Updated: Jan 31, 2019
Medicaid is an assistance program, serving low income people of every age. In California, Medi-Cal is the same as the Federal program Medicaid. Both programs allow for the coverage of Long Term Care services. The use of an annuity for Medicaid Long Term Care planning has been around for quite some time.
It is possible, under certain circumstances, to utilize Medicaid if one spouse must enter a nursing home. The spouse not entering the nursing home can save assets from Medicaid by purchasing an Immediate Annuity.
Applicants who have too much money or assets will be denied coverage for Long Term Care and will be forced to pay their own nursing home bills, possibly causing the non-Medicaid spouse to become destitute in what could be a very short period of time. Annuities can help eliminate the excess resources preventing Medicaid eligibility and instead replace them with a monthly check payable to the non-Medicaid spouse referred to as “Community Spouse”.
If done properly, this strategy may preserve a couple’s resources, providing them to the Community Spouse.
An annuity is an insurance product paying a stream of income. This is particularly helpful for seniors if and when the time comes to move to a Long Term Care facility. Elders are able to use annuities as a non-countable asset towards qualifying for Medicaid.
Medicaid requires that the annuity be a commercial annuity sold by an insurance company. The annuity must be:
• fixed, meaning all of the payments must be the same
• irrevocable and unassignable
• immediate, meaning the payments must start right away
As an example, a female, age 72, with a life expectancy of 15.5 years, would be able to purchase an annuity with a guaranteed period to not exceed 15.5 years without causing a disqualification. If she should die prematurely, the annuity payments must stop and due to the regulations the State, having had to be named as beneficiary, would receive the balance of the annuity.
It is somewhat risky to use excess funds to spend-down for Medicaid qualification since the state must be named the beneficiary of any remaining annuity payments. However, this is unknown and thus calculations must be done to determine exactly how much risk there is and potential loss to the estate of the annuitant.
In most states, the maximum amount of resources allowable by the Medicaid applicant is $2,000. This excludes IRAs in the name of the applicant if the IRA is distributing income and or principle. In addition the house is an excludable asset, provided the Medicaid applicant intends to return home.
The Community Spouse is allowed to retain a specific amount of resources. For 2016 the maximum amount is $119,220.
The reason an Immediate Annuity works in the name of the non-Medicaid spouse is due to the fact that the Community Spouse’s income is not counted when determining the Medicaid applicant’s eligibility, only income in the applicant’s name is counted.
Thus if the annuity is in the non-Medicaid applicant’s name, the income distributed from that annuity to the Community Spouse will not count towards Medicaid.
In summary, the requirements necessary to make a Community Spouse annuity work on behalf of the Medicaid applicant are as follows:
• Annuity must be purchased from a commercial insurance company
• The annuity must be immediate
• The annuity must be irrevocable
• The annuity must be un-assignable and non-transferrable
• The annuity must pay out in a series of substantially equal monthly payments
• The term of monthly payments must be less than the life expectancy of the Community Spouse according to Social Security life expectancy tables
• The Medicaid agency for the state that the Medicaid applicant lives in must be designated as the primary beneficiary after the death of the Community Spouse
As you can see, the use of a Medicaid annuity is somewhat complex and thus prior to deciding if this is the right strategy one should consider speaking with an Elder Law attorney who has specific expertise in Medicaid planning as well as exploring other alternatives for Long Term Care assistance.