Small Life Insurance Policies Complicate Medicaid Eligibility

MAY 28, 2001 VOLUME 8, NUMBER 48

Elder law attorneys often discuss characteristics common to the older individuals they deal with. Clients frequently show up early for appointments, are unflaggingly courteous and pleasant to deal with, and seem to enjoy talking about their families and travels.

One other common characteristic, perhaps arising from a Depression-era concern for such things: older clients often have several small life insurance policies, usually policies they have held for decades. Unfortunately, those policies can sometimes complicate matters when clients require nursing home care.

Franklin Miller was such a client. When the Tennessee man was admitted to St. Francis Nursing Home in Memphis in 1997, he owned four small life insurance policies. He had bought the insurance starting in 1953, and the newest policy was already 32 years old.

Mr. Miller’s assets were limited, and the monthly cost of nursing home care was eating into his small estate rapidly. His wife Nona Miller filed an application for assistance from Tennessee’s Medicaid program, which subsidizes nursing home care for those who qualify financially for assistance.

Unfortunately for Mr. and Mrs. Miller, Medicaid considers the value of life insurance policies as an available resource. Upon Mr. Miller’s death the four small policies would pay a total of less than $15,000, but the Medicaid agency decided that the cash surrender value of the policies prevented him from qualifying.

Medicaid eligibility rules are complicated when it comes to life insurance. If the maximum amount payable on death of the policyholder is less than $1500, the value of the policy can be ignored in calculating eligibility. If the total “face amount” of insurance exceeds that small figure, however, the cash value of life insurance must be determined. Even small life insurance policies frequently must be liquidated before nursing home residents can qualify for Medicaid.

Mrs. Miller appealed the Medicaid determination in her husband’s case. She successfully argued that there was no evidence of the cash surrender value Mr. Miller’s life insurance policies, or even whether they had any cash surrender value. In the absence of that information the Medicaid eligibility worker had simply applied a rule laid out in the state’s Medicaid eligibility manual, and had estimated the policies’ value at 60% of the death benefit. That, argued Mrs. Miller, was not an acceptable way to determine her husband’s eligibility for government benefits.

The Tennessee Court of Appeals agreed. Mr. Miller’s life insurance could not be counted against him, ruled the Court, especially if based on a state policy manual rather than actual evidence. Miller v. Department of Human Services, March 5, 2001.

Although the final outcome was favorable for Mr. and Mrs. Miller, Medicaid eligibility took over three years to establish, and another year to confirm. Mr. Miller did not live long enough to see benefits. He died a year before the initial ruling in his favor, and two years before the Court of Appeals confirmed that result. Meanwhile someone–Mrs. Miller, friends and family or the nursing home itself–paid the costs of Mr. Miller’s care for the last two years of his life, waiting for a determination of whether Mr. Miller had bought “too much” life insurance.

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