Adult Medicaid Manual MA-2230 FINANCIAL RESOURCES

XII. LIFE INSURANCE AND ANNUITIES

A. Definitions

1. Face value of Life Insurance policy

Face Value is the amount of basic death benefit contracted for at the time the life insurance policy is purchased.

2. Cash surrender value (CSV) of Life Insurance policy

The cash surrender value of a life insurance policy is a form of equity value that a policy acquires over time. The policy owner can only obtain its CSV by turning in the policy for cancellation before it matures or when the insured dies. A loan against a policy reduces its cash surrender value.

3. Annuity

An annuity is a type of trust. An individual pays an entity a lump sum of money in return for the right to receive fixed, periodic payments, either for life or a term of years.

4. Long Term Care Partnership-Resource Disregard

Individuals who have a qualified Long Term Care partnership Program policy may have resources disregarded at application for LTC/CAP Medicaid.

The resource disregard can be up to the amount of benefits paid by the policy as of the date of application.

5. Long Term Care Partnership-Resource Protection at estate recovery

An amount equal to the resource disregard given to a Medicaid recipient during the LTC/CAP Medicaid eligibility determination process.

B. Cash Surrender Value (CSV) of Life Insurance as a Resource

The cash surrender value (CSV) of life insurance policies is accessible and is a countable resource when the face value of all policies which generate a CSV owned by the individual exceeds $10,000.00. Evaluate each individual separately. Ask at each application and redetermination for MAABD, MQB-Q, MQB-B, MQB-E, and MWD, if the a/r or financially responsible spouse/parent own or have recently purchased insurance. Only verify policies owned by the a/r or financially responsible spouse/parent. Exclude as a resource the cash surrender value of life insurance

policies when the face value of all policies which generate a CSV equals $10,000 or less.

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C. Whole Life Insurance

Whole life is a common type of insurance which generates a CSV.

1. Face Value/Cash Surrender Value

a. Use the original face value when the policy was issued to establish total face value.

b. Count the CSV of whole life insurance owned by the a/r or financially responsible person, when the total face value of all policies which generate a CSV owned by each person exceeds $10,000

2. Participating Policy

a. A participating whole life policy pays dividends annually.

Dividends paid by a participating policy may be added to the face value, increase the cash surrender value or be paid to the policy owner. Count dividends even if the total face value is equal to or less than $10,000. Verify how dividends are paid. Refer to XII.I.2. below.

b. Universal Life

Universal life policies are a type of participating whole life policy.

D. Long Term Care Partnership policy

A qualified Long Term Care Partnership policy provides the Medicaid a/r with a resource disregard up to the amount of benefits paid out by the policy as of the date of application for LTC Medicaid or CAP. The resource protection at estate recovery is equal to the amount paid out from the qualified Long Term Care Partnership program policy as of the date of application.

If the client has a community spouse, first apply the Community Spouse Resource allowance. See MA-2231, Community Spouse Resource Protection for instructions.

If after completing the CRSA the client’s resources are above the limit, follow the steps below for the client with a qualified Long Term Care Partnership policy.

To identify that a long term care policy is a qualified Long Term Care Partnership policy, the policy must be accompanied by a Partnership Disclosure Notice which explains the details of the Partnership program, resource disregard and protection at estate recovery.

1. The qualified Long Term Care Partnership Policy includes:

a. An effective date of January 1, 2011 or later, unless the policy was purchased in another state.

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b. The policy states that if the insured is already a recipient of long term care Medicaid, the policy will not allow a resource disregard and protection at estate recovery and,

c. A statement that the purchase of a partnership policy does not guarantee qualification for Medicaid.

2. Only the available and countable assets owned by the individual Medicaid a/r and his share of jointly owned assets may be considered when applying the resource disregard. Only the assets of the individual may also be protected at estate recovery.

3. The North Carolina Medicaid program may allow a resource disregard and protection at estate recovery for an individual who purchased a qualified Long Term Care Partnership policy in another state which has a reciprocal agreement with the state of North Carolina.

To determine if the state and North Carolina have a reciprocity agreement, contact DMA Recipient Services at 919-855-4000.

4. If countable resources exceed the resource limit after the CSRA, and the client has a qualified Long Term Care Partnership policy, take the following steps:

a. Obtain a copy of the qualified Long Term Care Partnership policy. Verify the amount paid out on behalf of the insured as of the date of application by contacting DMA Recipient Services at 919-855-4000.

(1) The amount paid out on behalf of the individual is the amount of resource disregard and protected amount at estate recovery. Report this amount to the estate recovery administrator at DMA.

(2) To determine the amount to deduct from excess resources see c. below.

b. If the client is unable to locate a copy of the qualified Long Term Care Partnership policy, request that the client provide the insurance company name and address, policy number, name of the insured, original value and amount paid out on behalf of the insured. Verify that the policy is a qualified Long Term Care Partnership policy and verify the amount paid out on behalf of the insured as of the date of application by contacting DMA recipient services at 919-855-4000, once you have the above information.

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c. Determine the amount to deduct from excess resources:

(1) STEP 1: Determine the amount paid out from the qualified Long Term Care Partnership policy.

(2) STEP 2: Determine amount of countable assets which are solely owned by the insured and his share of any jointly owned assets.

(3) If amount in STEP 1 < amount in STEP 2, subtract amount in STEP 1 from excess resources.

(4) If amount in STEP 1 > amount in STEP 2, subtract the amount in STEP 2 from excess resources.

(5) If the client still has excess resources, he is not eligible unless he reduces or rebuts the excess resources.

Example 1: Mr. Magenta, a single 69 year old man, purchases a qualified Long Term Care Partnership policy in North Carolina on 01/10/2011 with a lifetime maximum of $150,000. He applies for LTC on June 1, 2014 and has used $148,000 in benefits under the policy. The amount of resource disregard and estate recovery protection is the $148,000. Report $148,000 to the estate recovery administrator. His countable resources are $163,050. ($163,050 – 2,000 = 161,050 excess resources).

Step 1: $148,000

Step 2: $163,050 (amount of resources in his name)

The amount in STEP 1 < amount in STEP 2. Deduct $148,000 from the excess resources ($161,050 – 148,000= $13,050). Mr. Magenta must reduce resources in order to be eligible.

Example 2: Mr. Salt, a 70 year old married man, purchases a qualified Long Term Care Partnership policy in Virginia in 2009 with a lifetime maximum of $250,000. He enters a nursing home in North Carolina a year later. His wife applies for LTC on May 3, 2014. The policy has paid out $248,500 as of this date. Total countable resources (before CSRA) are $297,060. All property is jointly owned by Mr. Salt and Mrs. Pepper. Countable resources after CSRA are $187,500 – 2,000 = 185,500 excess resources.

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STEP 1: $248,000.

STEP 2: $297,060 /2 = $148,530 (his share of resources jointly owned).

The amount in STEP 1 > amount in STEP 2. Deduct $148,530 from excess resources. ($185,500 – 148,530 = $36,970). Mr. Salt must reduce or rebut excess resources in order to be eligible.

5. Reporting the amount of resources protected at estate recovery:

Send to the DMA- Estate Recovery Administrator the name of the insured and the name and address of the insurance company. Include the amount protected from estate recovery due to the client having a Long Term Care Partnership policy and attach a copy of the policy, if one is available. Retain a copy of this information in the case file.

6. Non-Participating policy

A non-participating whole life policy does not pay dividends. Verify the original face value and current CSV.

E. Annuities

An annuity guarantees the annuitant (person who receives benefit from the annuity) periodic payments of a fixed amount for a specified term of years, for life, or until some specified event takes place in exchange for the payment of a fixed sum.

1. An annuity is usually purchased with a single premium or payment.

2. An annuity is a resource if one of the following criteria are met:

An annuity which is revocable or which can be sold or assigned is a countable resource. Contact the issuer via the DMA-5111, Annuity Verification Form, to determine the annuity’s status.

a. If it is revocable determine from the issuer what amount the a/r would receive if he or she revoked the amount of the annuity. This amount is a countable resource.

b. If the annuity can be sold, determine from the issuer the amount the a/r would receive for selling the annuity. This amount is a countable resource.

c. Determine from the issuer if the payments from the annuity can be assigned to another person. If payments can be reassigned, then the annuity is considered assignable and is a countable resource.

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3. Verification Sources

a. Request a copy of the terms of the annuity from the a/r.

b. Contact the issuer of the annuity. Send a DMA-5111, Annuity Verification Form, at each application and redetermination for institutional services.

4. Burial annuities pay the estate for burial costs and burial is the compensation, like an irrevocable burial trust. If they are irrevocable and attached to an

irrevocable burial contract they are not a countable resource. If revocable, only exclude up to the burial exclusion.

5. For each annuity evaluated during application or redetermination, send a copy of the annuity, the a/r’s name, Medicaid ID number, case number, and short explanation identifying the annuity as a resource or asset for the a/r to:

Division of Medical Assistance

Third Party Recovery Section

2508 Mail Service Center

Raleigh, NC 27699-2508

F. Annuities Purchased Prior to November 1, 2007

If an annuity purchased prior to November 1, 2007, is a resource, its purchase is not a transfer of assets. Count the value of the annuity as a resource.

If the annuity is not a resource, evaluate for transfer of assets. Refer to MA-2240, Transfer of Assets. If the annuity is actuarially sound according to the policy in effect prior to November 1, 2007, the purchase of the annuity was an allowable transfer.

G. Annuities Purchased or Changed On or After November 1, 2007

If an annuity purchased or changed on or after November 1, 2007, is a resource, it does not have to meet the transfer of asset requirements to be one of the acceptable types of annuities or to be actuarially sound. Refer to MA-2240, Transfer of Assets.

Send a DMA-5110, Request for Medical Assistance Coverage For Institutional Services and Disclosure Of Annuities, to the recipient and a

DMA-5097/DMA-5097S Request For Information. Send a DMA-5112, Informational Notice Regarding Annuities and Medicaid Eligibility, to the issuer of the annuity. The annuity that is a resource still must meet the requirement related to the State of North Carolina Medicaid Program being named as a remainder beneficiary. If it does not meet this requirement, it is a non-allowable transfer. Refer to MA-2240, Transfer of Assets. However, it is likely that since the

annuity is a countable resource, the a/r or the a/r’s spouse will be ineligible due to excess resources and transfer of assets sanction will not apply.

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If an annuity purchased on or after November 1, 2007, is not a resource, it must be evaluated for transfer of assets under the rules in MA-2240, Transfer of Assets.

H. Term Life Policies (including burial insurance policies, accident policies with death benefits)

1. Most term life policies do not generate a cash surrender value (CSV).

a. If a term life insurance policy generates a CSV, include the face value in the total face value of policies which generate a CSV to determine if the CSV is a countable resource. Refer to XII.B. above.

b. If the term life insurance does not generate a CSV, do not include the face value of the policy in determining the total face value of all policies that generate a CSV.

2. Verify any dividends paid by the policy. See XII.I.2.a. below for budgeting.

I. The Single Premium Pure Endowment

These policies pay a benefit in a balloon payment only to those persons who survive a certain period of time. The endowment portion is similar to an annuity. The purchase of a Single Premium Pure Endowment policy is an uncompensated transfer. Refer to MA-2240, Transfer of Assets.

J. Verification

1. Examine life insurance policies (if available) and document:

a. The name of the Insurance Company

b. Policy number

c. Name of the insured (on whose life the policy is written)

d. Owner of the policy

(If the owner is not the a/r or financially responsible spouse/parent the policy is not an available asset to the a/r.)

e. Whether the policy is participating or non-participating

If this information is not printed on the policy request verification from the insurance company. This must be documented for all policies, regardless of whether the total face value exceeds $10,000. If a/r states face value does not exceed $10,000, do not hold up processing the application, but

request verification of whether the policy is participating or non-participating from the insurance company.

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f. Face Value

Use the original death benefit or the graduated face value table on the original policy when issued.

(1) Face value, death benefit:

The face value was printed on the original policy when it was issued. If the IMC knows the policy is participating, verification

requests to the insurance company should ask for face value minus any dividend additions to face value.

(2) Face value includes increases in the face value as part of original policy contract. This is evidenced by a graduated face value table printed on the original policy.

(3) Face value does not include:

(a) Additional Face Value purchased with dividend additions

(b) Accidental death (double indemnity) provisions

(c) Term life benefits (riders) on other family members

g. Cash Surrender Value (CSV)

Document and use the amount in the cash surrender value table printed with the policy, if available, UNLESS

(1) The cash surrender value table is out of date; or

(2) It is printed on a policy that it is a participating policy.

h. If the actual paper policy issued by the life insurance company is NOT available, contact the life insurance company to verify the items listed in a. through g. above.

Use the DMA-5155, Verification of Cash Value of Life Insurance, and address correspondence to: Manager, Policy Holder Service Division, Company Name. If known, provide the following identifying information:

(1) Full name of the policy holder,

(2) Date of birth,

(3) Social Security number

(4) Policy number, and

(5) Date policy was issued

(6) Also request:

(a) Any other policies owned by the client; and

(b) Projected cash surrender value for future years.

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2. Verifying a Participating Policy

a. If the policy is participating and pays dividends verify how dividends are paid as it may affect the cash surrender value of the policy or be a countable resource.

(1) Dividend Additions

Dividend additions may be used to purchase additional face value or increase the policy’s cash surrender value. Usually, the cash surrender value table that is issued with the policy does not reflect the value of dividend additions to cash surrender value.

(2) Dividend Accumulations

Dividend accumulations may be applied to premiums, or remain in the “custody” of the insurance company for the purpose of accumulating interest. Dividend accumulations which are not used to pay a premium are treated the same as money in a savings

account. Dividend accumulations not applied to insurance premiums count as a resource regardless of total face value of policies which generate a CSV.

(3) Dividend payments to Owner

Dividends are not income in the month received, but are a countable resource if retained until the following month

Refer to MA-2250, Income.

b. Verify Dividend Payments

Verify dividend payment by a copy of the annual premium notice, (the owner receives this on the anniversary date of the policy, and it includes an accumulation of all benefits, the amount of dividends, how dividends are being used or paid) or contact with the insurance company.

c. Verify Cash Surrender Value With the Company if:

(1) The cash surrender value table has expired; or

(2) Total resources of the budget unit at application is $1200 or greater; or

(3) The a/r disagrees with the value established by the table.

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K. Determine Countable Value of Insurance

1. Count the CSV of all policies owned by the a/r and the financially responsible spouse/parent when the total face value of all policies which generate a cash surrender value owned by each exceeds $10,000.

2. Cash Surrender Value of Non-participating Policy may be obtained from:

a. Cash surrender value table printed on the policy;

b. Direct contact with the company; or

c. For applications only, client’s statement.

3. Participating Policy

a. Always use the original face value (when the policy was issued) to determine if CSV is countable (if total face value of all policies owned by an individual is $10,000 or less the CSV is not countable). Ignore additional face value purchased with dividend additions.

b. For “graded policies” (those with a graduated face value printed on the original policy), use the face value for the year in which the eligibility is being determined.

c. Dividend additions used to increase the CSV of a participating policy are part of the CSV of the policy and are countable if face value of all policies which generate a CSV exceeds $10,000.

d. Applications

If total face value of all policies which generate a CSV exceeds $10,000 for an individual, use the increased CSV if the amount is known by the a/r (accept his statement if the total resources do not exceed $1200) or can be verified by a copy of the annual premium notice or by contact with the insurance company prior to disposition of the application.

(1) If third party verification is requested, do not pend the application for verification of the increased CSV.

(2) When verification is received, if the additional CSV which was available at application is still available and causes ineligibility, propose termination and inform the recipient of possible ways to reduce resources (i.e. purchase of burial contract, etc.).

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e. Redeterminations

(1) If total face value of all policies which generate a CSV exceeds $10,000 for an individual, use the increased CSV if the policy has not been designated for burial expenses and excluded through application of the $1500 burial exclusion.

(2) After the policy has been designated for burial, ignore any increases in CSV, including dividend additions, unless a new loan or cash withdrawal occurs.

4. Burial Exclusion

Burial exclusion allows $1500 to be excluded from otherwise countable resources. See Item XIII. to determine how to apply life insurance values to the burial exclusion.

L. Actions Which Decrease the Cash Surrender Value (CSV)

1. Irrevocable assignment of CSV as payment of medical debt.

a. A hospital or other medical provider is “guaranteed” some payment against the patient’s indebtedness prior to Medicaid authorization and the CSV is eliminated from resources. This does not have to be offered as a new way to reduce resources. Payment of legitimate debt has always been an acceptable way to reduce resources.

b. The individual who “owns” the policy must pay premiums and can name a beneficiary other than the holder of the lien on the cash surrender value.

c. The death benefit is still paid to the beneficiary, but it is reduced by the amount of any valid liens against the cash surrender value on the date of death. The amount of the lien would be paid to the lien holder.

d. For Medicaid resource calculations, insurance CSV is decreased beginning with the date the papers are signed.

e. If the cash surrender value exceeds the amount of lien/debt, and the CSV must be counted as a resource due to the total face value of all policies which generate a CSV exceeding $10,000 for the individual, the amount of the CSV in excess of the amount of the lien/debt would be a countable resource.

f. If the medical charge was incurred prior to the current certification period, the lien may reduce the unpaid balance of an “old bill” which could otherwise be applied to the deductible. On the date the papers are signed, the portion covered by a lien is ‘paid’. Do not apply this portion of the bill to a deductible.

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g. If the medical charge was incurred during the current certification period, it is allowable to apply to the deductible for that certification period.

2. Individual obtains Cash Surrender Value or a loan against CSV

When an a/r cashes in an insurance policy that generates a CSV, this is a conversion of one type of resource to another. When the policy is surrendered

for cash, or a loan is taken out against the CSV, the money received is counted as a resource until it is spent.

3. Irrevocable Change of Beneficiary

Irrevocable change of beneficiary means filing a rider to the policy that irrevocably changes the beneficiary to a funeral home or to the person’s estate for purposes of funeral expenses. This action must prevent the person from obtaining the cash surrender value. Verify this with the insurance company.

Each insurance company will have its own forms and language. The key points are:

a. Beneficiary is funeral home or estate for burial purposes

b. Verification from insurance company that they have processed the change

c. Designation of beneficiary is irrevocable

d. Verification from insurance company that the insured cannot get the cash value

4. Change of Ownership/Absolute Assignment

A change in ownership of the policy to a third party is frequently referred to as absolute assignment. Verify the change in ownership with the insurance company. This could result in a sanction for a/r in long term care if equal

compensation was not received for the policy’s value. Compensation may be verified by a copy of the contract.