In the last few years there has been a growing awareness that life insurance policies can be converted to pay for Long Term Care. The company that brought this concept to national attention is Life Care Funding. Since its beginning in 2007, Life Care Funding has grown to a national presence with a network of over 5,000 nursing homes, assisted living communities, and home health care companies that work with them to educate seniors and their families about this alternative funding option for long term care. Recently, we have seen NCOIL include this “Conversion Option” in the Life Insurance Consumer Disclosure Model Law, and numerous State Legislatures have introduced Policy Conversion bills to focus this option on helping states save tax dollars by extending the time a person would be able to remain “private pay” before becoming Medicaid eligible.
Producer’s eSource sat down with Chris Orestis, CEO of Life Care Funding to learn more about Long Term Care Benefit Plans and how this concept has come to spread across the country.
Q: We have been watching numerous states introduce legislation about converting life insurance policies to help people pay for long term care before they would go onto Medicaid by enrolling them first in a Long Term Care Benefit Plan. What is a Long Term Care Benefit Plan?
A Long Term Care Benefit Plan is the conversion of an in-force life insurance policy into a pre-funded, irrevocable “Assurance Benefit” Account that is professionally administered with payments made monthly on behalf of the individual receiving care. This option extends the time a person would remain private pay and delays their entry onto Medicaid. The policy transaction is specifically designed to conform to the secondary market regulations that govern life settlement/viaticals, and the Benefit is administered specifically to be a Medicaid qualified spend-down of the asset proceeds. By obtaining the fair market value for the life policy, and then at the direction of the policy owner putting the funds into an irrevocable custodial-bank account which can only be administered third-party to pay for Medicaid/Medicare qualified long term care services; the Long Term Care Benefit Plan is a regulated and Medicaid qualified financial vehicle to help cover the costs of long term care.
Q: Is legislation necessary for policy owners to be able to convert their life insurance into a Long Term Care Benefit Plan? What is the goal of this bill now in CA, FL, KY, LA, MA, MD, ME, NJ, NY, PA, TX and WA?
The owner of a life insurance policy has the legal property ownership right to convert their policy into a Long Term Care Benefit Plan in every state and no new legislation or regulation is required for a policy owner to access this financial option. The legislation introduced in these states would empower the Medicaid Department to inform policy owners that they have this right as an alternative to lapse or surrender of a policy to go directly onto Medicaid. Because the policy proceeds are locked up in an irrevocable, FDIC insured custodial-bank account that can only be administered to pay for the costs of care; the Benefit Plan is a Medicaid qualified spend-down of the life policy asset. The legislation codifies that to be Medicaid qualified, and to capture those savings for the Medicaid budget, a person would need to specifically enroll in a Long Term Care Benefit Plan that is configured and managed as it is specified in the legislation. It is now law in KY and TX.
Q: What does the legislation require for a policy conversion to be a Medicaid qualified spend-down?
Key elements of the “Private Option” Long Term Care Benefit Plan include:
- A schedule evidencing the total amount payable, the number of payments and the amount of each payment required to be paid for long term care;
- All proceeds must be held in an irrevocable state or federally insured account;
- The lesser of five percent (5%) of the face amount of the life insurance or $5,000 is reserved as death benefit payable to the estate or beneficiary;
- And, the balance of payments required under the contract unpaid at death of the must be paid to the estate or a named beneficiary.
Q: How is this policy conversion option regulated? What kind of protections are in place for the consumer who enrolls in a Long Term Care Benefit Plan?
Converting a life insurance policy into a Long Term Care Benefit Plan provides multiple layers of consumer protections:
- The transfer of ownership of life insurance policies conforms to the rigorous regulatory standards that govern life settlements in each state.
- The irrevocable, FDIC insured Benefit Account is held by a nationally chartered bank & trust company and must conform to federal and state banking regulations.
- Because the custodial-account is irrevocable and can only be spent on long term care services, the Benefit Plan is administered as a Medicaid qualified spend-down.
- Seniors are specifically protected by numerous federal and state elder laws and regulations governing the rights and care of seniors. Elder abuse (both physical and financial) is a serious crime and providers of long term care services are among the most highly regulated and scrutinized entities in the United States.
- A life insurance policy owner has the legal property ownership right to convert their policy into a Long Term Care Benefit Plan in every state in America.
Q: Does the owner of a life insurance policy get a good value for their policy when converted into a Long Term Care Benefit Plan?
Every year billions of dollars’ worth of life insurance policies is needlessly abandoned by seniors seeking Medicaid eligibility. Seniors lapse or surrender a life insurance policy because they either can no longer afford premium payments or they are preparing for Medicaid eligibility and they abandon the policy because it is an unqualified asset that will count against them. For a policy owner looking for an alternative to abandoning their policy and receiving little to no value in return; the option to convert their life insurance policy into a Long Term Care Benefit Plan will allow them to procure the true, fair market value of their policy and use private-pay dollars for long term care that is spent it down in a Medicaid compliant manner. As long as the individual remains private pay they can choose whichever form of long term care they desire: home health, assisted living, or nursing home care and are not constrained to whatever Medicaid reimbursed service they are eligible to receive.