Medicaid Eligibility Q&A

With Chris Orestis, President, Medicaid Funding Group
Q: Does ownership of a life insurance policy count against an applicant for Medicaid eligibility?

A: A life insurance policy is legally recognized as an asset of the policy owner and it counts against them when qualifying for Medicaid. If a policy has anything more than a minimal amount of cash value (usually in the range of $2,000) it must be liquidated and that money spent towards cost of care before the owner will qualify for Medicaid. All Medicaid applications specifically ask if the applicant owns life insurance and full policy details. Failure to disclose and comply is fraud.

Some states allow for a final expense policy to be kept or transferred to a funeral home (but the funeral home would keep the entire death benefit). Medicaid recovery units have become much more forceful about looking for life insurance policy death benefits (declared and undeclared) that have paid out to families after the death of a Medicaid recipient. Medicaid budgets are now facing extreme pressure and asset recovery efforts can be very aggressive. Recovering the entire cost of care through legal actions against the estate and surviving family to go after the death benefit payment are common.

Q: What options do owners’ of a life insurance policy have when attempting to qualify for Medicaid?

A: Medicaid rules are very clear that a life insurance policy is an unqualified asset and counts against Medicaid eligibility. The owner of one or more policies has a variety of options to consider:

• A policy with more than a minimal amount of cash value (usually $1,500 or more depending on the state) must be liquidated with the proceeds spent down on care.
• A policy with no cash value does not need to be liquidated but the death benefit will be subject to Medicaid recovery efforts to return the amount of money spent on care.
• Many states will exempt a “final expense” policy if the full death benefit value is assigned to a funeral home.
• Assignment of a life insurance policy for less than its fair market value is a violation of asset transfer rules if done within the 60 month look back period.
• A policy owner has the legal right to convert a life insurance policy into a long term care benefit plan at its fair market value and extend their spend down period by covering cost of care while preserving a portion of the death benefit until exhausted.

Q: How does a policy conversion work?

A: By converting an existing life insurance policy to a long term care Assurance Benefit plan, the owner is spending down the asset towards their cost of care in a Medicaid compliant manner while still preserving a portion of the death benefit. If the insured passes away while spending down via their Assurance Benefit enrollment, any remaining death benefit would pay out to the designated beneficiary without being subject to Medicaid recovery. Enrollees able to now use non-Medicaid dollars are allowing themselves to access the best level of care and options by remaining a “private pay” patient for as long as possible (private pay rates are at higher levels of 30% or more than Medicaid and is preferred by long term care providers).  Medicaid reimbursements are less than the actual cost of care and are restrictive in what is allowed for coverage. Assisted living is not covered at all and home health coverage is limited and subject to change. The primary source of care for a Medicaid patient is a nursing home.  Conversion of a life insurance policy to an Assurance Benefit allows for maximum choice of care options, and preservation of a partial death benefit instead of 100% abandonment.
Sources

Health and Human Services (HHS) Center for Medicare and Medicaid Services (CMS) (www.hhs.gov)
United States Government Accountability Office (GAO) report to the United States Congress, “Medicaid Long Term Care” report, March, 2007