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.
PART 2 (See Part 1 for earlier Q&A):
Q: Is this a good option for state Medicaid programs struggling with budget problems? How much money can a state save?
The Conversion of a life insurance policy into a Long Term Care Benefit Plan delays entry onto Medicaid. Typically, when a life insurance policy owner applies for Medicaid, they will either surrender or lapse the policy to qualify for Medicaid as quickly as possible. But if the same applicants convert their policy for its fair market value to enroll in a Long Term Care Benefit Plan, they will remain private pay and off of Medicaid for months, if not years. By delaying entry onto Medicaid through a Medicaid qualified spend-down of the policy asset, the state will save taxpayer dollars. In 2012-2013, Florida State University’s Center for Economic Forecasting and Analysis did an economic impact study on what kind of taxpayer savings might be realized by passing this law. They scored the savings to Florida’s Medicaid Department at $150 million per year.
Q: Does the Long Term Care Benefit Plan preserve anything for the policy owner’s estate?
Anyone who converts their life insurance policy to enroll in a Long Term Care Benefit Plan has the dual protection for their estate of a final expense “funeral” benefit reserve of 5% of the death benefit or $5,000, whichever is the lesser, to provide a funeral benefit payment to the Account’s named beneficiary. Also, should the enrollee pass away with additional funds, unused funds in their Benefit Account, the remaining balance is paid directly to the enrollee’s named beneficiaries. Enrollees and/or their beneficiaries are assured to receive the full Benefit amount even if the client dies before all monthly payments have been made.
Q: What type of life insurance qualifies for conversion into a Long Term Care Benefit Plan?
Life insurance policies of any type (term, universal, whole, group) with a death benefit value above $10,000 can qualify for conversion into a Long Term Care Benefit Plan. Once the policy has been converted, the enrollee can select any form of long term care they desire: home health, assisted living, or nursing home care. Unlike life or long term care insurance, the Long Term Care Benefit Plan is a unique financial option for seniors because all health conditions are accepted, and there are no wait periods, no care limitations, no costs to apply, no requirement to be terminally ill, and there are no premium payments.
Q: Is there a potential conflict of interest or “moral hazard” between the providers of care and the seniors using life insurance policies as a liquid asset to pay for long term care?
When a life insurance policy is converted into a Long Term Care Benefit Plan, there is an immediate alignment of interests between the enrollee, the provider of long term care services, and the tax payer. The enrollee is able to remain private-pay and choose their preferred from of long term care service provider; the long term care service provider would prefer to receive private pay funds for as long as possible; and the tax payers are saving money the longer a senior can remain private pay. The provider of long term care services has no vested interest in the life insurance policy (that would be a conflict of interest and a regulatory violation that would threaten their license) and it is in the interest of the care provider to receive payments for as long a time period as possible. The care provider has a fiduciary and regulatory responsibility to their patient and the question of “moral hazard” does not exist.
In fact, when Jack McRay, a spokesman for the Florida AARP testified in support of this bill in Florida, he said, “I believe it could be a win for Medicaid service recipients, a win for the fiscal soundness for Medicaid, it could be a win for potential beneficiaries under life insurance policies and I think it could be a win for long-term care service providers.” (3/8/13 Florida Public Radio, Lynn Hatter reporting)
Q: What is the typical size of a policy owned by a senior who would look to this option to help fund long term care? What is the potential size of this market?
153 million Americans own $27.2 trillion worth of life insurance. Every year 10 million people receive long term care services in the U.S. Medicaid spent $425 billion on long term care reimbursements in 2011. With such a massive pool of life insurance policies in-force, and 10,000 Baby Boomers turning 65 every day, the size of the senior population that own life insurance policies and are looking for alternative means to pay for long term care is substantial. Life Care Funding has enrolled people with all forms of life insurance policies covering a wide range of death benefit value, and the average size policy we work with is $100,000 of death benefit.