ALTCS and Life Insurance

What do you mean? Life Insurance Cash Value is not an exempt asset! Let me explain you about ALTCS and Life Insurance.

What is the ALTCS limit on Life Insurance?

I recently helped a family apply for ALTCS benefits for their father and mother. The parents never discussed financial matters with their daughter, always keeping their financial affairs to themselves.

Our office uses an ALTCS intake form that asks if you own life insurance, on which the client’s answer was “no.”

Our Certified Medicaid Planner, Cecilia Dabbs, CMP, had started the case with ALTCS. She gathered the financial requirements and got the formal ALTCS application ready for submission.

As we do with all claims, Cecilia Dabbs and I reviewed the case one last time together before submitting the ALTCS application to the ALTCS caseworker for approval. I noticed that the question on life insurance was answered “no.”

For some reason, I questioned that. Undoubtedly, not everyone owns life insurance, but most at least have enough love for their spouse and children to have a burial policy. I looked at the question, “Do you have a burial policy?” which was also answered “no.” So I decided to call the daughter to double-check if her parents owned life insurance. 

The daughter said, “I was told that life insurance is an exempt asset. Why is the ALTCS application asking if my parents have life insurance?” I immediately asked who told her this: “My insurance agent….” 

As it turned out, her father had life insurance with a cash value of over $60,000, which would cause the case to be denied.

Life insurance with a cash value above $1,500 is a countable asset for ALTCS Medicaid eligibility. Not disclosing the policy or providing incorrect information to qualify for Medicaid would be Medicaid fraud.

What can we do to fix this?

In times like this, a Certified Medicaid Planner (CMP) is the right person to ask for help. CMPs have the right skills, knowledge, and experience to find alternatives and solutions for your Medicaid application. Let’s talk more about that later on. Let’s look now at what ALTCS is and how it works.

What is ALTCS?

ALTCS, or Arizona Long-Term Care System, is Arizona’s Medicaid program for individuals in need of long-term care services who cannot usually use them. ALTCS covers the expenses of long-term care for both home care and assisted living through a waiver under Sec 1115 of the Social Security Act.

To be approved for ALTCS, an applicant must pass the eligibility requirements set by Medicaid. These are the following:

• A resident of Arizona;
• Over 65 years of age or has a physical or developmental disability;
• Medically eligible (really in need of long-term care and is assessed through the PAS or pre-admission screening);
• Financially eligible (within income and asset limits)

If you look at this list, you will see that its financial aspect is one of the most complicated and harder to meet. And with respect to life insurance, an individual’s assets are the focus of the discussion.

The financial eligibility requirement is in two parts: income and assets.

 First, the income limit is $2,523 in gross monthly income, and for couples both applying for ALTCS, it is $5,046.

For asset limit, an applicant cannot exceed $2,000. A non-applicant spouse or healthy spouse, also called the noninstitutional spouse, can have up to $137,400. 

Arizona is a 50% state, so with a married couple, you divide all assets by two, which is the limit for the healthy spouse, and the institutional spouse must spend down. Read ALTCS Eligibility 2022.

 The cash value of a life insurance policy is limited to $1,500. If the cash value exceeds this limit, the cash value will be counted and added to the asset limit of $2000.00 or the maximum spousal allowance of $137,400.

What can you do if you have life insurance with cash value above the limits?

If an individual applies for ALTCS and has life insurance that exceeds or may exceed the limit, they can choose a few options to make sure that their life insurance is within the limit.

• Choose Term Life Insurance

Term Life Insurance does not have cash value and cannot be counted as an asset, although this type of insurance has implications for the benefits the individual may receive. That is going to be on the part of the insurance.

• Have a family member own the Life Insurance

Medicaid does not count whatever is not under your name. You can have your son, your daughter, or anyone who can have it under their names, but list only the applicant on the policy. The key is ownership. However, if you transfer the ownership of your life insurance, remember that it will accrue tax.

• Use a 1035 exchange and transfer it to a Funeral Trust.

Funeral Trusts are irrevocable trusts and are not counted as an asset up to $15,000.

• Transfer the cash value to a Medicaid Compliant Annuity.

A Medicaid Compliant Annuity converts the cash value to income that is not countable if paid to the healthy spouse.

• Withdraw the cash value of the insurance and gift it to a loved one

The cash value can be withdrawn and gifted to someone just for safekeeping. This can be tricky, so consult your Certified Medicaid Planner.

What’s the biggest mistake people make with their life insurance?

They either cash out a policy, and the growth becomes a taxable event. Or they borrow the cash values out and the policy lapses, again causing a taxable event.

There are ways to avoid these errors and handle the cash value in life insurance to no longer count as an asset.

If done wrong, it can have tax consequences. Be sure to consult a Certified Medicaid Planner or your insurance agent before taking action.

Read: Checklist for touring assisted living facilities.

I hope you got much information about ALTCS and Life Insurance.