Texas Governor Rick Perry passed the nation’s first Medicaid Life Settlement law on June 14th. The law allows seniors applying for Medicaid to sell their life insurance policies for significantly larger amounts than the cash surrender value without adversely affecting their eligibility for Medicaid.
While seniors will be able to gain access to their money and pick the long-term facility there is huge opportunities for states to receive savings in Medicaid costs.
Previously seniors applying for Medicaid would surrender their policies in order to become eligible and spend the proceeds. Under the new law, life settlement proceeds would go straight into an account used solely to pay for long-term care. The legislation would not allow seniors to spend their settlement money on frivolous items.
Medicare/Medicaid costs are going to continue to increase as our population ages. These costs are then passed along to the state and federal government who are dealing with reduced revenue and budget cuts.
If the government continues these programs without any significant policy changes there were be significant financial consequences. Currently federal tax revenue is used primarily to pay interest on current debt, Medicare, Medicaid and Social Security. Which means a third of the federal budget will have to be financed in order to pay for other programs as well as defense. Unfortunately, the taxpayers will ultimately pay with increased taxes, reduced services and other economic woos.
Similar legislation is being introduced in New York, California, Florida, Kentucky, Louisiana, Maine and New Jersey.
The Texas legislation would ulimately save Medicaid $20 million a year, according to According to Michael Freedman, a lobbyist for life settlement company Coventry First LLC. If other states follow Texas’ lead the savings could make a serious fiscal impact.
“If life settlements and their potential for cost savings are any indicator, many states may adopt similar legislation for seniors with structured settlements and annuities applying for Medicaid,” said James Goodman, Co-Founder of CBC Settlement Funding.
If similar legislation happened in the annuities market, this could adversely affect Medicaid complaint annuties and their effectiveness.
It is currently unknown of any additional states are considering similar legislation or if states will consider introducing legislation for seniors with annuities.
Introduced in 1965, Medicaid is a health program designed for US citizens and permanent legal residents with low incomes and limited resources. It is the largest source of funding for medical and health related services nationwide and implemented on a state level.