How Does Life Insurance Impact Florida Medicaid Eligibility?

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There are several strict regulations to be eligible for Florida Medicaid. If you're in the application process, you may wonder how your life insurance will affect your eligibility. It is essential to know this information to ensure that you are eligible for Medicaid coverage.

Continue reading this guide to learn how life insurance impacts your Medicaid eligibility in Florida:

Today I want to talk about how life insurance impacts whether or not you're eligible for either the Florida Medicaid ICP program or the Florida Medicaid waiver program. These are the long-term care Medicaid programs in Florida.

• life insurance may or may not be considered an asset that would impact your eligibility.

Does the Life Insurance Policy Have Cash Value?

The way to determine whether or not your life insurance policy will negatively impact Florida Medicaid eligibility is to first figure out whether or not the life insurance has a cash value.

If there is cash value, almost always, Medicaid will look at that as if it were money in the bank. Medicaid has a strict $2,000 asset limit.

Let's use as our example a Medicaid applicant who has a life insurance policy with a $100,000 death benefit and only a $20,000 cash surrender value.

Life Insurance Death Benefits are not Considered a Countable Asset

The death benefit is inconsequencial. Medicaid doesn't care that the policies will one day be worth $100,000. In fact, the death benefit has no impact at all.

To further illustrate this point, let's suppose the client instead had a term life insurance policy with a million-dollar death benefit but no cash value. This term life policy would not negatively impact this client's Medicaid application.

Life Insurance Policy Cash Value is Evaluated as if it were Money in the Bank

On the other hand, if you had a policy with $5,000 death benefit with $5,000 worth of cash value, and that by itself, even if you didn't have two pennies in the bank, would mean you're not eligible for the Medicaid waiver or the Medicaid ICP program. This is because you can borrow against the cash value, and if you can access the cash value, Medicaid will count that against you (as if it were sitting in your checking account). If the cash value and death benefit were equal (or nearly the same), I would advise to simply cash out and utilize one of our other Medicaid planning strategies.

But, going back to our primary example of a Medicaid applicant with a policy with 100K death benefit and 20K cash value - it would be a shame to lose out on a $100,000 death benefit just because of a $20,000 cash surrender value.

If you are uncertain as to what kind of life insurance policy you or your loved one has, or are having trouble differenciating between the death benefit and cash value, we'll ask you to grab a copy of the policy's declarations page, the face sheet, or just a policy summary. And we can then give you the proper guidance on what to do to ensure that you or your loved one would still be eligible regardless of whether or not you have this life insurance. And certainly, if you have other assets and their income issues, we have ways of dealing with every situation we can get our clients onto Medicaid

But, if we determine that the cash value is problematic for eligibility, what do we do about it?

How to Protect Life Insurance Cash Value?

Option 1: Borrow Against the Cash Value

Usually, the life insurance companies will make you keep a little bit of money in the policy to keep it enforced. So, let's say they make you keep $500. But we've taken out the rest of the cash value; now you have a life insurance asset worth $500. And that counts against your $2,000 asset limits. If you have $500 in the cash value of a life insurance policy, you could then only keep $1,500 in the bank because that would add up to $2,000.

But, we still have a problem, because assuming no other countable assets, if you borrowed against the policy, you would have $19,500 in the bank after borrowing against the cash value. No worries: our experienced elder law attorneys have all sorts of ways to protect $19,500 sitting in someone's bank account (beyond the scope of this article), but which would be thoroughly discussed during a Medicaid-planning consultation.

Option 2: Transfer the Life Insurance Policy in a Medicaid Compliant Manner

This should only be done under the guidance of an experience elder law attorney - as any mishandling may result in a transfer penalty. We'll likely either take advantage of the Community Spouse Resource Allowance (CSRA) and transfer the policy to the healthy community spouse or transfer ownership to a child via a Personal Services Contract.

What If You Can't Transfer Ownership in Time for the Application?

This is often a problem with life insurance carriers - they are slow. By the time you call the carrier, request transfer paperwork, fill out the paperwork, get it back to the insurance carrier, wait for their approval, well over a month or two may elapse.

Good news can be found in a December 2, 2022 - Second District Court of Appeal decision: G.W. c/o Jenna Prosser v. Department of Children and Families (No. 2D21-2800), i.e. "The Prosser Decision"

The Prosser Decision

• The Prosser Decision held that: G.W. had, via a power of attorney, signed an irrevocable life insurance policy assignment to her son Harold (after signing a Medicaid-compliant "lifetime contract for personal services" (i.e. a personal services contract)). The life insurance carrier had not yet verified that they had processed the life insurance policy ownership assignment on their end. The 2nd DCA ruled that it was inappropriate to count the cash value of the policies against G.W. just because the life insurance company had not yet recognized the change in ownership of the policies.
• The 2nd DCA ruled that the executed irrevocable assignment was immediately effective to transfer ownership of the policies from G.W. to Harold regardless of the insurance company's delay and failure to document the ownership change in its records (unless the policy itself forbid an assignment, which was not the case).

If you are interested anywhere in the state of Florida, we can help.

If you or a loved one is interested in a consultation, please call us.

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Find more helpful resources:

• Dual Eligibility for Medicare and Medicaid: What It Means for You
• Medicare Home Health Care Benefit Explained
• Florida Asset Protection: What Is an Estate Plan?
• Your Options for Receiving Medicaid Benefits After a Personal Injury Settlement

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