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Texas Law Allows Elderly Medicaid Applicants to Fund LTC Expenses With Life Settlements

ambest.com

AUSTIN, Texas - Texas Gov. Rick Perry has signed a law that allows elderly state residents to use the proceeds of a life settlement to help pay for private long-term care expenses.

The Life Insurance Settlement Association praised Texas for being the first state to adopt the Medicaid life settlement law. It requires Medicaid applicants to be informed about the option to sell their life insurance policy through a life settlement — instead of lapsing or surrendering the policy — and apply the money to pay for direct long-term care services while preserving their Medicaid eligibility, LISA said in a statement.

The Medicaid program, a state and federal partnership but operated by each state, provides health coverage for lower- income individuals, families and children, the elderly and people with disabilities. The Texas law benefits consumers and taxpayers, as the life settlement proceeds will delay, and in some cases defer, people from going on
Medicaid, according to LISA.

"In Texas, a policyholder can now sell their life insurance policy and use the proceeds to fund private long-term care expenses," William Scott Page, president and chief executive officer of the Lifeline Program, told Best's News Service. "The implications are far reaching."

Under House Bill 2383, the Texas bill signed into law, the holder of a life insurance policy with a face amount more than $10,000 will be able to sell the policy through a life settlement (Best's News Service, June 10, 2013).

Jack Dolan, a spokesman for the American Council of Life Insurers, told Best's News Service that "we believe the integrity of the life insurance product should remain intact. Life insurance is for beneficiaries, typically a policy owner's family." Life insurers "are addressing the concerns prompting the activity in the states," Dolan said, noting they are doing this through long-term care insurance; riders to life and annuity policies that pay for long-term care needs; policy loans and through accelerated death benefits. The ACLI isn't opposing legislation that allows for individual life insurance policies to be used in connection with Medicaid to help defray the high costs of long-term care services, Dolan said.

A life settlement occurs when a life insurance policy is sold by its owner for an amount greater than the surrender value of the policy but lower than the face amount of the policy. The buyer of the settlement becomes the new owner and beneficiary of the policy and is responsible for making future premium payments and collecting the death benefit
when the insured dies (Best's News Service, June 10, 2013).

"In order to qualify for Medicaid in most states, you have to surrender your life insurance policy — typically for little or no value," according to Page. Laws such as the Texas law could potentially "save states millions of dollars per year,"
Page previously said (Best's News Service, June 10, 2013).

A growing number of states have filed or are considering similar legislation, including California, Florida, Kentucky, Louisiana, Maine, Montana, New Jersey, New York and North Carolina. "We expect that other states will be offering similar options soon," Page said.

Best's News Service reported in 2005 that the growth in the life insurance secondary market — namely life settlements — was causing concern for life insurers, with experts saying among the biggest is that life settlement transactions "distort" years of pricing assumptions life insurers made on polices (Best's News Service, Feb. 22, 2005).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com) BN-NJ-06-25-2013 1640 ET #


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