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—which 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 a long term care life settlement into a “Senior Heath Planning Account” (SHPA), which would be dedicated to paying health care costs for themselves and their spouse.
SHPAs are based on the Long Term Care Benefit Account originated in 2007 and developed in partnership with leaders from the assisted living, home care and nursing home industries. The Long Term Care 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 taxpayers if this measure is enacted into law.
The Long Term Care Benefit Account is a bank trust account funded by a long term care 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 long term care life settlement, and it is flexible so that payments can start at a designated amount for any form of care and then can be adjusted to meet changing care needs.
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 two ADLs 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 taxpayers billions of dollars. Since 2010 testimony has been heard before the 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 legislative workgroups in Florida, Louisiana and Maine in support of this measure. 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.”
With the help of state and federal government leaders, this innovative solution will allow owners to repurpose life insurance policies that they are 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.