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Some States Moving to Pass “Life Settlement Laws”

In the ongoing battle states wage to keep Medicaid costs in check, several states are considering new legislation designed to help relieve the budgetary burdens imposed by the program.

Medicaid, a program primarily paid for by individual states, provides healthcare coverage to the young, infirm, and indigent people. Much of the expenses associated with Medicaid come from seniors who use the program to pay for long-term care costs.

Now, some states are moving towards adopting so-called “life settlement” laws. These laws allow seniors to use their life insurance policies as a way to pay for the cost of nursing home care without having to rely on Medicaid.

The law was essentially designed to give seniors with life insurance policies the ability to sell those policies to buyers at a premium, typically up to 10 times the cash surrender value. The investors who purchased these policies are then responsible for continuing to make the premium payments. In return for that, the life insurance policy holder names the purchaser as the beneficiary. Upon the holder’s death, the purchaser receives the life insurance payout.

Texas recently became the first state to pass such a law, while several other states are considering similar legislation. The laws help to reduce the state Medicaid budget by delaying the time when seniors apply for Medicaid. Because Medicaid has strict eligibility criteria, seniors can only apply for the program after they have spent down their assets to the appropriate level.

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