Americans are doing little to prepare for long term care and are not very concerned. And maybe they don’t need to be concerned— because they need to be terrified! A recent poll released by AP-NORC Center for Public Affairs Research, and reported in the national media, verified a major factor contributing to the long term care funding crisis in this country: Two out of every three people over the age of 40, according to the poll, have made no plans about long term care and it is a topic they prefer to not consider. The irony is that seven out of ten people will need long term care services once they pass the age of 65. The poll also showed the continuing lack of understanding about how long term care is funded. Misconceptions continue that Medicare will pay for anything more than 100 days of skilled nursing rehabilitation care. Health insurance plans don’t cover long term care services, long term care insurance is limited and restrictive in coverage, and Medicaid will only cover long term care (primarily nursing home) once a recipient has spent-down their assets to below the poverty level.
The growing population of Boomers retiring, and seniors requiring long term care services is creating enormous pressure on the system and an urgent drive to find new private pay solutions. One private pay resource that is on the rise is converting life insurance policies into Long Term Care Benefits. Millions of seniors own life insurance policies that they are in danger of abandoning without realizing they could quickly and easily convert the policy into a monthly Long Term Care Benefit Plan. These Benefit Plans will pay for any form of long term care service including homecare, assisted living, and skilled nursing care; and any type of life insurance policy will qualify for conversion.
Private Pay Solutions Emerge
The long term care industry has been quick to embrace this concept and today thousands of assisted living communities, nursing homes and home health companies accept this funding method. Political leaders too have begun to realize the cost saving implications for their beleaguered Medicaid budgets by extending the time a person could remain private pay before becoming Medicaid eligible through the conversion of a life insurance policy as an alternative to abandoning the policy through lapse or surrender.
Medicaid is a government program designed to help cover health care costs for the indigent (poor), disabled and children and/or dependents. The eligibility process is determined by asset and income levels that would measure an applicant as being below the poverty level. One of the assets that will count against a Medicaid applicant is a life insurance policy. The owner of the policy must surrender the policy for any cash value and spend it down on care, or if the policy has no cash value and the owner keeps it the estate will be subject to federally mandated asset recovery probate action against the death benefit collected by the estate to claw back all Medicaid expenditures. Because of this reality, financial planners, elder law attorney’s and geriatric care advisors have provided seniors and their families with the default guidance that in the case of ownership of life insurance policy (not including funeral policy exemptions), a life insurance policy still owned by the senior inside the 5 year look back period should be abandoned.
Political Support Arrives Just in Time
States are now coming to the realization that there is a much higher value found through the conversion of a life policy that can be deployed to extend private-pay as a Long Term Care Benefit Plan. Any owner of a life insurance policy has the legal right to convert it into a Long Term Care Benefit Plan. In 2010, the National Conference of Insurance Legislators (NCOIL) passed a national consumer protection model law that would mandate life insurance companies must disclose to policy owners about their legal right to convert their life insurance policies instead of abandoning them via lapse or surrender. The life insurance industry opposes anything that would discourage policy owners’ from abandoning their life insurance (because life insurance companies make huge profits off of seniors that have paid premiums for years and then abandon their policies in the last years of their life).
Since passage of the NCOIL national model law; legislation has been introduced in numerous states to empower Medicaid departments to educate citizens that the conversion of their life insurance policies is their legal right and a better option than abandonment of their policies. As of May 2013, the states of FL, TX, KY, LA, and ME have introduced this legislation and numerous other states are preparing to introduce the same bill for enactment. Over the course of this year and next, people will continue to become more aware of their option to convert a life insurance policy to pay for long term care. All across the country the long term care industry and political leaders are looking for private pay options that not only help people pay for long term care, but save the tax payer money by delaying Medicaid eligibility.
Three Clear Winners
The policy conversion option is a clear winner for seniors and their families; providers of long term care services; and for tax payers in every state:
1. The policy owner and their family are able to convert a life insurance policy and use the proceeds in a Medicaid qualified spend-down to extend the time they are private pay before moving to government assistance. This allows freedom to choose the form of care they want, as well as financial control and dignity for themselves and their families.
2. Providers of long-term care services benefit because they are operating under extremely thin margins and private pay dollars translate into higher quality services for everyone under their care.
3. The longer a person can remain private pay before becoming Medicaid-eligible, the more budget/tax savings for the citizens of every state in America.