How to Protect Assets From Medicaid With an Annuity

Shawn Plummer

CEO, The Annuity Expert

A Medicaid Annuity insurance policy allows people to protect their assets if they need nursing home care. This type of policy is becoming increasingly popular as nursing home care costs continue to rise. This guide will discuss what a Medicaid Annuity is and how it works. We will also discuss the benefits of this type of policy and how it can help you protect your assets!

What is the purpose of a Medicaid-compliant annuity?

A Medicaid-compliant annuity is an insurance policy that helps people protect their assets if they need nursing home care. This type of policy is becoming increasingly popular as nursing home care costs continue to rise.

What Is A Medicaid Annuity?

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 minimal financial resources to the extent that the state recognizes 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 an annuity contract’s characteristics 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 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 restricted annuity in a last-minute or “crisis” Medicaid planning situation. Crisis mode is when a person is about to enter or is currently in a covered nursing home care facility.

If you’re considering a Medicaid Compliant Annuity, please first seek a certified elder law attorney. 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 to the healthy spouse rather than long-term care costs.

The healthy spouse (annuity owner) can collect income, while the unhealthy spouse can benefit from Medicaid 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 non-assignable.
  • 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 distributing equal annuity payments to the owner.
  • The Medicaid beneficiary arrangement must also be set up to comply with the state’s Medicaid 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 relatively healthy. 

My grandfather (a healthy spouse) takes care of my grandmother alone, 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 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.


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

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

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

What are the benefits of a Medicaid Annuity?

There are many benefits of a Medicaid Annuity, such as:

  • First, it can help to protect your assets.
  • Second, it can help to lower your taxes.
  • Third, it can provide you with a steady income stream.
  • Finally, it can help to pay for your nursing home care.

So what are the drawbacks of a Medicaid Annuity?

There are some drawbacks of a Medicaid Annuity, such as:

  • It can be challenging to set up.
  • It can be expensive to maintain.
  • It may not cover all of your assets.
  • You may not be able to access your assets if you need them in the future.


Medical Compliant Annuities convert liquid assets into an irrevocable, 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 or 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 or 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. In addition, they have an internal team that can assist with setting up a policy.

Medicaid Annuity

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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.

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. Some scenarios include the Medicaid applicant naming 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 there is no more income.

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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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