How Life Insurance Policies Affect Medicaid Eligibility

24 Comments

In order to qualify for Medicaid coverage a nursing home stay, an elder's assets cannot exceed $2,000 for a single person, or $109,560 for married couples. However, not all assets are "countable" for these purposes. The biggest exemptions are the person's home, car, and personal property. Another exemption is life insurance owned by the elder. The rule states that only the "cash surrender value" of a life insurance policy is countable, but only if the total face value of all life insurance policies exceeds $1,500. ("Cash surrender value" is the amount the life insurance company will pay out if the policy were cancelled. It's also known as the "cash value." The "face value" is what the company would pay out to beneficiaries if the elder died, assuming the policy was still in effect.)

So if your parent has a $1,000 policy with cash value of $800, he or she can keep it and it will not count towards the $2,000/$106,400 limit.

What if an elder has a term policy with a face value of $100,000? It's completely exempt since a term policy by definition has no cash value. Of course, the elder (or another family member) has to pay the premium each year to keep it in force.

What should be done with existing policies? If your parent has an existing policy and their health is not good, you may decide to keep the policy rather than cancel it. After all, the elder may be uninsurable, and if you keep the policy in force, family members could benefit from the proceeds upon the elder's death.

Assuming the total face values exceed $1,500 and the elder's countable assets put him or her over the limit to qualify for Medicaid, it could be a good idea to have the children purchase the policy from them and keep it in effect (by paying the annual premiums). You see, it's not who is insured or who is the beneficiary that matters—it's who is the owner of the policy. The reasoning for this Medicaid rule is that the owner could simply cash in the policy at any time, and thus it is counted the same as if he or she already did so. But if a child is the owner, the elder has no ability to cash in or cancel the policy, so it would no longer count against the elder's assets.

Another option is to assign the policy to a child, as a gift. This will cause a penalty period, so in many cases this is not the best solution. However, as part of an overall plan that includes other gifting, it could make sense.

K. Gabriel Heiser is an attorney with over 25 years of experience in elder law and estate planning. He is the author of "How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets," an annually updated practical guide for the layperson.

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24 Comments

Why is the limit for a couple more than 50 times that of a single person? That makes no sense at all!
bob - Medicaid eligibility for those over 65+ for a long term care facility, like a NH, is somewhat different that for other Medicaid situations like your live in girlfriend who is on Medicaid and sounds like she works; or Medicaid for the disabled on SSDI or short term Medicaid for pregnant women or Medicaid for children. For those in a NH all their income less whatever your state has as a personal needs allowance (from $ 30 - 75 a month) has to be paid in toto to the NH. I think the thought is that the NH resident lives at the NH so in theory doesn't need $$ for anything else while your girlfriend lives with you in the community so can have more income.
PC - for Medicaid you have to basically be impoverished whether you are a single person or 1/2 of a married couple that needs to go into a NH and on Medicaid.

But for couples, the one that is not in the nursing home is considered the
"community spouse" and as such should have the income/assets to continue to live in the community. The community spouse does not have to make themselves impoverished for the other to get accepted on Medicaid - that is what the 109K allows them to do. The 109K is the community spouses assets and NOT the assets of the Medicaid recipient. It's slightly above a 50% split based on 2K. For many many couples, they have to spend down their assets to get to the $ 109K point.