Most know that in order to qualify for Medicaid one must “spend down” assets. This often means selling a house, emptying retirement accounts, and otherwise depleted resources that one spent a lifetime acquiring. New York Medicaid attorneys work with families to protect assets from loss in this way, often by using a Medicaid Asset Protection Trust. (MAPT).
Life insurance is also lost in this way, as some are required to “surrender” their insurance policy in order to receive Medicaid support. Usually the surrender value is a small cash amount–far less than what would actually be paid out after passing to beneficiaries.
The real winner of this requirement is the insurance company itself, as the company avoids the obligation of paying on a death claim. The seeming injustice of this scenario is leading some states to consider an alternative process known as “Medicaid life settlements.”
Life Settlements
The process works by allowing an individual applying for Medicaid to enter into the “settlement” whereby the proceeds are used for long-term care. Essentially this involves selling the policy and putting the funds in trust to be used for care. Most versions of this option allow the insured party to also designate a beneficiary for any unused portion of the settlement proceeds. On top of that, under the one state with the law, a beneficiary automatically receives $5,000 or five percent of the policy face value (whichever is smaller)
One key benefit of this option is that it provides more flexibility. The individual could use the funds for care of their own choosing, outside of somewhat restrictive Medicaid options. The policy value will still be used for care, but it won’t be essentially thrown away in order to qualify for public support.
As a story on this issue from Life Health Pro earlier this month explained, New York is one of several states currently considering allowing Medicaid life settlements. Right now Texas is the only state to have life settlement laws on the books. That state only changed their law very recently, and so it is too early to tell how many people have used it and how well it has worked in their case.
Hopefully our state seriously considers this option and all proposals that open up fairer choices for families to receive the care they need without losing life savings. To learn more about options when a loved one needs nursing home care or may need it down the road, please contact our attorneys today.