a policy to its present day value based on the death benefit, as opposed to minimal cash surrender value or wait for federally mandated recovery efforts to be initiated against the estate year’s later, tax payers will be saving considerable money.  This represents an opportunity to extend the time a person remains private pay by many months, or years, before they go onto Medicaid—if ever at all.

Legislative Action: Focus on use of Life Insurance to pay for Long Term Care

The National Conference of Insurance Legislators (NCOIL) understood the implications of billions of dollars of life insurance policies in the hands of seniors being discarded when they unanimously passed the Life Insurance Consumer Disclosure Model Act in November, 2010.  This consumer protection law requires that life insurance companies inform policy holders above the age of 60, or with a terminal or chronic condition, of approved alternatives to the lapse or surrender of a life insurance policy including “conversion to a long term care benefit plan”. 

NCOIL declared that final passage of the Life Insurance Consumer Disclosure Model Law is intended to be "a strong stand for life insurance policy owners and would empower consumers through education about their options."  NCOIL President Rob Damron (KY), upon unanimous passage said, "It is imperative that policy holders understand that they have alternatives to merely lapsing or surrendering their policy."  California, Connecticut, Kentucky, Maine, New Hampshire, Oregon, Washington State, Virginia and Wisconsin already have passed or are now considering life insurance consumer disclosure laws for their states.

Fast Fact: NCOIL passed the Life Insurance Consumer Disclosure Model Law unanimously in November, 2011 requiring insurance companies to notify policy owners of alternatives to abandonment of a life insurance policy.  "Conversion to a Long Term Care Benefit Plan" is one of the required disclosure options in the Model Law.

New York State also passed a law that is an example of the growing national trend of using life insurance policies as a means to pay for long term care. The bill, signed into law on Dec. 14, 2010, allows those who have been residents of a nursing home for at least three months to apply the proceeds of an existing accelerated death benefit (ADB) rider toward their costs of housing and care. The bill does not provide for payment toward assisted living, home health care, or other forms of senior housing and care.

The goal of this law, first introduced into the New York Assembly in 2008, is to offset the costs of New York’s Medicaid program paying for a nursing home stay by extending the spend-down period of a life insurance policy if it has an accelerated death benefit rider. The bill’s author, State Sen. Jeff Klein, cited the high costs of New York’s Medicaid program paying for a nursing home stay as the driving force behind the new law’s passage. He stated that New York’s Medicaid program spends more than $23 billion on long term care, and that this new law could save the state approximately $1 billion over the next five years.

In 2011, the state of Connecticut introduced study bill SB-1153, as “an act establishing a task force to study life insurance policy and annuity conversions and the provision of certain notifications by life insurance companies”.  The study bill has been referred to the Joint Committee on Insurance and Real Estate Law for consideration as a means to help Connecticut deal with an out of control Medicaid budget through the conversion of life insurance policies and annuities to pay for long term care.

In 2012, the state of Hawaii also introduced a study bill, SB-2455 to “establish a task force to assess and make recommendations regarding the use of viatical settlements and accelerated death benefits as means of funding long-term care”.  The bill specifically declares, “The legislature finds that although the cost of long-term care services is rising, more individuals have term life insurance policies, which end when people leave their job or retire, instead of private long-term care insurance. Factors such as cost, convenience, and desire to protect growing families, may motivate individuals to buy life insurance over long-term care insurance. The legislature also finds that according to the American Council of Life Insurers, Hawaii had more than 709,000 in-force life insurance policies in 2009, compared to 77,344 individuals covered by long-term care insurance in 2010. Approximately only five per cent of the State's population has long-term care insurance. The legislature further finds that despite the infrequent use of viatical settlements and accelerated death benefits in life insurance policies, these options should be studied as possible solutions and assessed for their potential as funding sources for long-term care services”.

For the 2012 Florida legislative session, a bi-cameral bill was introduced in both the House and the Senate bringing these individual private market concepts together for the first time as a proposed law.  HB-1055 would require use of an existing accelerated death benefit (ADB) rider to pay for nursing home care as in New York; would require the Consumer Disclosure requirements of the NCOIL Model Law; and would require policy conversions as an extended spend down as a Medicaid eligibility requirement.  The goal of the sponsors of this consumer protection bill is to give policy owners as much information as possible about their legal rights of ownership.  They also see a responsibility to save tax payers money by delaying the need of a person going onto Medicaid through the ability to access the fair market value of their asset and remaining a private pay patient for as long as possible.

With the introduction of HB1055 in 2012, the Florida legislature has taken the consumer disclosure protections first introduced by NCOIL a little over a year ago to its next logical steps.  According to an economic impact study released in January, 2012 by The Center for Economic Forecasting and Analysis (CEFA) the cost saving implications of private market policy conversions for Florida tax payers and the state Medicaid budget through passage of HB1055 was measured. 

According to the CEFA study entitled, Conversion of Life Insurance Policies to Long Term Care Benefit Plans in Florida: “The objective of this research project is to examine the impacts of the objective of House Bill 1055, specifically the opportunities for utilizing life-insurance policy assets as an available means whereby private funding may pay for long-term health care needs.  Medicaid expenses on long-term health care services for residents may be offset by…  $157.4 million on conversion of their life-insurance policies into long-term health care benefit plans per year.

Fast Fact: Florida estimated over $150 million in annual Medicaid budget savings through Assurance Benefit policy conversions

The bill would require: a) use of an accelerated death benefit (ADB) rider, if present, to pay for nursing home care, b) required disclosure to the consumer of the National Conference of Insurance Legislators (NCOIL) Model Law, (which deals amongst others with unclaimed property policies), and c) would allow policy conversions as an extended spend down Medicaid eligibility requirement.  The objectives of the sponsors of the bill are twofold, namely;

• To protect consumers by giving policy owners as much information as possible about their legal rights on life-insurance policy ownership; and
• To save taxpayers money by utilizing the value of life-insurance policies and to delay the need for a citizen becoming dependent on Medicaid.

In Florida, all Medicaid applicants are specifically asked if they own life-insurance policies, and if so, they have to disclose the full policy details.  A failure to disclose and comply is fraud.  A life-insurance policy is legally recognized as an asset of the policy owner (with all rights of personal property ownership) and it counts against the owner when qualifying for Medicaid.  If a policy has more than a minimal amount of cash value (usually in the range of $2,000) it must be liquidated and that money is to be spent towards cost of care before the owner will qualify for Medicaid.”

According to the Florida Legislature’s Office of Program Policy Analyses and Government Accountability:  “A life-insurance policy can be surrendered for its cash value to be spent down on care, or a policy can be converted for its fair market value and the full benefit of that conversion can be used to pay for long-term care as a qualified spend down. The owner of one or more policies has a variety of options to consider:

• A policy with more than a minimal amount of cash value must be surrendered back to the insurance company with the proceeds spent down on care.
• A policy with no cash value does not need to be liquidated but the death benefit will be subject to federally required Medicaid recovery efforts to return the amount of money spent on care.
• Many states will exempt a small “final expense” policy if the full death benefit value is assigned to a funeral home.”

It is common sense that the best interest of policy holders is to make decisions with full disclosure of their rights and options.  In today’s stressed economic environment, policy owners need to understand that a life insurance policy is more than just a death benefit.  It is a legally recognized asset that can help them in a number of ways, and simply walking away from a policy is their worst possible option.  Expect more legislative action like this to be introduced throughout the country.

Conclusion: Consumer Information and Choice is Consumer Protection

Too often seniors who have owned a life insurance policy for many years, which is about to lapse or be surrendered for minimal value, will have contacted their life insurance company to ask about their options.  The life insurance company will inform them that they really only have two options if they don’t pay their premium: surrender the policy for its cash value (if it has any) or let it lapse.  Most people that receive a lapse notice have no cash value because it has already been drained by the carrier to cover any unpaid premium payments.  That typically leaves the final option of “pay or go away”.  The number of seniors that allow this to happen to a policy after paying premiums, sometimes for decades, is scandalously high. 

Fast Fact: A policy can be converted to a private market long term care benefit account locking up the funds to only be spent on long term care services with the funds being issued monthly by a benefit administrator to the provider of long term care.

On November 19, 2010, during testimony at NCOIL’s annual meeting to consider passing the Consumer Disclosure Model Law, Life Care Funding Group offered the following observation:

“The intersection of a growing senior and Baby Boomer population and economic bust is creating a crisis for how seniors will fund their retirements and eventually long term care expenses.  Our case workers hear from seniors and their families every day who have been paying premiums for years and are getting ready to abandon their policy.  These are middle class Americans without insurance expertise and the typical size of their policy is well under $500,000.  This disclosure law will help consumers understand they have a number of options to consider before discarding a policy, including converting their policy into a long term care benefit plan that holds the potential to address their financial shortfalls.”

Families with the need to pay for long term care that are unable or unwilling to keep their life insurance policy in-force by maintaining premium payments, or are planning to abandon as part of a Medicaid spend down regimen, the Assurance Benefit conversion option is a much better choice.

Epilogue

Life Care Funding Group introduced the “Life Care Assurance Benefit” in 2010 as a tool to help families pay for long term care.  Today, over 4,000 assisted living and nursing home communities around the United States offer the Assurance Benefit option to families as an option to pay for long term care.

The Assurance Benefit allows the owner of an in-force life insurance policy to convert their death benefit into a long term care benefit plan to help cover the costs of Senior Living and Long Term Care.  The Assurance Benefit is a regulated transaction complying with the same standards as any other secondary market transaction for a life insurance policy. The Assurance Benefit is the exchange of a life insurance policy for a long term care benefit plan at the time that care needs to be paid.  The long term care benefit account is set up as an irrevocable trust and administered by a third party benefit administrator.  The entire amount of the benefit account is guaranteed and a final expense funeral benefit is also provided.  Policy owners use their legal right to convert an in-force life insurance policy to enroll in the benefit plan and are able to immediately direct payments to cover their senior housing and long term care costs. 

** In 2012, the state of Florida passed HB 5001, a study bill as part of the state’s budget that will examine tax dollar savings from converting life insurance policies into long term care benefit plans for Medicaid eligibility.  Specifically, the study bill will “establish a technical advisory workgroup by August 1, 2012, to examine methods to allow an insured under a life insurance policy or the contract holder of an annuity, to convert the policy or annuity to a long term care benefit.  The agency shall submit a report of findings and activities of the workgroup, including recommendations and proposed legislation, no later than January 15, 2013.”

Author

Chris Orestis is a 15 year veteran of both the insurance and long term care industries.  His career began with senior positions on a number of political campaigns before working in 1993 and 1994 for both the White House and the Senate Majority Leader on Capitol Hill. From that point, he spent the next several years representing the health and life insurance industry as Vice President and Senior Vice President respectively for the Health Insurance Association of America (HIAA) and the American Council of Life Insurers (ACLI).  In 1999, he was awarded the Robert R. Neal Medal by HIAA for distinction and service to the industry.  Chris is co-founder of Life Care Funding Group (LCFG) founded in 2007.  He is an acknowledged national expert on insurance and long term care issues, and is a frequent speaker, featured columnist and Contributing Editor to a number of industry publications, including: National Underwriter, Insurance News Net, Agent’s Sales Journal, Life Insurance Selling, Senior Market Advisor, On the Risk, Society of Actuaries, HealthDecisions, ProducersWEB, ISIS, and InsureIntell.  Chris was named to the Advisory Board of the 3in4 Need More Association for 2012.  Chris has been published on insurance and long term care funding issues over 50 times and his Blog on senior living and long term care funding issues (www.lifecarefunding.com/blog) with thousands of readers every month has become one of the more popular forums on the internet.

Life Care Funding Group

Founded in 2007, Life Care Funding Group (LCFG) assists people in need of funds to cover the costs of senior housing and long term care. LCFG specializes in converting the death benefit of an in-force life insurance policy into a long term care benefit plan to cover the costs of skilled nursing home care, assisted living, home health care, and hospice.

Thousands of assisted living communities, nursing homes, retirement communities, home healthcare providers and senior care advisors offer the LCFG program to families' every day. LCFG's national education campaign has brought awareness about this important financial option to millions of people across the United States. National publications such as Kiplinger's, The Wall Street Journal, and The New York Times have all published stories about the importance of Funding Solutions for Senior Living.

Sources

Health and Human Services (HHS) Center for Medicare and Medicaid Services (CMS) (www.hhs.gov)

United States Government Accountability Office (GAO) report to the United States Congress, “Medicaid Long Term Care” report, March, 2007

Met Life Mature Markets Institute, 2009 and 2010

Kaiser Family Foundation, Medicaid Fact Sheet, March 2011 and State Fiscal Condition and Medicaid Report, October 2010

National Conference of Insurance Legislators (NCOIL), Life Insurance Consumer Disclosure Model Law, November 2010

American Council of Life Insurers (ACLI) tabulation of annual data by the National Association of Insurance Commissioners (NAIC), Life Insurers Fact Book 2011, December 2011

Center for Economic Forecasting and Analysis, University of Florida, Conversion of Life Insurance Policies to Long Term Care Benefit Plans in Florida, January, 2012

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), Public Law 104-191

Florida legislature introduces consumer protection disclosure bill (HB1055) for life insurance owners to convert policies to long term care benefit plans

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.

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.

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.

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.

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.