Modified Endowment Contracts have been used for purposes of establishing Medicaid eligibility for a number of years. But is an MEC a type of life insurance policy, a trust, or a similar legal device?
Readers should know that some states are taking a new approach to these products. Some states argue that the MEC is not life insurance since the policies fail to pay a “face amount” on death of an insured prior to the expiration of the term. The rationale is that only an amount that might be paid on the insured’s death is a post mortem dividend in an unspecified amount not a specific face amount.
This characteristic, it is argued, fails the traditional federal definition of life insurance for Medicaid eligibility. That definition states “Life insurance is a contract under which the insurer agrees to pay a specified amount upon the death of the insured.” (20 C.F.R. section 416.1230(b) (1)). So is an unspecified amount specified? Is there a guarantee of payment to a beneficiary? Is that enough?
Other states argue that the MEC is a trust since the property is available and thus it should count as a resource to determine Medicaid eligibility. That is, the funds used to purchase the MEC are not transferred to or for the benefit of a third party because the insured does not change ownership interests in the property to another. The insured is guaranteed a return of the premium paid plus interest.