Medicaid Policy
Medicaid Policy
Contact DHHS Policy Specialist for Previous Policy
A. General Information
A life insurance policy is a contract. Its purchaser (the owner) pays premiums to the company that provides the insurance (the insurer). In return the insurer agrees to pay a specific sum to a designated beneficiary when the insured person dies.
B. Ownership of a Policy
1. The owner is the person who buys the policy and who can receive the cash and loan values.
a. The owner should be named on the policy form.
b. An owner can transfer the policy to another person. When that happens, the company should issue a letter or form showing the change in ownership.
c. If someone other than the individual uses the individual's funds to buy life insurance, and that person is named as the owner, a transfer of assets may have occurred. (See 575)
d. An owner may also assign ownership to a funeral home to fund burial arrangements. (See 594-4)
2. Verify all policies the individual owns. Count any life insurance policies the spouse owns in the same way.
3. The individual may be both the owner and the insured person. The individual may own policies that cover other people. Apply this policy to all life insurance policies the individual, or spouse, owns regardless of who the insured person is. Remember though, face values are totaled for all policies insuring the same person.
4. The policy is not an asset if the individual is the insured person on a policy, but neither the individual nor the spouse owns the policy. If the individual or spouse used their funds to buy the life insurance, a transfer of assets may have occurred. See 575.
C. Computation of Life Insurance as a Resource
1. Face Value
Face value is the amount of basic death benefit contracted for when a person buys the policy. It does not include:
a. The value of any dividend additions added after the policy is purchased.
b. Additional sums that will be paid for accidental death.
c. The amount of term insurance when a policy provides whole life coverage on one family member and term coverage on the others.
2. Do not count the following types of insurance when deciding the total face value of policies a individual owns.
a. Term insurance that does not have a cash-surrender value. (Insurance policies are counted only if they generate a cash surrender value, in which case they aren't a term policy.)
b. Burial insurance that allows payment ONLY for the insured's burial. Burial insurance is a contract that requires the proceeds to be used only for the insured’s burial expenses. Burial insurance does not accumulate a cash surrender value. If the insurance has a cash surrender value to which the owner has access, it is not burial insurance. Life insurance that is assigned to a funeral home to fund a burial contract is not burial insurance. (For life insurance assigned to a funeral home to fund a burial contract, see 594-4.)
c. Whole life insurance if the individual has irrevocably assigned the policy ownership and beneficiary rights to the State. (See #5 below.)
D. Aged, Blind, Disabled and Long-term Care
1. How to count insurance depends on the total face values of the policies. DO NOT combine insurance policies owned by different household members when deciding the total face value. DO NOT combine the values of policies the individual owns that insure different persons.
a. Face Value Does Not Exceed $1500.
If the total, combined face value of all life insurance policies the individual owns on the same insured does not exceed $1500, do not count any of those policies as resources.
Determine the value of any dividend accumulations. Accumulations can be designated as burial funds. Accumulations that cannot be excluded under the burial fund policy in 592 counts as a resource even though the life insurance policy may be excluded.
b. Face Value Exceeds $1500
If the total, combined face value of all policies the individual owns on the same insured person exceeds $1500, verify the cash surrender value and dividend accumulations of each policy. The cash surrender value and the dividend accumulations are available resources to the individual.
Follow the burial fund policies in 592 to decide how much, if any, of the cash value of the life insurance can be excluded as a burial fund. Any cash value and any accumulations that cannot be excluded under burial funds count as resources. Refer to the spousal assessment rules to decide how to count life insurance for the assessment. (573)
2. How to Determine Cash Surrender Value
A policy’s cash surrender value is a form of equity value the policy develops over time. The owner can receive the cash surrender value by turning in the policy for cancellation. Periodically, usually annually, the insurance company pays the policy owner a dividend. Dividends are paid to the owner in the form of Additions and Accumulations. Request a current statement from the insurance company that shows the cash surrender value and/or the value of any dividend accumulations.
a. Additions are amounts of insurance purchased with dividends and added to the policy, increasing its death benefit and cash surrender value, but not its face value. (See 2. A. above)
b. Accumulations are dividends the policy owner has effectively received, but has left in the custody of the company to earn interest, like money in a bank account. They are not part of the cash surrender value of the policy. The owner can get them at any time without affecting the policy's cash surrender value. Since the owner can withdraw accumulations at any time, they count as an available resource. Even policies excluded as a resource may include an accumulations account. Verify whether an accumulation account exists and the value of the accumulations.
If the individual has used a life insurance policy to fund a pre-need funeral plan, see 594-4 to decide how to treat the life insurance and any accumulations.
3. Verification
a. Ask the individual for copies of:
all the life insurance policies he or she owns and,
the most recent annual dividend statement issued for each policy.
b. For countable and excluded policies verify:
the owner,
the insured,
the face value, and
if the policy pays dividends, what option the individual has selected for receipt of the dividend (i.e., accumulations, additions, applied to premium, payment made to individual). If there are dividend accumulations you will need to verify their current value.
c. For countable policies also verify:
if the policy generates a cash surrender value and, if so,
the current cash surrender value and the value of any dividend accumulations,
the amount of any loans on the policy that reduce the available cash.
To determine the total countable resource when a policy is not excluded, use the cash surrender value plus the value of any accumulations.
4. Other Considerations
a. If a policy is less than three years old, do not delay eligibility because you have not verified the cash surrender value unless the individual made any large lump sum payments. If large payments have been made, the policy would have an immediate cash value that could exceed the resource limit.
b. Do not verify the value of employer-provided term insurance because the policy will not have a cash surrender value. (Verify that it is an employer-provided term policy.)
c. A term policy without a cash surrender value table does not generate cash surrender value.
5. Assigning Cash Value to the State of Utah, Office of Recovery Services
a. When determining countable resources for nursing home, or home and community based waiver services only, do not count a whole life insurance policy if the individual assigned ownership to the state. The following criteria must be met to assign a policy to the state.
The individual is the owner of the policy and the insured person.
The individual irrevocably assigns the ownership rights and benefits of the policy to the State of Utah, Office of Recovery Services.
No further premium payments are necessary to keep the policy in effect, or the individual has the option to and does pay the policy up either prior to or at the time the assignment is made.
b. After the individual’s death, the state shall distribute the benefits of the policy as follows:
Up to $7,000 can be paid to the family or to a designated funeral home to cover the individual’s burial/funeral expenses. The total value of this payment, plus the value of any irrevocable burial trusts, pre-need funeral contracts and/or burial/funeral funds, cannot exceed $7,000. The state may require verification of the actual burial expenses.
The State will retain the remaining funds up to the total amount of medical assistance correctly paid on behalf of the individual.
The State will pay any funds remaining after making the payments described in 1 or 2 above to the beneficiary named by the individual after all medical bills have been processed by Medicaid claims. Providers have up to one year from the date of service to bill.
c. The individual must provide:
Verification from the insurance company that the State of Utah, Office of Recovery Services has been irrevocably assigned as the owner and beneficiary of the policy.
The name, address, and phone number of the contingent beneficiary. The individual or his representative must inform the state of any contingent beneficiary changes to assure that proper distribution can be made after the individual’s death.
d. Upon the death of the individual, the eligibility case manager must notify the Nursing Home Health Program Specialist of the death and send the following information to the specialist:
A copy of the insurance policy, along with any supporting information on the irrevocable assignment.
Information on burial funds or contracts the individual has.
The name, address, and phone number of the contingent beneficiary.
The name, address, and phone number of the family member(s), or of the funeral home handling burial arrangements, if known.
6. Viatical Settlements
A viatical settlement is a way of converting the value of a life insurance policy into cash. The owner/insured person enters into an agreement with the viatical settlement company to receive a certain percentage of the value of the life insurance policy. Payment is usually made as a lump sum payment, but other arrangements are possible. The viatical settlement company agrees to pay the premium payments on the life insurance policy and becomes the beneficiary of the death benefit of the policy. Law allows this type of agreement when the insured person has a life-threatening illness or disability and a short life expectancy. Both whole life and term life insurance policies may be converted under a viatical settlement.
If an individual receives a viatical settlement of a life insurance policy, the individual no longer owns the policy. A viatical settlement is a conversion of a resource from one form to another. Even if the life insurance policy was not a countable resource like a term life insurance policy, the cash the person receives is a countable resource the month after receipt.
The person may be able to set up an exempt special needs trust with the money if the person is disabled and under age 65. Refer to 512-2 for trust policy if the money received from the viatical settlement is placed in a trust.
7. Other Possible Benefits
a. Supplementary Contracts
Some insurance policies may provide annuity payments. If a policy has such benefits, the individual is required to apply to receive the payments. (225) If the individual is eligible for and receives such payments, the payments count as income in the month received and a resource if retained into the following month.
b. Accelerated Life Insurance Benefits
Accelerated payments are not “benefits” for purposes of the “filing for other benefits” provision in 225. We do not require a policyholder to apply for accelerated payments as a condition of obtaining or retaining Medicaid eligibility.
However, if an individual receives accelerated payments, the payments can be used to meet food or shelter needs. Count the payments as income in the month received and a resource if retained into the following month.
E. Medically Needy Family, Child and Pregnant Woman
1. Count the cash value of whole life insurance policies the individual owns, regardless of face value and regardless of whose life is insured by the policies. If the policy has an accumulations account, count the value of it as well.
Do not count policies that a Nursing Home or Home and Community Based Waiver individual has irrevocably assigned to the State. (See #D5 above for the rules on making such an assignment.)
Term insurance policies have no cash value, are not resources, and are not used to determine countable resources.