Will Medicaid take the money from life insurance to pay past Medicaid benefits?


Elder mother applying for medicaid. If we are considering placing mother on Medicaid. Has $50,000 term life insurance. If on medicaid will they take the $ to pay past medicaid benefits? If we place her in nursing home will they take the $ after her death? The $ is left to her POA for paying post death bills and funeral expenses. A little left over for daughter.

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Only the cash value of a life insurance policy is counted, for Medicaid eligibility purposes. Since a term policy has no cash value, it is exempt for Medicaid eligibility purposes. Upon the death of the insured, unless the beneficiary is the estate of the insured, it will not be subject to estate recovery by the state if the insured received Medicaid benefits (in most states).
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Get a from to transer ownership of the policy from the elder mother to a responsible advocate who will disperse this according to her wishes on death. Even if the beneficiary is listed if there are DEBTS ( of the owner of the policy) the STATE and FED will take it unless the ownership ( easy to do with elder signature and send to Ins co - a document will be sent to the owner to prove they cannot take the funds). It did happen to my father and the state took the funds not his widow. My mother lived below the poverty level for 22 years post my fathers death. She transferred ownership of her small life insurance policy into her daughter's name ( me ) and I will use it to settle any debts she may have and disperse leftovers between siblings as she requests. Good Luck !
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Medicaid is a real challenge for state budgets, so states are looking for ways to shift the costs to the participants whenever possible.

This seems to be what is happening for life insurance in some states as they are looking to Life Insurance Policy Conversions (aka Life Care Funding, aka Medicaid Life Settlement) to be used to fund an individuals LTC from their insurance policy by converting it rather than letting the policy lapse or do a settlement. And since Medicaid is administered uniquely by each state, if your state is going with Conversions, it will totally change what happen with your parents life insurance.

There are 8 states who have now introduced legislation for Conversions - CA, FL, KY, LA, ME, NJ, NY & TX. Texas has actually passed the legislation in June, 2014.

This is a real sea-change for what life insurance is viewed as doing for the person buying it and their supposed heirs. Term life insurance was not viewed as a spend-down asset. Only whole life insurance was as it had a obvious cash value.

My state - Louisiana - is likely going to do Conversions and policy & regs apparently are being written like now so probably will go for legislation to be passed next session & go in effect in 2018; as an aside on this LA budget is kinda in crisis mode as oil & gas revenues are shot, interest rates sux and all that recovery $$$ from Katrina/Rita and Deepwater Horizon has pretty well all paid & over; & Medicaid eats up about 20% of the budget.

Basically to me it looks like Conversions means that all insurance policies (whole, term, GUL, universal) over a low / minimal value (1K - 5K) will need to convert to an pre-funded irrevocable account with the $ paid monthly & used to pay for their LTC. Any $ left after death goes to the estate or a named beneficiary. If they use up all the Conversion a set aside is done for a death benefit of 5K or 5% of policy - whichever is less - payable to estate or named beneficiary. Only if Conversion $ is used can they go onto Medicaid. Account is administered by a 3rd party & regulated…...

I'd guess that the insurance co's probably like conversions as they won't be paying a 1 time full value on policy but FMV over time & dealing with administrators who speak insurance & finance.

Heaven help us and state budgets when the tsunami of baby boomers hit Medicaid eligibility. It will not be pretty.
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igloo572: Here's how I see it:
When forced to give up a policy, Medicaid should be forced to pursue the Insurance company. We paid into a policy over many years the exact death benefit amount - 20K. We were forced to cancel by virtue of having to spend down to the point of not being able to pay the premiums.
Life insurance should be required to pay to Medicaid whatever amount would have been paid the deceased's estate or beneficiary as of the moment of the forced cancellation. If Medicaid received such payouts, it would not be an incentive for policy holders to cancel. It would force Medicaid to recover dollars that are currently and legally, forfeited to the insurance companies.
The actual dollar amount of the pemiums already paid into the policy should benefit should someone.

The amount gifted back to the insurance through no fault of the IS, CS, or SNF, should result in a forced penalty on the insurance company. Under current laws, the life insurance company is not required to perform on behalf of any person or entity. The insurance receives a salary even though it when it fails to perform on behalf of any involved parties. The insurance company should next be penalized an amount equal to the value of all premiums already paid by the policy holder.

This is a situation I've discovered where the Medicaid beneficiary is legally permitted to engage in a gifting arrangement. That is, forced gifting.
Since monies were gifted to the insurance company through no fault of the snf, IS or CS, insurance should be required to pay the state whatever premiums were actually paid out-of-pocket by the policy holder. A forced cancellation is not an exchange for something of equal or greater value.

States were asleep at the switch when this wasn't tackled years ago.
The snf would have benefited had the insurance company been required to perform. In forced Medicaid cancellations, the insurance companies become the sole beneficiaries of their policy holders.

Since policy holders are required to perform forced cancellations, Medicaid should be required to perform a forced recovery from the insurance.

Policy conversion of some degree is sorely needed. It would help the state's ability to be rightfully paid for services provided. Current law allows insurance to pay no one. So, guess what? The insurance becomes the sole beneficiary of the policy. This is legalized fraud.

States were asleep at the switch when this racket wasn't tackled years ago.

If mina12345's family is able to use the policy to pay some of the bill, it will have served it's purpose. If there are any remaining funds to pay to beneficiaries it will have served it's purpose.
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I've compared the numbers - total assets vs. the snf costs. If we paid everything we had at the start plus all we have remaining, including a place to live, the bill will never get paid.
Does "paying past Medicaid benefits" refer to a prior illness in which Medicaid paid, but couldn't attach the policy proceeds because she hadn't died yet?
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Houseplant - the scenario you describe seems to be a part of what is being used to justify the change of life insurance from an exempt after death benefit to a non-estate beneficiary to instead allow the existing life insurance to undergo a conversion that pays-out while they are still alive. And it's done via a Life Insurance Policy Conversion. your spot-on about problem.

For 8 states to have looked into this by even introducing legislation, is a real change on something (term life insurance) that has always been viewed as an untouchable, sacred object. If TX, which just passed this, is able to show a cost-benefit to the state budget by doing this.....the other states will all follow. Medicaid costs for the elderly just is a huge HUGE cost for state budgets. Its not supporable over time when the day comes and baby boomers start tapping into medicaid. States have to find a way to do some combo of cutting costs & getting the receipients to pay as states are required to have skilled nursing services available via medicaid. Those life insurance policies are going to be looked at as a way to offset costs with little political fallout. The insurance companies will like doing them .....I'd bet a case of Prosecco that they will be able to negotiate payouts below value. So it's a win plus spread over time & that's another win.

The line will be that its the elders policy and $ used for their care & better than canceling a policy or doing a policy settlement with a significant loss.

I had no idea about conversions till this month. It was just by chance that I got a copy of Ashar Group white paper "medicaid in crisis" - you can goggle it.

If a few states show that Conversions are saving state $, all the others will do it.
If that happens there will be no life insurance $ inherited ever if an elder should need to apply Medicaid.

Llama - my point is that policy & regulations can change. Like before your state signed in Bush's 2005 Deficit Reduction Act, your state was not mandated to do MERP. All states had some sort of estate recovery since the 1990's but many states did zero recovery & families inherited their parents home with little fuss. Now all states postDRA have MERP and a whole set of standards & compliance for it. Life insurance conversions could be the next new thing & it would be a huge change for what I think alot of our parents & the baby boomer generation view as a reason to have life insurance....to provide an after death inheritance.
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A term life insurance policy is exempt when applying for Medicaid, but a family member will have to pay the premium each year.
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mina12345: K. Gabriel Heiser, who is an attorney provides the correct answer as well as I. However, mina12345, I have one question for you=what do you mean about "paying past Medicaid benefits?" I don't believe Medicaid allows you to be in arrears. You're either up to date or you're out.
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