The Truth About Medicaid Life Settlements


In 2014, Texas had become the first state to enact legislation on Medicaid life settlements. Even though at least four more states are considering similar approaches, consumers are still confused about what the new laws mean. This report debunks common myths about Medicaid settlements.

True or False? “Seniors have more healthcare options with Medicaid life settlements than with straight Medicaid.”

TRUE: With only straight Medicaid, a person would need to use up most of her savings and even sell some of her assets before qualifying for taxpayer-funded long-term care. Roughly two out of five seniors hold valuable life insurance that must be sold before using Medicaid as payment. Even after making the financial cuts and getting approved, the patient would still be limited in the type of facility and care. With a Medicaid life settlement, the proceeds from the sale of the life policy are put into a special trust. The patient can still qualify for Medicaid without disposing of the policy funds first. She can even get in-home care or private-payer facility selection until the life settlement funds run out.

True or False? “Sellers can use the settlement funds any way they want.”

FALSE: In Texas, the proceeds are locked away in a trust that can be accessed only for long-term care purposes. The money cannot be tucked away as part of the estate or funneled to a Caribbean vacation. Policy owners who want more spending flexibility may find better deals in the traditional life settlement market. At the same time, most investors in the traditional market want to work with policies worth at least $250,000 in face value. Medicaid life settlements, on the other hand, can be generated for virtually all policy values.

True or False? “Under a Medicaid settlement, beneficiaries get nothing.”

FALSE: The Texas legislation gives beneficiaries $5,000 or 5 percent of the policy’s face value, whichever amount is lower. In addition, heirs also receive any funds that are still in the long-term care trust account after the patient’s death. Certain assets that the state does not count for Medicaid qualification, such as a primary residence and personal property, can still be distributed via a will or through estate probate.

True or False? “Medicaid life insurance settlements are only for poor people.”

FALSE: Medicaid life settlements can help nearly anyone who needs to go on Medicaid and has a qualifying life insurance policy worth at least $10,000. More middle-class Americans are running out of money during retirement and turning to state and federal governments to help with medical expenses. Only about 6 percent of people with Medicaid coverage need it for nursing homes, assisted living, home care or hospice, but these expenses account for nearly a third of the total Medicaid budget.

True or False? “These agreements are valid only in certain states.”

TRUE: At this time, only Texas has passed a Medicaid life settlement law. Other states, including New York, California and Florida, are debating similar measures. Even in locations without official laws, policy owners may be able to set up similar deals by working with a Medicaid life settlement provider.