In an effort to help curb the rising costs of Medicaid associated with long-term care, legislatures in several states, including New York, are working on legislation that would allow people with life insurance policies to use those policies to help pay for private long-term care expenses.
Texas recently became the first state to pass one of these so-called “life settlement” laws. The laws essentially allow investors to purchase a person’s life insurance policy for up to 10 times the cash surrender value. The policyholder receives that payment and agrees to transfer the policy to the purchaser. The purchaser also agrees to continue to make premium payments and, once the policyholder dies, receives the life insurance benefit.
One of the main reasons state legislators are looking to pass these types of laws is because they allow the state to reduce its Medicaid expenses. Medicaid is a health insurance program jointly paid for by the states and the federal government. It not only pays health insurance for indigent people, but also pays for long-term care expenses for elderly people who qualify.
Because so many people want to use Medicaid to pay for long-term care expenses, many of them spend down their life insurance cash surrender values because Medicaid has a specific asset limit. In order to qualify, elderly people must spend down their assets, or else they have to pay for long-term care expenses privately.
The life settlement laws allow elderly people to use their life insurance policies as a way to more easily pay for private care.