New Jersey-2014-A1075-Introduced

An Act concerning the use of life insurance policies to pay for long-term care services under the Medicaid program and supplementing P.L.2005, c.229 (C.17B:30B-1 et seq.) and Title 30 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. a. As used in this section:

"Department" means the Department of Banking and Insurance.

"Long-term care services" means long-term care services provided in a nursing home, assisted living, or home and community-based setting.

"Medicaid" means the Medicaid program established pursuant to P.L.1968, c.413 (C.30:4D-1 et seq.).

"Medicaid long-term care services" means long-term care services that are covered under Medicaid.

b. (1) The owner of a life insurance policy may enter into a viatical settlement contract in exchange for guaranteed payments of the proceeds of the contract directly to a health care provider chosen by the owner, which payments shall be used solely to provide Medicaid long-term care services as of the effective date of the contract, in accordance with this section and the provisions of the "Viatical Settlements Act," P.L.2005, c.229 (C.17B:30B-1 et seq.), including, but not limited to, such protections as are afforded to the owner therein.

(2) The proceeds of a viatical settlement contract entered into pursuant to this section shall not be considered as a resource or asset in determining a person's eligibility for Medicaid, if the owner of the life insurance policy:

(a) makes an irrevocable election to name the State as a beneficiary of the life insurance policy for an amount that is not greater than the amount of Medicaid benefits provided to that individual plus any premiums or other costs paid by Medicaid to the insurer that issued the life insurance policy;

(b) collaterally assigns the life insurance policy to the State under a written agreement submitted to and recorded by the insurer that issued the life insurance policy; or

(3) State or federal Medicaid funds shall not be used for a Medicaid recipient's care until the proceeds of the contract, other than the reserved funeral benefit provided for in paragraph (1) of subsection c. of this section, have been spent down.

c. To the extent allowed by federal law, Medicaid may use federal or State funds available to that program to pay premiums plus any other costs related to a life insurance policy that is in force and owned by an individual who:

(1) meets the need for a nursing home level of care as established by Medicaid;

(2) has made an irrevocable election to name the State as a beneficiary of the life insurance policy for an amount that is not greater than the amount of Medicaid benefits provided to that individual plus any premiums or other costs paid by Medicaid to the insurer that issued the life insurance policy; or

(3) collaterally assigned the life insurance policy to the State under a written agreement submitted to and recorded by the insurer that issued the life insurance policy.

d. In addition to the requirements of P.L.2005, c.229 (C.17B:30B-1 et seq.), a viatical settlement contract entered into pursuant to this section shall include the following provisions:

(1) The lesser of five percent of the face value of the life insurance policy or $5,000 shall be reserved as a funeral benefit to the owner's estate or beneficiary;

(2) Upon the death of the insured, the balance of proceeds of the viatical settlement contract that exceed the amount of Medicaid benefits provided to the insured, plus any premiums or other costs paid by Medicaid to the insurer that issued the life insurance policy, shall be paid to a beneficiary named by the insured; and

(3) The total amount payable on behalf of the recipient of long-term care services under the viatical settlement contract shall be stated in the contract.

e. All proceeds of the viatical settlement contract entered into pursuant to this section shall be held in an irrevocable State or federally insured account for the benefit of the recipient of the long-term care services and administered in accordance with this section.

f. The type of long-term care services payable from the irrevocable State or federally insured account shall be chosen only by the recipient of the services. Any attempt by any person to require the use of a specific long-term care provider to obtain long-term care services pursuant to this section shall be considered an unfair trade practice pursuant to section 14 of P.L.2005, c.229 (C.17B:30B-14).

g. A viatical settlement provider entering into a viatical settlement contract pursuant to this section shall maintain a surety bond executed and issued by an insurer authorized to issue surety bonds in this State, a policy of errors and omissions insurance, or a deposit of cash or certificates of deposit or securities, or any combination thereof, in the amount of $500,000.

h. For the purposes of this section, in addition to any requirements of P.L.2005, c.229 (C.17B:30B-1 et seq.), all viatical settlement contract forms shall be filed with and approved by the department, and all advertising and marketing materials used by a viatical settlement provider pursuant to this section shall be filed with the department.

i. For the purposes of this section, for any policy that is the subject of a viatical settlement contract that has been in force for five years or more, the provisions of subparagraph (a) of paragraph (2) of subsection i. of section 12 of P.L.2005, c.229 (C.17B:30B-12) shall not apply.

j. Any claim against a viatical settlement provider from an owner of a policy, the owner's estate, any beneficiary, or any other person with respect to the viatical settlement contract, shall not exceed the face amount of the policy, less the proceeds paid under the viatical settlement contract and the total amount of premiums paid subsequent to entering into the viatical settlement contract. Any payment of a claim by a viatical settlement provider shall be made from the funds provided for under subsection f. of this section.

k. The department may conduct periodic market examinations of each viatical settlement provider regarding the viatical settlement contracts entered into pursuant to this section, in accordance with section 7 of P.L.2005, c.229 (C.17B:30B-7).

l. The provisions of this section shall apply only to a determination of eligibility for Medicaid that is made on or after January 1, 2014.

2. The Commissioner of Banking and Insurance, in consultation with the Commissioner of Human Services and pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), shall adopt rules and regulations necessary to effectuate the purposes of section 1 of P.L. , c. (C. ) (pending before the Legislature as this bill).

3. The Department of Human Services shall provide written notice of the options provided for under section 1 of P.L. , c. (C. ) (pending before the Legislature as this bill) on the application for enrollment in the Medicaid program established pursuant to P.L.1968, c.413 (C.30:4D-1 et seq.).

4. a. The proceeds from a viatical settlement contract entered into pursuant to section 1 of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be distributed directly to a health care provider for long-term care services under the Medicaid program in accordance with the provisions of that section.

b. Eligibility for Medicaid shall be determined without considering the balance of the proceeds from the viatical settlement contract.

c. Medicaid and applied income payments for long-term care services provided to the recipient shall commence on the day following exhaustion of the proceeds of the recipient's viatical settlement contract.

5. The Commissioner of Human Services, in consultation with the Commissioner of Banking and Insurance and pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), shall adopt rules and regulations necessary to effectuate the purposes of section 3 of P.L. , c. (C. )(pending before the Legislature as this bill).

6. This act shall take effect immediately.

STATEMENT

This bill provides for the conversion of life insurance policies to pay for Medicaid long-term care services.

The bill enables Medicaid applicants who own a life insurance policy to convert the policy into a long-term care benefit plan, enabling them to receive as much as 10 times more than they would through the surrender of the policy, provided that the proceeds from the sale of the policy are placed into an irrevocable trust or licensed financial institution that is required to spend-down the proceeds on Medicaid-covered long-term care services, for which payment is made directly to a provider chosen by the owner of the policy.

The proceeds of a viatical settlement contract entered into pursuant to the bill are not to be considered as a resource or asset in determining a person's eligibility for Medicaid, if the owner of the life insurance policy:

-- makes an irrevocable election to name the State as a beneficiary of the life insurance policy for an amount that is not greater than the amount of Medicaid benefits provided to that individual plus any premiums or other costs paid by Medicaid to the insurer that issued the life insurance policy;

-- collaterally assigns the life insurance policy to the State under a written agreement submitted to and recorded by the insurer that issued the life insurance policy; or

-- irrevocably assigns the ownership of the policy in favor of the State.

The bill requires that Medicaid applicants be notified about the option to convert a life insurance policy, and stipulates that all transactions are to be made in accordance with existing life settlement law.

The bill further requires that: the proceeds from a viatical settlement contract entered into pursuant to the bill be distributed directly to a health care provider for Medicaid long-term care services who is chosen by the insured; Medicaid eligibility be determined without considering the balance of the proceeds of the contract; and Medicaid and applied income payments for long-term care services provided to the recipient commence on the day following exhaustion of the proceeds of the contract.

In addition, the bill establishes consumer protections through: preservation of a funeral expense benefit for the family; the payment of unused proceeds from the account to a beneficiary named by the insured; financial accountability of $500,000 from licensed life settlement providers participating in this program; the submission of advertising materials to the Department of Banking and Insurance; and new rulemaking by the Commissioners of Banking and Insurance and Human Services, in consultation with each other, to implement the provisions of the bill.

This bill is necessary to advise Medicaid applicants of the option to convert a life insurance policy and to ensure that those individuals who receive fair market value from the sale of the policy are not automatically disqualified from Medicaid eligibility solely for receiving the proceeds. The structure of the long-term care benefit plan as an irrevocable account administered by a third party, with payments made directly to a long-term care service provider, is intended to establish this option as a Medicaid qualified spend-down of the life insurance policy asset proceeds.

This bill will benefit the owners of life insurance policies by providing them with fair market value for those policies, as opposed to the cash value or nothing if they are forced to surrender or otherwise terminate their policies in order to qualify for Medicaid. This will permit the individual, using that person's own funds, to have an expanded choice of long-term care options, including such things as the level and type of care that meets the individual's needs and the type and location of the services or facility.

At the same time, the bill will benefit long-term care service providers through an increase in much-needed private pay revenues that are paid directly to the providers.

Finally, the bill will generate significant, recurring savings to the State by advising the owner of a life insurance policy to convert the policy into a long-term care benefit plan, instead of surrendering or otherwise terminating the policy, which will substantially extend the spend-down period of the life insurance policy with respect to Medicaid-qualified expenses, and thereby delay the individual's enrollment in Medicaid for an extended period.