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Betty's Corner


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New Texas Medicaid Law May be Future of Life Settlements

A new horizon for seniors grappling with mounting healthcare costs

www.lifehealth.com

By: Dragunsk Usf Mr.Terrell is Senior Vice President of Market Development and Branding of The Lifeline Program, a life settlement provider based in Atlanta, Ga.Terrell oversees all aspects of marketing including the P3 Program (Production – Performance – Profit) enabling agencies and agents to build a new market with life settlements, broadening revenue and increasing commissions.  For more information, call 770-724-7300 or visit www.thelifeline.com or follow him on Twitter @LifelineProgram.

Many people in this country are currently fighting a two-pronged battle between their serious medical conditions and mounting hospital bills. Texas state legislators recently made history by passing the country’s first Medicaid life settlement law. Texas House Bill 2383, which enables residents to use the proceeds of a life settlement to help fund their long-term healthcare needs without it barring them from enrolling in Medicaid, was voted into law last month.  The law also grants the authority to the state’s Medicaid department to inform and educate residents about their option to cash in their life insurance policies through a life settlement plan. This is the beginning of a new future for the life settlement industry, originally founded to help individuals in deep financial straits, which is now once again assisting Americans overwhelmed by seemingly insurmountable healthcare costs.

Life insurance settlements enable policyholders to sell their life insurance policy for more than the surrender value, less than the face value.  In such a transaction, a life settlement provider continues to pay the purchased policy premiums, collecting the full amount when the policy seller passes away. The value of a life settlement varies depending on the life expectancy of the policyholder at the time of sale, and on the written full value of the policy.  Often, a life settlement offers seven to eight times more funds than surrendering the policy.

Many states now look to Texas in crafting their own laws

The Texas legislation has drawn a great deal of attention from other state governments, including California, Kentucky, Florida, Louisiana, Montana, North Carolina and New Jersey. All of which have already considered similar bills. Bills of this nature are picking up steam due to the growing problem of programs like Medicaid eating away at the economic stability of state budgets.

In most states, if a resident wants to apply for Medicaid, he or she must first surrender their life insurance policy. A nationwide standardization of this provision would impact a large number of people in this country, especially when one considers that 38 percent of all Medicaid applicants have a life insurance policy (U.S. Government Accountability Office, 2007). It’s also important to note that nearly 90% of all life insurance policyholders will waste decade’s worth of premium payments by allowing their policies to lapse due to the inability to keep up with payments coupled with a general lack of awareness of the life settlement option.

Circumventing the definition of an ‘asset’

Unlike Medicare, many seniors in this country that fall within the middle to lower income brackets do not automatically qualify for Medicaid. Many of these seniors that require Medicaid assistance cannot obtain it due to a life insurance policy

The idea is to allow a life insurance policyholder with a face amount more than $10,000 to sell the policy through a life settlement contract and then use the proceeds to pay for long-term care. Most states currently consider a life insurance policy an asset that prohibits enrollment into their Medicaid program.  The only caveat is that the money must be placed in a special account and used solely for the purpose of providing homecare, assisted living or nursing home care.

Unlike Medicare, many seniors in this country that fall within the middle to lower income brackets do not automatically qualify for Medicaid. Many of these seniors that require Medicaid assistance cannot obtain it due to a life insurance policy.  Instead they must demonstrate they are destitute by eliminating all of their money and assets in what’s known as a Medicaid spend down.  Since they have no access to the money in their policy, they are in need of additional Medicaid assistance, which they can’t enroll in due to their policy.  The dilemma is as paradoxical as it is tragic.

Instead of surrendering their policy, people could enroll in Medicaid provided they use the money they obtain from a life settlement to pay for their long term care. Once the money runs out, they can obtain those services through Medicaid. Since the initial funds will be private, they can even select the long term care facility of their choice as opposed to having it chosen for them by Medicaid. If there are still funds in the account when the individual has passed, the remaining amount will be dispersed to the designated beneficiary or beneficiaries.

Life insurance companies, which have profited from people who pay premiums for decades until they are forced to let their policies lapse, are likely not too thrilled about the new state of things in Texas. According to a recent report by Moody’s, the law will negatively impact the profitability of most life insurance companies due to a massive expansion of life settlements that will keep policies in force that would have otherwise lapsed or resulted in a diminished surrender value. The result is a far larger number of deaths being covered than they originally set their prices for.

As it currently stands, long term care costs are inflated to unaffordable rates and thus largely subsidized. The result is lower quality care at higher prices. The new Texas law creates a new way for individuals to fund some long-term care costs from the proceeds of their own efforts. Instead of surrendering policies, individuals can now use thousands of dollars that is rightfully their own to be used to pay for private medical providers of their own choosing.  This will in turn result in competitive pricing between care providers that will lead to higher quality care at lower prices, reducing overall healthcare costs. This is not only groundbreaking legislation because it saves states money, but it also harnesses the power of free market mechanics.

Coincidentally, it was a Texan named Lyndon B. Johnson that enabled the creation of the Medicaid program in 1965 during his Great Society initiative. Now, nearly 50 years later, his home state is the first to ratify a landmark piece of legislation that once again provides citizens within that society to live the remainder of their lives with dignity.

By : Stephen E.


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