Written By: Chris Orestis, Co-Founder and CEO of Life Care Funding
10,000 Baby Boomers are turning 65 every day and the United States must find ways to address the costs of funding health care for the “Silver Tsunami” era. New private pay approaches to fund long term care must be encouraged, and converting life insurance policies into Long Term Care Benefits is an option quickly gaining ground.
This country is under tremendous budget pressure to keep pace with exploding demand to cover long term care needs with tax payer money. States are quickly realizing the savings that can be found for their beleaguered budgets by delaying entry onto Medicaid through the use of life insurance policy conversions into Long Term Care Benefit Plans to extend private pay spend-downs before eligibility. Legislative leaders across the country are taking action with consumer protection disclosure laws, and legislation to encourage consumers to take advantage of the policy owner’s ability to convert life insurance to pay for long term care as an alternative to abandoning their policies. Policy owners are being encouraged through Policy Conversion legislation in the states to use their legal right to convert an in-force life insurance policy into a Long Term Care Benefit Plan with monthly payments directed automatically to cover their senior housing and long term care costs.
Policy Conversion legislation empowers the state’s Medicaid department to inform Medicaid applicants that if they own a life insurance policy, the preferred alternative to lapse or surrender is to convert the policy into a Long Term Care Benefit plan. This allows seniors to extend the time they remain private pay through a Medicaid qualified spend-down of the asset proceeds before they receive government assistance.
Because a life insurance policy is legally recognized as an asset of the policy owner, it is an unqualified asset and counts against them when applying for Medicaid. For Medicaid applicants, it has been standard practice to abandon a life insurance policy if it is within the legally required five year look back spend-down period. The Long Term Care Benefit Plan is a regulated, Medicaid qualified financial vehicle to help cover the costs of long term care.
As of March, 2013, Florida, Louisiana, Texas, Kentucky, and Maine have introduced Policy Conversion legislation. Additional states are in various stages of developing similar bills for introduction.
In 2013, Florida State University’s Center for Forecasting and Analysis economic impact study: Conversion of Life Insurance Policies into Long Term Care Benefit Plans in Florida “scored” the annual savings for the Florida Medicaid budget and tax payers at $150 million annually if policy conversions are used to extend the time a Medicaid applicant would remain private pay before qualifying for government assistance.
The policy conversion option to pay for senior living and long term care is a win-win-win for the Policy owners/families, long-term care providers, and state Medicaid programs/tax payers:
- The policy owner and their family are able to obtain fair market value for their life insurance policy and use the proceeds in a Medicaid qualified spend-down to extend private pay before moving to government assistance.
- Providers of senior living and long term care services benefit from consumers with more private pay dollars.
- Tax payers benefit because the longer a person can remain private pay before becoming Medicaid eligible translates into critical budget savings for the state’s Medicaid program.
Consumers lack preparation and awareness for how they are going to cover the costs of long term care. It is a subject typically ignored until a loved one is in immediate need of care. We need to do all we can to help people prepare to pay for long term care in the future– but what about the majority of financially unprepared people that need to access long term care today?
It all starts with education and awareness. Millions of seniors are holding a potential solution in their hands if they own a life insurance policy. Unfortunately most are unaware of their legal right to convert their life insurance policy into a Long Term Care Benefit Plan. It is common sense that the best interest of policy holders is to make decisions with full disclosure of their rights and options. Addressing this simple fact, states are taking action to tackle this lack of consumer awareness. Now, as the word spreads across Senior Living and Long Term Care providers, and with significant political support growing across the country, policy conversions will begin to have a positive impact on the long term care funding crisis in the United States.
Author
Chris Orestis is Co-Founder and CEO of Life Care Funding. He is a national recognized senior care advocate and a 15-year veteran of both the life insurance and long term care industries; a member of the Advisory Board to the 3in4 Need More Association; and a frequent speaker, featured columnist, and contributing editor to a number of industry publications. His blog on senior living issues can be found at www.lifecarefunding.com/blog. He can be reached at 888-670-7773 or [email protected].
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