According to the National Institutes of Health, nearly seven in 10 people over age 65 will need long term care at some point in their lives. But a recent poll by the AP-NORC Center for Public Affairs Research finds that most Americans don’t believe they’ll ever need long-term care, and don’t plan much for it. A bill in Maine seeks to help seniors pay for this care by using life insurance policies. As Patty Wight reports, supporters say the bill gives seniors more choice about their care and saves the state’s MaineCare program money.
There are essentially two ways to pay for end-of-life care: out-of-pocket, or through Medicaid, known here as MaineCare. Many middle-class Mainers dig into their savings to pay for their care, but those funds can be quickly exhausted. When that happens, it’s time to look at other options and assets, such as life insurance.
A life insurance policy can be cashed in, but the problem, says Democratic Sen. Margaret Craven, is that the return is pennies on the dollar. “So they may have a life insurance policy for $100,000, for example, and they’ll get $5,000 cash for it, even though they’ve been paying for that all their life.”
Some people decide to dump their life insurance policy completely so they can qualify for MaineCare – there are strict rules regarding eligibilit for MaineCare, including the status of your assets. Craven is sponsoring a bill that allows people to convert their life insurance to pay for their long term care without disqualifying them from MaineCare if they ultimately need it. It also requires the Department of Health and Human Services to inform seniors of this option.
Craven got the idea from a guy named Chris Orestis, the CEO of LifeCare Funding. LifeCare Funding is based in Portland, but it works with seniors across the U.S. to convert their life insurance policies to pay for long term care. Orestis says there are half a million life insurance policies in Maine right now, worth a total of $98 billion, a huge resource.
“The unfortunate thing is, everybody knows that you can sell a home and do what you want with your proceeds, but too few people know that they could do the same thing with a life insurance policy,” Orestis says.
That’s because when you convert life insurance to pay for long term care, it retains more value than if it’s sold for cash. Orestis says a $100,000 life insurance plan is worth about $40,000 to $60,000 as a living asset.
According to Orestis and Sen. Craven, this idea benefits nearly all those involved: Seniors, by paying their own way, have more of a choice in their care; long term care providers get a better reimbursement with private money than they do through MaineCare; and the practice delays when seniors need to enroll in MaineCare, which saves the state money.
Craven says Florida has a similar program. “Florida, as they’ve calculated it, will save $150 million a year,” she told colleagues. “And, of course, we’re a much smaller state, but proportionately, we’ll save quite a lot of money as well in our MaineCare system.”
There is one contingent that might not be happy about efforts to increase the number of people who convert their life insurance into a living benefit: insurance companies. If a senior decides to convert a policy instead of dumping it, the insurance company loses out.
MPBN wasn’t able to reach any insurance company officials, but current law already requires companies to inform consumers about this option.