Screwed? $1,500 *Death* Benefit for Medicaid Exemption?

[InsuranceAssure]

Hello F.E. Experts,

I'm thinking deeply about the fact that Medicaid Qualification only exempts Life Insurance Policies with a $1,500 Death Benefit or less.

From:
attorneyhoyle dot com (couldn't post URL)

Exempt or Noncountable Assets:

2016 Exempt Assets for MassHealth Eligibility: Married couples: For the spouse at home: residence plus $119,220 of other assets; for the spouse entering the nursing home: $2,000. Single person: residence if value less than $828,000 plus $2,000, but the residence becomes subject to a MassHealth lien. Irrevocable prepaid funeral contracts or trusts; $1,500 burial bank account; permanent life insurance having a death benefit of less than $1,500; term life insurance; personal effects; and one automobile if needed for transportation are also exempt.
​

This seems like a potentially epic concern for lower income, Final Expense Policy Owners.

Elsewhere, I read that if 100% of the Death Benefit is (irrevocably?) assigned to a Funeral Home,it may be exempt if more than $1,500, but might that mean the Beneficiaries would get nothing?

Elsewhere, I read that if the Spouse is the Owner, there MAY be a greater exemption....BUT.....So many policies are written with the Kid's as the Beneficiaries....and the Insured's as the Owner's, no?

Can some skilled experts please chime in?

Thank you,

Concerned for Clients

 

[HoosierLife]

I didn't read all that, but are you sure it's $1500 in cash value that's exempt?

Plus they can just make someone else the owner of the policy and solves all these issues.

 

[indiana260]

Hello F.E. Experts,

I'm thinking deeply about the fact that Medicaid Qualification only exempts Life Insurance Policies with a $1,500 Death Benefit or less.

From:
attorneyhoyle dot com (couldn't post URL)

Exempt or Noncountable Assets:

2016 Exempt Assets for MassHealth Eligibility: Married couples: For the spouse at home: residence plus $119,220 of other assets; for the spouse entering the nursing home: $2,000. Single person: residence if value less than $828,000 plus $2,000, but the residence becomes subject to a MassHealth lien. Irrevocable prepaid funeral contracts or trusts; $1,500 burial bank account; permanent life insurance having a death benefit of less than $1,500; term life insurance; personal effects; and one automobile if needed for transportation are also exempt.


This seems like a potentially epic concern for lower income, Final Expense Policy Owners.

Elsewhere, I read that if 100% of the Death Benefit is (irrevocably?) assigned to a Funeral Home,it may be exempt if more than $1,500, but might that mean the Beneficiaries would get nothing?

Elsewhere, I read that if the Spouse is the Owner, there MAY be a greater exemption....BUT.....So many policies are written with the Kid's as the Beneficiaries....and the Insured's as the Owner's, no?

Can some skilled experts please chime in?

Thank you,

Concerned for Clients

In Indiana you are allowed to have over the limit of you assign to the funeral home

 

[InsuranceAssure]

That is what I initially thought as well...
What got me really thinking deeply about it, is that it specifically says:

["...permanent life insurance having a death benefit of less than $1,500]

This basically means ANY Final Expense policy, no?

----------

Thank you, but does that mean that in a larger policy, no remainder could go the family beneficiaries?

If someone has a $20,000 FE Policy and they assign it to the Funeral Home, does the Funeral Home get to keep the entire $20,000 if the Funeral only cost 12K, say??

 

[jdeasy]

That is what I initially thought as well...
What got me really thinking deeply about it, is that it specifically says:

["...permanent life insurance having a death benefit of less than $1,500]

This basically means ANY Final Expense policy, no?

----------

Thank you, but does that mean that in a larger policy, no remainder could go the family beneficiaries?

If someone has a $20,000 FE Policy and they assign it to the Funeral Home, does the Funeral Home get to keep the entire $20,000 if the Funeral only cost 12K, say??

You are completely misreading or understanding how the Medicaid elder laws and regulations work.

The cash value in a whole life, or UL policy is considered a countable asset towards a person's eligibility or non eligibility for Medicaid or extra help.

So it's not just the cash value. It's all countable assets together. Cash, money in a savings or checking account, the non penalty withdrawals from an annuity, etc. If all that together totals more than $1500, {$2000 in some states}, then the person loses eligibility as a QMB Plus for that month. It's always month to month.

The cash value is only a countable asset to the owner of the policy as they are the only one with access to it.

This easily avoidable by assigning ownership to someone else. Just make sure that person is not also on Medicaid. Or they can assign to a funeral home or a funeral trust. But there are limits in most states on what can be protected at a funeral home or trust. In Ky it's $15K, in In it's $10K.

That's where the face amount provision comes in. If a person that's on Medicaid dies with an insurance policy that does not have a beneficiary then the money goes to their estate. The state is allowed to then recover monies paid on that person's healthcare from their estate at that point. Except for a small protected amount.

If a beneficiary is named and is the one getting the check then it's a non issue.

 

[Newby]

That is what I initially thought as well...
What got me really thinking deeply about it, is that it specifically says:

["...permanent life insurance having a death benefit of less than $1,500]

This basically means ANY Final Expense policy, no?

----------

Thank you, but does that mean that in a larger policy, no remainder could go the family beneficiaries?

If someone has a $20,000 FE Policy and they assign it to the Funeral Home, does the Funeral Home get to keep the entire $20,000 if the Funeral only cost 12K, say??

Yes they can assign policies to funeral home. No, there can be no 2nd beneficiary after the funeral home. Remainder MUST go to the estate. And Medicaid will be the 1st creditor of the estate.

You can do the app from the beginning with a different owner that is NOT on Medicaid and it can not count against the Medicaid beneficiary because they have no rights or ownership of the policy.

You can do a policy with a funeral trust (such as Settlers) and it will be exempt for funeral use from Medicaid. Same problem with excess funds though. Has to go to the estate.

You can do a policy with an Estate Planning Trust (such as Settlers) if they will not likely apply for Medicaid within the next 5-years. This is the best option because any excess funds DO go to their beneficiary.

If it's too late for all that and the policy is larger than the funeral will cost, have them pull all the cash value out of the policy first and then assign the rest to the funeral home. Best you can do. Make sure they spend the cash they pulled out on things Medicaid will allow. Personal items, home repairs, furnature, etc.

 

[goillini52]

Yes they can assign policies to funeral home. No, there can be no 2nd beneficiary after the funeral home. Remainder MUST go to the estate. And Medicaid will be the 1st creditor of the estate.

You can do the app from the beginning with a different owner that is NOT on Medicaid and it can not count against the Medicaid beneficiary because they have no rights or ownership of the policy.

You can do a policy with a funeral trust (such as Settlers) and it will be exempt for funeral use from Medicaid. Same problem with excess funds though. Has to go to the estate.

You can do a policy with an Estate Planning Trust (such as Settlers) if they will not likely apply for Medicaid within the next 5-years. This is the best option because any excess funds DO go to their beneficiary.

If it's too late for all that and the policy is larger than the funeral will cost, have them pull all the cash value out of the policy first and then assign the rest to the funeral home. Best you can do. Make sure they spend the cash they pulled out on things Medicaid will allow. Personal items, home repairs, furnature, etc.

What about cigarettes, booze and hookers?

 

[InsuranceAssure]

It appears there are some experts here, which is great, but with the various States, it appears that the answers may be a bit more nuanced.

A few things that appear true:

1) In one or more States, Settler's won't do Funeral Trusts.
2) The Medicaid limits may be more restrictive in some states
3) Assignment options may vary by carrier

Here is is written:

"Will Medicaid Take My Life Insurance? ("Opposing Views" website)

Whole life insurance policies accrue cash value and thus count toward the limit. The only exception is a policy or policies whose total face value does not exceed $1,500. Any other whole life policy whose face and cash value exceeds $1,500 counts and disqualifies an individual. The individual must therefore divest himself of the policy."

This seems to strongly suggest (if not state outright) that anyone who owns a Life Insurance policy with a Death Benefit and Cash Value are more than $1500 will have to divest the policy in order to qualify for Medicaid.

Family ownership and/or re-assignment (in accordance with multiple Medicare rules) seem to only sometimes influence the outcome.

Can someone please correct my error if I am seeing this wrong.

Thank you.

 

[SammyJ]

Probably 50-75% of the people we write are on Medicaid.I'm willing to bet very few agents even think about this and even fewer name another owner for the policy. 80% of the time nobody but the insured is even in the house to have another owner sign right then.

 

[Newby]

It appears there are some experts here, which is great, but with the various States, it appears that the answers may be a bit more nuanced.

A few things that appear true:

1) In one or more States, Settler's won't do Funeral Trusts.
2) The Medicaid limits may be more restrictive in some states
3) Assignment options may vary by carrier

Here is is written:

"Will Medicaid Take My Life Insurance? ("Opposing Views" website)

Whole life insurance policies accrue cash value and thus count toward the limit. The only exception is a policy or policies whose total face value does not exceed $1,500. Any other whole life policy whose face and cash value exceeds $1,500 counts and disqualifies an individual. The individual must therefore divest himself of the policy."

This seems to strongly suggest (if not state outright) that anyone who owns a Life Insurance policy with a Death Benefit and Cash Value are more than $1500 will have to divest the policy in order to qualify for Medicaid.

Family ownership and/or re-assignment (in accordance with multiple Medicare rules) seem to only sometimes influence the outcome.

Can someone please correct my error if I am seeing this wrong.

Thank you.

Think about it. If mom NEVER owed her policy, can it count as her asset? No.

If Mom owed it but gave it away within the past 5-years and is now applying for Medicaid will it count against her? Yes.

You are correct that the laws do vary somewhat from state to state but all states have a way for people to set funds aside for reasonable funeral expenses. They do NOT allow people on Medicaid to set money aside to leave to beneficiaries. And they shouldn't.