FL, CT, and HI look to long term care benefit plans to offset Medicaid costs

Joining Connecticut and Florida, Hawaii is the latest state to pass a study bill establishing a task force and timeframe to examine the conversion of life insurance policies into Long Term Care Benefit Plans. With states facing enormous fiscal pressures and ballooning Medicaid budgets, they are all looking for private market solutions to help extend peoples’ ability to remain private pay in long term care for as long as possible. Millions of seniors will allow a life insurance policy to be abandoned because they do not understand their legal rights of ownership and the options available to them to use the policy for something other than a death benefit.

The National Conference of Insurance Legislators (NCOIL) understood the implications of billions of dollars of life insurance policies in the hands of seniors being discarded when they unanimously passed the Life Insurance Consumer Disclosure Model Act in November, 2010. This consumer protection law requires that life insurance companies inform policy holders above the age of 60, or with a terminal or chronic condition, of approved alternatives to the lapse or surrender of a life insurance policy including “conversion to a long term care benefit plan”. NCOIL declared that final passage of the Life Insurance Consumer Disclosure Model Law is intended to be “a strong stand for life insurance policy owners and would empower consumers through education about their options.” NCOIL Past-President Rob Damron (KY), upon unanimous passage said, “It is imperative that policy holders understand that they have alternatives to merely lapsing or surrendering their policy.” California, Connecticut, Kentucky, Maine, New Hampshire, Oregon, Washington State, Virginia and Wisconsin already have passed or are now considering life insurance consumer disclosure laws for their states.

Following the lead of the NCOIL model law, these three states have now passed study bills to specifically examine the cost savings impact of converting life insurance policies to pay for long term care:

• In 2011, the state of Connecticut introduced study bill SB-1153, as “an act establishing a task force to study life insurance policy and annuity conversions and the provision of certain notifications by life insurance companies”.  The study bill has been referred to the Joint Committee on Insurance and Real Estate Law for consideration as a means to help Connecticut deal with an out of control Medicaid budget through the conversion of life insurance policies and annuities to pay for long term care.

• In 2012, the state of Florida passed HB 5001, the Florida state budget, which contains the following in Section 224 to be funded by the Florida Medicaid budget: “establish a technical advisory workgroup by August 1, 2012, to examine methods to allow an insured under a life insurance policy or the contract holder of an annuity, to convert the policy or annuity to a long term care benefit.  The agency shall submit a report of findings and activities of the workgroup, including recommendations and proposed legislation, no later than January 15, 2013.”

• In 2012, the state of Hawaii passed study bill, SB-2455 to “establish a task force to assess and make recommendations regarding the use of viatical settlements and accelerated death benefits as means of funding long-term care”.  The bill specifically declares, “The legislature finds that although the cost of long-term care services is rising, more individuals have term life insurance policies, which end when people leave their job or retire, instead of private long-term care insurance. Factors such as cost, convenience, and desire to protect growing families, may motivate individuals to buy life insurance over long-term care insurance. The legislature also finds that according to the American Council of Life Insurers, Hawaii had more than 709,000 in-force life insurance policies in 2009, compared to 77,344 individuals covered by long-term care insurance in 2010. Approximately only five per cent of the State’s population has long-term care insurance. The legislature further finds that despite the infrequent use of viatical settlements and accelerated death benefits in life insurance policies, these options should be studied as possible solutions and assessed for their potential as funding sources for long-term care services”.

The Center for Economic Forecasting and Analysis (CEFA) of Florida State University analyzed the tax savings impact of converting life insurance policies into long term care benefit plans on the Florida Medicaid budget.  In their analysis released in January, CEFA “scored” the annual savings for Florida’s tax payers at approximately $150 million.  The savings come from extending the time Medicaid applicants with a life insurance policy can remain private pay, delaying entry onto Medicaid by first converting their policy to a private, long term care benefit account.

 

About Life Care Funding Group:

Founded in 2007, Life Care Funding Group (LCFG) assists people in need of funds to cover the costs of senior housing and long term care.  Working with over 4,000 Senior Living and Long Term Care providers in the U.S., LCFG specializes in converting the death benefit of an in-force life insurance policy into a long term care benefit plan to cover the costs of skilled nursing home care, assisted living, home health care, and hospice.  Life Care Funding Group (www.lifecarefunding.com) can be reached at 888-670-7773 or info@lifecarefunding.com.