How to Protect Assets From Medicaid With an Annuity

Shawn Plummer

CEO, The Annuity Expert

A Medicaid Annuity (MCA) is an insurance product used to accelerate eligibility for the Medicaid program, a joint state, and federal health insurance program that pays for a person’s nursing home care and medical bills.

To be eligible to receive long-term care assistance from Medicaid, one must have a minimal amount of financial resources to the extent where the state recognized the individual as destitute.

A Medicaid Annuity is designed to help an annuity owner qualify an institutionalized spouse for Medicaid eligibility.

The Deficit Reduction Act of 2005 established guidelines defining the characteristics an annuity contract must have to be considered a noncountable asset and excludable from the five-year look back.

This guide is ideal for retirees wanting to know:

  • How to avoid a nursing home from taking your house.
  • Can a nursing home take all of your assets?
  • What happens when one spouse goes to a nursing home.
  • How to protect a parent’s assets from a nursing home.
  • Does Medicaid pay for assisted living?
  • What happens if you can’t pay for a nursing home?

How does a Medicaid Annuity work?

Annuity purchasers give a lump sum of money to an annuity company in exchange for equal amounts of monthly payments to a healthy spouse (community spouse). In contrast, the other unhealthy spouse receives medical assistance subsidized by Medicaid.

A person without long-term care insurance would seek this type of restricted annuity in a last-minute or “crisis” Medicaid planning situation. Crisis mode is when a person is about to enter or currently in a covered nursing home care facility.

If you’re considering a Medicaid Compliant Annuity, please seek a certified elder law attorney first. They should be fluent in your state’s Medicaid rules.

*Warning* An ordinary immediate annuity is not Medicaid compliant, and only a few annuity companies offer a Medicaid-friendly annuity contract.

These restricted annuities are meant to provide the annuity owner their liquid assets in the form of an irrevocable income stream versus giving the same liquid assets to home care or a qualified facility.   

This annuity strategy “stops the bleeding” financially and redirects the income back to the healthy spouse rather than long-term care costs.

The healthy spouse (annuity owner) can collect income, while the unhealthy spouse can take advantage of Medicaid benefits to pay for extended care and nursing home benefits.

Medicaid Compliant Annuity Requirements

  • The Medicaid Annuity is for a single person, and must be irrevocable and nonassignable.
  • The Medicaid friendly annuity’s income payout must be based on the life expectancy table equivalent to the Social Security life expectancy tables used for Medicaid.
  • Return all premiums to the client by the end of the client’s life expectancy.
  • Have an annuity term no longer than the annuity owner’s life expectancy.
  • There must be no cash value in the immediate irrevocable annuity.
  • The restricted annuity must be actuarially sound which means no balloon payments and distribute equal annuity payments to the owner.
  • The Medicaid beneficiary arrangement must also be set up to comply with the state’s Medicaid’s recovery rules.
  • Medicaid guidelines and recovery rules vary by state.

Medicaid-Compliant Annuity Example

Let’s take my grandparents, for example. 

My grandmother (age 87) and my grandfather (age 88) live in a 55+ community in Florida.

My grandmother (Medicaid Applicant) has late stages of Parkinson’s disease and early stages of dementia.  My grandfather is fairly healthy. 

My grandfather (a healthy spouse) takes care of my grandmother by himself, but it’s becoming too much for him to handle.

He is coming to a point where she needs to go to an Assisted Living Facility or Nursing Home, but he doesn’t need to because he’s healthy.

He can either use his savings to pay for the facility or services, and then Medicaid eligibility will kick in for her once they are considered cash-poor, but he’ll be broke.

Or…

If my grandparents take a portion of their savings now, purchase a Medicaid annuity, my grandfather will be able to supplement a retirement income for a fixed period of time, and my grandmother (institutionalized spouse) will be able to take advantage of Medicaid eligibility now.

Medicaid rules vary by state, which is why you should make an appointment with a local Eldercare Attorney first to assist with the Medicaid planning.

I highly recommend not going the DIY route in purchasing a compliant annuity.

Conclusion

Medical Compliant Annuities convert liquid assets into an irrevocable and non-assignable life, long income stream. Medicaid eligibility is then accelerated to take advantage sooner than later.

The income stream from the Medicaid-friendly annuity must be irrevocable, meaning you will lose control of the asset.

The guaranteed payments are non-assignable, meaning you can not sell the existing annuity nor transfer the existing annuity.

The Medicaid-friendly annuity itself must be actuarially sound, which means the term of the annuity contract cannot exceed an individual’s Medicaid life expectancy dictated by the Social Security Administration.

Also, your retirement income must be provided in equal monthly annuity payments, with zero deferral nor balloon payments. This single-premium immediate annuity is a unique contract providing a precise amount of income.

Finally, the primary beneficiary has to be your state Medicaid department. Sometimes the secondary beneficiaries too. This means no death benefit.

Where Can I Find a Medicaid Annuity?

Nationwide offers a Medicaid Compliant Annuity called the Income Promise Select Annuity. They have an internal team that can assist with setting up a policy.

Frequently Asked Questions

What is a Medicaid Annuity?

A Medicaid annuity is a spend-down product utilized to qualify for Medicaid benefits. The restricted single premium immediate annuity must meet the requirements of the Deficit Reduction Act of 2005, which states the payout annuity must be irrevocable, provide equal payments, be non-assignable, and contain zero cash value. In addition, the single premium annuity must be actuarially sound to each state’s Medicaid guidelines, and the primary beneficiary must be the state Medicaid agency.

Which insurance companies offer Medicaid annuities?

ELCO Mutual Life & Annuity, Nationwide, Unity Financial, The Standard, and National Guardian Life Insurance Company.

Who owns the Medicaid annuity?

In the married couple scenario, the community spouse is the annuity owner and annuitant. If the applicant is a single person, the Medicaid applicant is the annuity owner and annuitant. There are some scenarios where the Medicaid applicant names the community spouse as the annuitant.

What happens if the annuity owner outlives the term of the contract?

Medicaid annuities pay a monthly income for a fixed amount of time based on the owner’s life expectancy. If the owner outlives that life expectancy, the contract terminates, and no more income.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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