Seniors and States Both Desperate to Stay Off of Medicaid

Seniors have an overwhelming desire to remain independent, and do not want to become a burden on their family or a ward of the state by entering Medicaid.  Unfortunately, the current system to fund long-term care has evolved into one that encourages seniors to impoverish themselves and move towards Medicaid as quickly as possible.  People do not want to go onto Medicaid, yet consumers lack awareness and are unprepared for how they are going to cover the costs of Home Care, Assisted Living, Skilled Nursing Care, or Hospice.

It is a subject typically ignored until a loved one is in immediate need of care. Statistics show that the majority of people do not understand the various forms of long-term care, the different means to pay for it, and most do not plan for long-term care until they are hit by a health care crisis. Adding to the crisis is the fact that Baby Boomers are now reaching Social Security and the Medicare age of 65 at a rate of over 10,000 people a day, and 70% of them will need long-term care services before they pass away.  In fact, over 10 million people require long-term care of some form every year. The writing has been on the wall for years. The Baby Boomer crush coupled with the LTC funding crisis is starting to escalate this issue quickly.

THE BIG DILEMMA?? The costs of long-term care are increasing every year and most families do not understand what they will be confronting when it is their time to start paying for care. Too many people wait until they are in the midst of a crisis situation before they start trying to figure out how the world of long-term care works.  Long-term care is a very expensive proposition and families can go broke trying to provide for a loved one. Seniors and their families are already struggling with the costs of everyday living, and if you add the costs of long-term care to the picture, it is a back breaking scenario for most Americans.

Political leaders want to see people remain in private pay as long as possible and delay/avoid Medicaid and are looking for alternatives in the private market to pay for long-term care.  Across the country everyone understands that it is impossible for Medicare and Medicaid to keep pace with the exponentially growing demand for long-term care services.  “Private Pay” has become the holy grail of funding long-term care, and a powerful combination of industry leadership and political action is opening up access for the consumer to new funding options.

Do People Want to Go Onto Medicaid for Long-Term Care? The Answer is NO!

For the last five years, Medicaid has spent between $140 billion and $200 billion annually on the costs of long-term care “supports and services” primarily for seniors.  In terms of numbers of people receiving Medicaid, 80% of the dollars are spent on less than 20% of the eligible population which is almost entirely driven by long-term care costs. But the irony here is that people don’t want to go onto Medicaid!

When a person is on Medicaid, they are no longer able to choose what they want for long-term care. Most forms of home care and assisted living are private pay—which means you must have resources other than Medicaid to be able to pay the monthly “out-of-pocket” expenses.  The typical scenario for a person on Medicaid is that they will go into a nursing home and most often share a room with another patient.  For most people that have worked their entire lives, raised a family, and participated in their share of the “American Dream;” spending your final days in this scenario sounds more like a nightmare.

State budgets are under extreme pressure to keep up with their share of the rising costs of Medicaid.  Families would prefer to look at Medicaid as a last resort (which is what it was created to be) and don’t want to spend-down their assets to get below the poverty line to qualify.  Remember, if you go onto Medicaid, it means you are below the poverty line and have become a ward of the state.

Legislative Action to Support Private Pay Using Long-Term Care Benefit Plans

A Long-Term Care Benefit Plan is the conversion of an in-force life insurance policy into a pre-funded, irrevocable Benefit Account that is professionally administered with payments made monthly on behalf of the individual receiving care. This option extends the time a person would remain private pay and delays their entry onto Medicaid.  It is a unique financial option for seniors because all health conditions are accepted, and there are no wait periods, no care limitations, no costs to apply, no requirement to be terminally ill, and there are no premium payments. Policy owners have the legal right to convert an in-force life insurance policy to enroll in the benefit plan, and are able to immediately direct tax-exempt payments to cover their senior housing and long-term care costs.

The option to convert a policy to pay for long-term care is available in all states, and now notification laws are being introduced and passed to make sure people are informed that converting a life insurance policy into a Long-Term Care Benefit Plan is an accepted part of a Medicaid spend-down. To qualify as a Medicaid qualified spend-down, this Conversion law calls for a specific Long-Term Care Benefit Plan structure to protect the funds and ensure they will only be used for long-term care services.

Thirteen states have introduced policy conversion consumer disclosure legislation to educate policy owners about the option to sell a life insurance policy to fund a Long-Term Care Benefit Plan and remain private pay. It also codifies the Long-Term Care Benefit Plan structure that protects the funds and ensures they will only be used to pay for long-term care services in: California, Florida, Georgia, Kentucky, Louisiana, Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Texas, and Washington. Texas was the first to enact this consumer protection legislation into law in June, 2013 and Kentucky enacted the measure in March, 2014.

“We believe this consumer protection legislation is a win-win solution that will save taxpayer dollars while preserving the funding facilities need for care delivery and maintaining a stable workforce,” Florida Health Care Association Executive Director, Ed Reed.

The point of the new law is to make sure people know they have the legal right in every state to use their life insurance to pay for long-term care.  These bills ensures that policy owners will be informed of this private pay option by the state government, and that they specifically use a Long-Term Care Benefit Plan to protect the funds and make sure that they are only used to pay for the long-term care services of their choice.

This new law does two things:       

1. Grants authority to the Medicaid department to inform and educate citizens that they can convert life insurance policies into a Medicaid qualified Long-Term Care Benefit Plan to remain private pay and choose any form of long-term care they want instead of abandoning a policy to go straight onto Medicaid.

2.     To qualify, the Long-Term Care Benefit Account must be an irrevocable, FDIC insured account that makes payments directly to the care provider; the person must be able to choose the form of care they want; a funeral benefit must be preserved; and if there is any unpaid account balance when the person dies, it must go to the designated account beneficiary.

Specific requirements for the Benefit Plan to be Medicaid Qualified (based on the Life Care Funding model):

a) A schedule evidencing the total amount payable, the number of payments and the amount of each payment required to be paid for long-term care;

b) All proceeds must be held in an irrevocable state or federally insured account;

c) The lesser of five percent (5%) of the face amount of the life insurance or $5,000 is reserved as death benefit payable to the estate or beneficiary;

d) And, the balance of payments required under the contract unpaid at death must be paid to the estate or a named beneficiary.

According to the NAIC, there is $27.2 trillion of in-force life insurance in the hands of 152 million Americans.  Too few of these policy owners’ understand their legal rights of ownership and do not possess the knowledge of how insurance works.  When their original need for a policy has run its course, the vast majority of owners simply walk away from what may be one of the most valuable assets they own—for nothing in return.  Life insurance is legally recognized as personal property and the owner has the right to use their assets in a number of ways, including converting the policy to a long-term care benefit plan while still alive.

“I believe it could be a win for Medicaid service recipients, a win for the fiscal soundness for Medicaid, it could be a win for potential beneficiaries under life insurance policies and I think it could be a win for long-term care service providers,” said Jack McRay, a spokesman for the Florida AARP.


We have reached the point that we can no longer ignore the realities of an ever growing population that will require long-term care, and the diminishing resources to pay for it.  People need to arm themselves with information about their options to fund long-term care if they are going to maintain dignity and quality in their lives. Government programs such as Medicare and Medicaid will become more difficult to access and the amount of coverage for long-term care will continue to be reduced.  Consumers want to have private pay and choose the form and place of care that they want.  People want to remain financially independent and in control of their care decisions for as long as possible – sparing their families financial hardships and preserving their own dignity. To do so, they must plan and prepare as much in the future as possible, and when it comes time to start receiving care, they must understand their rights and options to stay private pay and in control for as long as possible.