There’s growing recognition among state lawmakers that elderly residents with modest life-insurance policies could be using it to pay for long-term care – and delay, or maybe avoid altogether, having to use Medicaid, which pays for such care for Americans whose resources run out.
Now, insurance industry analysts are trying to measure the impact of older adults’ tapping their life insurance to pay for long-term care, rather than surrendering such coverage to qualify for Medicaid.
The strategy, explained in the June 17 Wall Street Journal, marks a tacit endorsement of so-called life settlements, a practice in which policyholders sell their policies at a discount in the secondary market and the buyer takes over premiums and consequently collects the death benefit.
Texas enacted a law earlier this month that gives state Medicaid officials the authority to tell people applying for help they can sell long-held life-insurance policies to a third party to pay for custodial health care of their choice. Those who do so would remain eligible for Medicaid when those funds run out.
Similar bills are pending in at least seven other states.
The Texas law is “credit negative” for the life-insurance industry, according to Moody’s Investor Service. In a June 24 report, it said that the state’s endorsement and potential expansion of life settlements would pressure life insurers’ profitability, because life settlements keep policies in force that would otherwise have been surrendered.
“Seniors have been abandoning policies needlessly, and the insurance companies have been benefiting at the expense of the policy owners and taxpayers who have been picking up the tab with Medicaid to cover long-term-care costs,” says Chris Orestis, chief executive of Life Care Funding of Portland, Maine.
“Now that the word is really starting to spread, more seniors will understand they have this option to help them, and it is a much better option than abandoning their life policies to go on to Medicaid,” he adds.
A spokesman for the American Council of Life Insurers, a trade group in Washington, D.C., has said that it is reviewing the new proposals and that “the life insurance product should remain intact.”