Medicaid Life Settlement conversion of a life insurance policy into a Long Term Care Benefit Plan
NEW YORK STATE ASSEMBLY, SENATE HEALTH COMMITTEE BILL NUMBER: S5721 As New York becomes the eighth state to introduce legislation to promote Medicaid Life Settlement conversions of life insurance policies into Long Term Care Benefits, and Texas becomes the first to enact this legislation into law, Life Care Funding was asked to provide some insight and commentary into what this new law means for consumers seeking the resources to pay for long term care; providers of long term care services; and state Medicaid Departments.
TITLE OF BILL:
An act to amend the public health law, in relation to Medicaid life settlements
In 2007, Life Care Funding introduced the concept of converting a life insurance policy into a Long Term Care Benefit that would help a person stay private pay longer before becoming Medicaid eligible. By staying private pay they would be able to choose the form of care they most want, and in the process Medicaid Departments and tax payers would save millions of dollars. As the long term care industry embraced this concept Life Care Funding began to work in partnership with Homecare Companies, Assisted Living Communities and Nursing Homes across the United States to educate consumers and political leaders about the benefits to both seniors and tax payers if this approach were actively embraced and promoted by the states.
PURPOSE: The purpose of the bill is to allow individuals who are about to access Medicaid to sell their life insurance policies pursuant to a life settlement contract and use the proceeds of the life settlement to directly pay for long term care expenses thereby delaying entry into the Medicaid system.
Life Care Funding was invited by the National Conference of Insurance Legislators (NCOIL) to testify at three different hearings over two years about how people could sell a life insurance policy through a life settlement as a way to raise money from a policy that they would otherwise lapse or surrender to go onto Medicaid. The funds would be locked up in an irrevocable, FDIC insured Long Term Care Benefit Plan to protect the money and make sure it was spent only on long term care services. Payments from this benefit account would keep the individual private pay; allow them to choose the form of care and setting that they want; and would be paid directly to the care provider on a monthly basis. In 2010, NCOIL included “conversion of a life insurance policy into a Long Term Care Benefit Plan” as one of the expressly endorsed options of the new Life Insurance Consumer Disclosure Model Law.
SUMMARY OF PROVISIONS: This bill would provide for the conversion of a life insurance policy in to a Medicaid Life Settlement Plan, pursuant to a regulated life settlement contract.
As Life Care Funding worked with the Florida Study Group hosted by the state Medicaid Department in 2012 and 2013, the focus of the legislation as it was developed was to ensure there is significant consumer protections in place. Specifically, the Long Term Care Benefit Plan, or in legislative parlance the Medicaid Life Settlement Plan, would be a qualified Medicaid spend-down and the conversion of the life insurance policy would follow the regulatory requirements that govern a life settlement transaction.
JUSTIFICATION: Many seniors who currently have in-force life insurance policies never take full advantage of their assets market value and instead let their policies lapse or abandon their policies by ceasing to pay their monthly premiums.
Owning a life insurance policy will count against a Medicaid applicant’s eligibility. To qualify for Medicaid eligibility, the applicant’s assets must be below the poverty level. If a Medicaid applicant owns a life insurance policy they must either surrender it to spend any proceeds down on care first, or if they keep a policy the state can initiate asset recovery action against the family after the person dies to claw back any death benefit proceeds to take back what the state spent on long term care services. But, a life insurance policy usually has a higher market value than what a Medicaid applicant would receive in any remaining cash value from the insurance company. Instead of lapsing or surrendering a policy, this higher market value can be used by the policy owner to remain private pay longer and delay or avoid the need to go onto Medicaid. This bill benefits Medicaid applicants with life policies by providing them with a fair market value for their policies, as opposed to the cash surrender value or nothing if they are forced to surrender or otherwise terminate their policies in order to qualify for Medicaid. This permits the individual, using their own funds, to have an expanded choice of care, including such things as the level and type of care that meets their needs, as well as the type and location of the services or facility. Importantly, the individual who sells their policy and applies the proceeds directly to pay for long term care services will be deferred from going onto Medicaid for a considerable period of time, in some cases, permanently. Life Care Funding has been leading the way in many state on the issue of Medicaid life settlements. In 2013, Life Care Funding testified before the state legislature on Florida Medicaid life settlements and the advantages for the consumer to getting the highest value for their life insurance policy to help them pay for long term care. Testimony was also brought before the house committee concerning Medicaid life settlements in Texas. Likewise, Medicaid life settlements in Maine have been discussed in the state senate as a means of funding long term care. By converting the policy consumers would be able to stay private pay and choose Homecare, Assisted Living, Skilled Nursing, Memory Care or Hospice as best meets their needs. If they were to terminate the policy and go straight onto Medicaid they would become a ward of the state and not be able to choose the type of care they want where they would go.
This bill benefits long term care service providers through an increase in badly needed private pay revenue, paid directly from the trusts to the providers.
During presentations before the American Health Care Association (AHCA) and the Assisted Living Federation of America (ALFA), Life Care Funding spoke about the importance of encouraging market based solutions to drive more private pay into the long term care system to offset the reductions in reimbursements by Medicare and Medicaid. By making payments from the irrevocable Long Term Care Benefit plan directly to the care provider, the family is assured that the funds are protected and monthly payments are being made to cover the costs of care. This bill will generate significant savings to the state by advising the owners of a life insurance policy to convert their policies into a Medicaid Life Settlement Plan instead of abandoning those policies or letting them lapse. This legislation will substantially extend the spend-down period of the life policy, on Medicaid qualified expenses, delaying the individual’s entry onto Medicaid for months or ears.
FISCAL IMPLICATIONS: This bill will result in substantial savings to the Medicaid program.
In 2012, Life Care Funding worked with Florida State University’s Center for Economic Forecasting and Analysis (CEFA) to study the cost savings impact of people using the full value of life insurance policies converted through a Medicaid Life Settlement into a Long Term Care Benefit Plan. Based on the research and analysis of cost savings to Florida’s tax payers by delaying entry onto Medicaid through a policy conversion instead of a lapse or surrender, the Center for Economic Forecasting and Analysis estimated annual savings of $150 million.