In a continuing effort to bring private-market solutions for funding long-term care to seniors and their families, Congress recently re-introduced the bill H.R. 7203, to fund a Long-Term Care Benefit Account with tax-free proceeds from a life settlement, that had expired at the end of the previous Congress. Introduced now as H.R. 5958, the “Senior Health Planning Account Act” is a bi-partisan bill that provides a tax-free way for seniors to roll over their proceeds from an LTC-Life Settlement into a “Senior Heath Planning Accounts” (SHPA), which would be dedicated to paying health care costs for themselves and their spouse.
SHPA’s are based on the Long-Term Care Benefit Account originated in 2007 by Chris Orestis, President of LifeCare Xchange—previously known as Life Care Funding. Developed in partnership with leaders from the assisted living, home care, and nursing home industries over a decade ago, the LTC-Benefit Account has been used to help families across the United States pay millions of dollars in senior care expenses. Use of life settlements to fund these accounts for long-term care expenses saves tax-payer dollars by keeping a person private pay longer, and projections point to billions of dollars saved by tax-payers if this measure is enacted into law.
The Long-Term Care Benefit Account is a bank-trust account funded by a LTC-Life Settlement set up to make monthly payments towards any form of senior living and long-term care services the owner wants. Any form of medical and long-term care is covered including: home care, assisted living, skilled nursing care, memory care and hospice. The account is not long-term care insurance or an annuity; rather, it is a bank-trust account similar to a Long-Term Care Health Savings Account (LTC-HSA), and there are no wait periods and no claims to file. The account is ready to start making payments towards care as soon it is funded by the LTC-Life Settlement, and it is flexible so payments can start at a designated amount for any form of care, and then can be adjusted to meet changing care needs.
“As the originator of this financial vehicle for seniors, I am grateful to both the Democrats and Republicans who have come together in a bi-partisan coalition to re-introduce this bill,” said Chris Orestis, President of LifeCare Xchange, “and to see the ongoing momentum of support for this approach to fund senior care with a tax-free vehicle that has been building since 2007.”
The option to use a life settlement to fund a Long-Term Care Benefit Account has existed for over a decade. The difference is that currently, the tax-free status is triggered by an individual being diagnosed as terminal or chronic with 2 ADL’s or more at the time of their life settlement. If the Senior Health Planning Account Act passes, the tax-free treatment for a life settlement would apply to anyone that places the funds into the account, and then uses it for qualified medical and long-term care expenses.
There has been ongoing support and action bubbling up from the states for over 10 years to create this financial vehicle and save tax-payers billions of dollars. “Going back to 2010, I have had the opportunity to provide testimony before National Conference of Insurance Legislators (NCOIL), the state legislatures of Florida, Texas, and Maine; a special joint meeting of the New Jersey Medicaid and Insurance Departments; and provided expert testimony before legislative workgroups in Florida, Louisiana and Maine in support of this measure,” said Chris Orestis.
The National Association of Insurance Commissioners has spoken out in favor of this approach in their policy paper, “Private Market Options for Financing Long-Term Care”. In it, the NAIC’s Long-Term Care Innovations (B) Subgroup singled out life settlements as a viable option to help people pay for long-term care. They point out the disparity between the cash surrender value of a life policy and its much higher secondary market value, and the NAIC specifically cites the use of a “bank and trust account” (Long-Term Care Benefit Account) that is recommended to families at the point of need by “elder care providers and professional advisors”.
Millions of senior’s own life insurance policies that after years of making premium payments they will lapse or surrender after years of premium payments without realizing their policy is actually an asset that has secondary market value. Unfortunately, too few policy owners understand this fact and as many as 9 out of 10 life insurance policies are in danger of being abandoned before ever paying out a death benefit. In fact, 7.7 million life insurance policies with $570 billion of in-force death benefit was lapsed by the policy owner in 2018.
Rescuing these policies before they are lapsed or surrendered has been an overlooked opportunity by most policy owners and advisors-- but that is changing. Every day, more and more people are waking up to realize these life insurance policies are a massive pool of assets sitting in the hands of seniors who for the most part have no idea the value of what they own. With the help of state and federal government leaders, this innovative solution to repurpose a life insurance policy that the owner is prepared to abandon, into tax-free dollars to pay for medical and long-term care services. The emergence of Congress to create a SHPA through legislative action is another great step forward for seniors and their families looking for financial options to help them deal with the unique financial consequences brought on by aging and declining health.
Chris Orestis, President of LifeCare Xchange and known as the Retirement Genius, is a nationally recognized senior care advocate and expert in retirement, long-term care and specialty senior living funding solutions. The author of two books, numerous published papers and articles, and a frequent industry speaker; he is the innovator that brought the LTC Life Settlement into the market over a decade ago.