Copyright 2010 SNL Financial LCAll Rights Reserved SNL Insurance Daily
August 6, 2010 Friday
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Katie Darden

The president of the National Conference of Insurance Legislators added his voice to a chorus of concern over retained-asset accounts for life insurance death benefits.

"NCOIL has grave concerns and awaits with extreme interest the outcome of current probes, including Veteran Administration and New York Attorney General investigations," Kentucky state Rep. Robert Damron said in an Aug. 4 press release.

Damron advocated a "Beneficiaries Bill of Rights" that would "guide" states that have not already adopted models for dealing with retained-asset accounts. The release noted that NCOIL is working on a model disclosure law for its annual meeting that would require insurers to notify policy owners of their rights and options with respect to life insurance policies. The meeting is scheduled for Nov. 17 through Nov. 21.

August 12, 2010
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Chris Orestis discusses Life Insurance Consumer Disclosure legislation before the NCOIL Life Insurance and Financial Services Committee 

(July 9, 2010)— Life Care Funding Group’s president, Chris Orestis testified in Boston on Friday, July 9^th about the important role that Consumer Disclosure Legislation in states such as Maine, Washington, Oregon and Kentucky can have as a model for other states to consider in the coming legislative year.  The legislation enacted in these four states has become an important precedent as it compels life insurance companies to disclose to policy owners at the time they would lapse or surrender a policy that they have other options to consider to receive higher market value for their policy.

Also appearing on the panel was Michael Friedman, Senior Vice President of Government Affairs for Coventry First and Michael Lovendusky, Associate General Counsel for the American Council of Life Insurers (ACLI).  Mr. Friedman spoke in support of the legislative precedent and the need to support state efforts as they consider legislative action to ensure policy owners are informed of all of their financial options.  Mr. Lovendusky speaking on behalf of the life insurance industry emphasized the industry’s staunch opposition to consumer disclosure, stating for the record that the idea is “abhorrent” to the industry.

Mr. Orestis discussed his company’s commitment since its inception in 2007 to working with seniors and their families to provide them with as much information and access to financial resources as possible.  He pointed to the law passed in Maine requiring insurance companies to disclose to policy owners that they have other options instead of lapsing or surrendering a life insurance policy they no longer can afford regardless of its death benefit amount as an example of what should be done around the country.

“We are living in a time when we must be doing all we can to get as much information as possible into the hands of seniors”, testified Chris Orestis.  “When a senior and their family is informed that an asset (life insurance policy) they are about to throw away has unrealized value for them, and it is a potential solution to a health care crisis they are confronting, the consumer wins when they are able to access the most appropriate form of long term care and the state wins when a citizen is able to extend their ability to cover the costs of long term care for as long as possible before accessing Medicaid”, concluded Orestis before the NCOIL committee.   

To obtain the complete transcript of Chris Orestis’ testimony before the Life Insurance and Financial Services Committee of NCOIL, Click Below:  

Remarks NCOIL.doc (30.00 kb)

UPDATE 7/12/10--

The National Conference of Insurance Legislators (NCOIL) plans to begin drafting a new model act requiring insurers to tell consumers of their options, including life settlements, if they plan to get rid of their policies.

Georgia state Sen. Ralph Hudgens said he reported to NCOIL's executive committee on Sunday that he was asking Kentucky Rep. Ron Crimm to craft a life insurance options model bill in the next few weeks by melding similar laws that already have passed in Maine, Washington and Kentucky.

Hudgens, who heads the Life Insurance & Financial Planning Committee of NCOIL, said this model legislation would be separate from the model act on life settlements that was adopted by NCOIL in 2007. Once the draft is complete, it will be sent to interested parties for comment, he said.

Hudgens said he expects the model act will be taken up at NCOIL's November meeting in Austin and adopted.

Now that we have arrived at the long awaited generational stage in our society that “Baby Boomers” are reaching the age of Medicare eligibility, the need to address the question of who is going to pay for a massive increase in long term care spending has become paramount.  Exacerbating the growing crisis is the impact of the economy on the availability of private pay dollars and government spending.  For the last two years we have watched as one of the primary sources of private funds, equity in the homes of seniors has evaporated.  Simultaneously, state and federal budgets feeling the pinch of an eroding tax base and out of control spending on health care have started cutting back on Medicare and Medicaid spending. 

We are at a crisis point in our nation’s history.  The cost of long term care continues to rise every year, and seniors (and their families) confronting the realities of what it costs to provide home based care, assisted living, or long term nursing home care are looking for solutions.

For those families with a long term care insurance policy, a portion of these costs may be covered if they meet the necessary eligibility requirements.  And for those families with the last name Gates or Winfrey, they can just cut a check.  But what about the vast and often overlooked middle market?  Where do they find the resources to cover all or a portion of these costs?

For the ANSWER-- Click Here to read the complete article by Chris Orestis published by Insurance News Net Magazine

National Underwriter (published June 14, 2010)

by Chris Orestis, President Life Care Funding Group

The question was: My client would like to use a life settlement to help pay the assisted living expenses for her mother, who is alert but frail and needs the care the community provides. The mother is the owner and insured of a $250,000 UL in-force policy, but the daughter (my client) has power of attorney for her mother’s financial affairs. Is a life settlement the best option in this situation and how do you recommend I proceed?

The answer is: Monetizing life insurance policies to help cover the costs of long term care in its various forms has grown much more common in the last couple of years.

Providers of assisted living, skilled nursing home care and home healthcare have come to realize the financial opportunity for policy owners in need of their services but lacking in funds. States are now waking up to see that the use of a life insurance policy to access money is a better route for seniors than letting a policy lapse or be surrendered. Maine, Oregon and Washington are three examples of states that have passed laws requiring insurers to notify policy holders of their legal right to a life settlement at the point that a policy would lapse or be surrendered. As time marches on, more states are considering and will enter this law onto their books. 

Simultaneously, more seniors and their families are becoming aware that a life insurance policy can be cashed in through a variety of mechanisms to raise money to help cover the very expensive costs of long term care.

In this particular example, the family’s representative will need to be aware of a few factors. First, when going down the path of monetizing a life insurance policy, it is critical that the family members are in agreement and are active participants in the process. Working with the daughter as POA will help move the process along and not burden the mother. Unfortunately, a policy of this size will not find many interested life settlement companies as most have minimum face size requirements in the range of $500,000-$1,000,000. Also, the companies that specialize in underwriting for life expectancy evaluations do not have the ability yet to accurately account for the sudden dynamic of “Life Expectancy Compression” that occurs in a long term care scenario.

You will need to look for a company that specializes in working with the long term care space and understands how to underwrite this specific population. Also, keep in mind that a life settlement is one possible option, but it is not the only option to monetize a life insurance policy to raise money for long term care.

www.aplaceformom.com to feature Life Care Funding Group’s Funding Solutions for Senior Living 

Life Care Funding Group and A Place for Mom announced the addition of Funding Solutions for Senior Living to the “Financial Assistance” section of the #1 website in the world for Senior Living resources and referrals.  Life Care Funding Group is the leading provider of funding solutions to the senior living industry and works with over 2,500 providers around the U.S.  A Place for Mom is the leading online resource in the senior living industry for families looking for information and access to providers of senior housing and long term care. 

A Place for Mom’s “Financial Assistance” program provides information to families about their funding options to help pay for the costs of senior housing and long term care.  Life Care Funding Group has been selected as the preferred provider of Life Settlement funding and will provide information and assist families to access the maximum amount of liquidity they can derive from an existing life insurance policy. 

“Many families we help are struggling to afford the costs of Senior Living,” said Brian Trisler, co-founder and Senior Vice President of A Place for Mom, “and our goal through the Financial Assistance program on our website is to provide them with information and access to the leading provider of the most appropriate financial tools to meet their needs.” 

Since the onset of the deepest recession to hit the U.S. in almost a century, seniors and their families have been struggling to afford the costs of senior housing and long term care.  Families have been looking for alternative funding tools to help them in a time of crisis and the senior living industry has responded by making resources such as converting a life insurance policy into a long term care benefit to pay for these costs readily available.  Adding Life Care Funding Group’s Funding Solutions for Senior Living program to A Place for Mom’s website is another move towards making these financial tools readily available to the people who need them most. 

“We work with families everyday that own a life insurance policy and they have no idea it can be used to pay for the costs of senior housing and long term care,” Chris Orestis, president of Life Care Funding Group explained during the Assisted Living Federation of America annual conference, “and instead of letting the policy lapse or surrendering it because they can no longer afford the premiums, Life Care Funding Group can covert it into a long term care benefit.”  

Both organizations have linked websites and Facebook pages, and are reaching out to their respective client bases to generate more awareness about these Financial Assistance options. 

As part of the recently passed healthcare reform bill signed into law by President Obama, an act to address the long term care funding crisis in our country was included.  The Community Living Assistance Services and Support (CLASS) Act provides a voluntary long term care benefit for participants that elect to participate.

To participate, you must enroll through your company or a self-employed pension plan and pay a monthly premium for five years to qualify for the benefit in the future.  CLASS will not be active for two more years, so the soonest someone will begin collecting the benefit is at least seven years from now.  As with any new government program, there are still details to be worked out through regulation and comment periods which will happen over these next two years.

Some details about the program have emerged making it clear this is not going to be a magic bullet cure for the massive funding crisis impacting seniors and their families requiring long term care.  First of all, the benefit paid out will be in the range of $50-$75 per day which falls far short of the actual costs of daily care (and those costs will continue to rise annually over the next seven years).  Also, the benefit will be limited to the costs of at home care and will not cover assisted living or nursing home care.  Further issues around rolling over the benefit year to year, opt-in / opt-out penalties and the effects of adverse selection will all prove a challenge for participants.

Although CLASS Act alone is not enough for an individual or our nation to deal with the massive costs of long term care, it is a positive first step for the government in acknowledging the hardships faced by Americans trying to meet these obligations.  If nothing else, it will do much to educate people that they must prepare now for the financial challenges that lay ahead in their future.

To read an analysis on CLASS by UNUM, click below

CLASS Act Summary - UNUM 5 10.pdf (655.39 kb)

A report tracking Medicaid spending going back over the last seven years showed that Medicaid underfunded payments for services to all patients by $14.17 everyday in 2009.  Projections are that this alarming underfunding trend will get worse in 2010 and 2011.  The economic crisis has robbed state budgets of funds available to support Medicaid funded programs and as a result there was a national deficit of almost $5 billion.   

Medicaid funds at least 2/3 of all spending for nursing home care. Spending shortfalls of this magnitude threaten the ability of nursing homes to offer the highest levels of care for the most vulnerable populations.  Frustratingly for nursing homes and those in their care, state governments were given money in 2009 via the American Recovery and Reinvestment Act to make up this deficit.  But guess what—governments diverted the money away from providing the healthcare it was intended, and instead used the money to shore up their own budget deficits.   

As readers of the Life Care Funding BLOG know, we continue to bring awareness to the unavoidable trend of reducing the amounts of money that are available for Medicare and Medicaid.  And why is that?  Because we are now in the throes of an explosion of Baby Boomers reaching retirement age at the same time that our country’s economy is under siege and entering unfamiliar territory.  Washington, DC and 50 state capitols have no choice but to figure out how to make do with less. 

They have two tools to work with:

1.      Make it harder for people to qualify for Medicare and Medicaid, and--

2.      Reduce what is available for those that do qualify. 

What tools do seniors and their families have to work with? 

1.      Information

2.      Time 

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 less 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 what kind of financial options are out there such as the VA Benefit, Life Insurance Settlements, Credit Programs, Reverse Mortgages, Long Term Care Insurance and other sources of private funding.

To read more about Medicaid budget deficits, click here. 

State of Maine Announces proposal to cut 10% out of nursing home Medicaid spending in 2010:

Governor Baldacci released his proposed FY 2010-2011 State budget Friday afternoon. As in previous years, the Departments of Health and Human Services and Education are being asked to bear the brunt of significant cuts including 10% rate cuts to some MaineCare providers including nursing homes and residential care facilities. Preliminary analysis shows that the cut to nursing homes is in the area of $26 million. It is harder to separate the hit to res care, but we estimate it to be in the area of $10 million or a little over $9.00 per resident day. The newest figures (Nov. 2009) from AHCA indicate that Maine currently underfunds its nursing homes by $25.5 million per year. This translates to an average loss of $16.20 per resident per day. So, it seems reasonable to estimate that the proposed cuts will double those shortfalls.

The right of a policy owner to engage in a Life Settlement is guaranteed by the landmark Supreme Court decision; Grigbsy v. Russell establishing that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner could transfer without limitation.  Life insurance is personal property and the owner is protected by all the same inalienable rights that any owner of real estate, stocks or any other assets enjoy. 

As seniors look for assets they can use to offset lack of savings or losses in equity; the Life Settlement market has grown rapidly, with $13 billion in transactions completed in 2008.   90 million senior citizens own more than $500 billion worth of life insurance, of which over $100 billion was owned by seniors eligible for Life Insurance Settlements.  The Wharton Business School issued a study about Life Settlements where they observed, “Life insurance policies are typically assignable, which means that a policyholder is free to transfer their ownership of the policy to another person.  A policyholder’s right to assign their policy to someone other than the insurance carrier has existed for some time.”  The study also went on to observe that a Life Settlement “gives the policyholder the economic freedom to choose between a number of buyers and, in so doing, to receive the fair market price for their policy.” 

Among the legal rights of a life insurance policy owner are:

 · Sell the policy to another party  · Name the policy beneficiary  · Change the beneficiary designation  · Assign the policy as collateral for a loan  · Borrow against the policy

A number of insurance industry organizations such as the National Association of Insurance Commissioners (NAIC), National Council of Insurance Legislators (NCOIL), American Council of Life Insurers (ACLI), National Association of Insurance and Financial Advisors (NAIFA), American Association of Life Underwriters (AALU) and the Life Insurance Settlement Association (LISA) support the legal rights of a policy owner to liquidate a life insurance policy through a Life Settlement.

Read the Grigsby v. Russell decision issued by Justice Oliver Wendell Holmes in 1911: Supreme Court Ruling on Life Insurance as Transferable Property.doc (42.00 kb)

Surveys have found that the economic crisis is discouraging or outright scaring people away from saving for their future needs.  Many are looking at the daily headlines and are afraid to put money away and watch it shrink or disappear.  Others can not afford to save as they try to keep up with the costs of daily living. Compounding the decline in our nation’s already anemic 1% saving rate is the rise in unemployment and the loss of investment income and home equity. 

This trend will have a harsh impact on seniors as they begin to enter the “Senior Living” stage of their lives and need to move into some form of assisted living. Most people do not understand the costs associated with the kinds of housing and care they expect to receive in the future.  Many do not know the differences between Medicaid, Medicare, and Social Security.  Most people do not have long term care insurance, and for those that do they have seen significant disruptions and rate increases with their policies. It is important that people not bury their heads in the sand and wait for everything to return to “normal”.  

Now is the time to take action and seek information about “Senior Living” and the various financial options.  It is also important to have a realistic understanding of the costs involved and where the money is coming from.  It would be a mistake to assume the government is going to take care of everything—and then find out too late that it doesn’t work like that. There are very specific requirements to qualify for Medicare and Medicaid and limitations to what those programs will cover. Also, these entitlement programs are not a free ride and there are expenses associated with both.  

More and more emphasis is being placed back on the individual to shoulder the burden of paying for senior housing and long term care.  There are many “Funding Solution” programs for seniors and now is the time to be researching options and planning for the future—because the future always seem to come when you least expect it and at the most inconvenient times. 

To read more about the decline in savings and financial confusion, click here.

In reaction to the deepening economic crisis, “senior living” companies that provide independent living, assisted living, continuing care retirement communities and skilled nursing care have begun actively offering “Funding Solutions” programs to seniors and their families.  Deep losses in the value of homes and investment portfolios, as well as the decline of long term care insurance companies, have had a very painful impact on people preparing to enter the stage of life where living at home alone is no longer a viable option.  Making this move is difficult both emotionally and financially—and the difficulty has been made much greater over the last year.

Leading companies such as Emeritus Senior Living, 5 Star Quality Care, EPOCH Senior Living, Belmont, Good Neighbor Care, and Legend Senior Living among many others (click here for a complete list of participating companies) have begun introducing comprehensive “Funding Solution” programs to give seniors and their families more choices and resources for financial assistance.  What was once an area largely left up to the individual to figure out on their own, has now become a critical area for support and action by senior living companies.  The range of financial services include: life insurance settlements, bridge loans, VA benefits, real estate programs, and other innovative ways to help people bridge possible financial gaps preventing them from accessing the housing and care that they most need.

Industry trade groups such as the American Health Care Association (AHCA), the Assisted Living Federation of America (ALFA), and the American Senior Housing Association (ASHA) have all been bringing attention to the importance of “Funding Solutions” for the consumer through various forums to communicate with and educate the senior living companies that are their members.  The media has also been discussing this phenomenon over the last year in periodicals such as the Wall Street Journal, the New York Times, Eldercare News, Senior Care Investor and countless other local media outlets.

With the economy continuing its downward climb for possibly years to come, it is important to see the kind of action being taken by the industry charged with caring for our nation’s elderly to put information and financial tools into the hands of the people that need it most.