On February 11, 2013, Kentucky Representative Robert R. Damron (D) introduced House Bill 314 (the “Bill”) which, among other things, allows owners of certain life insurance policies to use life settlement contracts to cover the cost of Medicaid long-term care services. The Bill is similar to one recently introduced in Florida in that it proposes to alter existing law requiring exhaustion of a person’s assets, including allowing any in-force life insurance policies to lapse, before paying out Medicaid benefits (see our February 12, 2013 blog post for a summary of the Florida bill).
Under the Bill, the value of an existing life insurance policy will not be considered an asset for purposes of determining Medicaid eligibility if the policy owner enters into a life settlement contract pursuant to the sections of Kentucky law governing life settlements generally, and certain other conditions are satisfied. In particular, the Bill requires the following:
- The face value of the life insurance policy must be over $10,000;
- The life settlement contract must be in exchange for guaranteed periodic payments to the Kentucky Medicaid program;
- The contract must reserve the lesser of 5% of the face amount of the policy or $5,000 as a death benefit payable to the owner’s estate or beneficiary;
- The balance of payments required under the contract unpaid at the death of the owner must be paid to the owner’s estate or a named beneficiary;
- The contract must include a schedule evidencing the total amount payable to the owner, the number of payments, and the amount of each payment required to be paid under the life settlement contract; and
- All proceeds of the life settlement contract must be held in an irrevocable trust or federally insured account.
Marketing materials used in connection with these contracts must be filed with the Kentucky Department of Insurance. The Bill also stipulates that the Department for Medicaid Services will provide to the applicant, as part of the application for Medicaid, written notice of the options to enter into a life settlement contract.
Click here for a copy of the Bill.
We will continue to monitor this topic.