Understanding Partnership Annuities
What Is a Partnership Annuity?
A partnership annuity is a Medicaid-compliant annuity that meets strict federal and state guidelines to protect an equal amount of assets from Medicaid spend-down rules. These annuities are primarily used in conjunction with Partnership Long-Term Care (PLTC) insurance policies.
- Irrevocable: The contract can’t be changed or canceled.
- Actuarially Sound: The term must not exceed life expectancy.
- Equal Monthly Payments: Provides structured payouts.
- State Medicaid Agency as Beneficiary: Required to the extent of Medicaid benefits paid.
Did You Know? The term “partnership” here refers to the State Long-Term Care Partnership Program, not a joint annuity owned by two people. If you are trying to find out how to keep a spouse’s contract active after they pass away, check our guide on spousal continuation instead.
Contact us below for free help to find the best partnership annuities for your specific scenario. You can also call us at (770)-755-1565.
How Partnership Annuities Work
When someone purchases a qualifying partnership long-term care policy and later uses its benefits, every dollar paid out from the policy shields one dollar of assets from Medicaid spend-down. If they then use a Medicaid-compliant annuity to cover additional costs, this annuity doesn’t disqualify them from Medicaid. These annuities essentially bridge the gap between private pay and Medicaid eligibility while protecting the purchaser’s remaining assets.
Pros and Cons of Partnership Annuities
Pros:
- Asset Protection: Amount paid out by the policy is disregarded when calculating Medicaid eligibility.
- Medicaid Qualification: Helps you qualify faster without spending down all your savings.
- Legal Compliance: Meets DRA (Deficit Reduction Act) guidelines, offering protection in all participating states.
- Income Stream: Provides guaranteed monthly payments that help cover care costs.
Cons:
- Irrevocable Contract: You lose flexibility after purchase.
- Must Meet Strict Rules: Not all annuities qualify; structure and payout terms matter.
- State as Beneficiary: The state may recover costs from your estate if you pass away.
- Only Useful for Medicaid Planning: Not suitable for those with significant income or assets.
Who Needs a Partnership Annuity
- Pre-retirees planning for future long-term care who want to protect their estate from Medicaid spend-down.
- Individuals with moderate assets who are not wealthy enough to self-insure but want to preserve legacy assets.
- People concerned about nursing home costs who want Medicaid to eventually help pay while still leaving money to a spouse or heirs.
Who Should Avoid Partnership Annuities
- High-net-worth individuals who can self-fund long-term care or afford comprehensive private LTC insurance.
- Those already on Medicaid, since eligibility has already been determined.
- People needing flexible liquidity, as these contracts are restrictive.
- Younger individuals, since the need for Medicaid qualification is typically decades away.
Other Insurance That Can Help
- Hybrid Annuities with Long-Term Care Riders: Combine tax-deferred growth with income for long-term care. Not partnership-qualified but may return unused premiums to beneficiaries.
- Long-Term Care Insurance (Partnership-Qualified): Traditional or hybrid life and long-term care policies are often the first step toward Medicaid asset protection.
- Life Insurance with Accelerated Benefits: Some life policies allow acceleration of the death benefit to cover long-term care, offering flexibility and legacy protection.
- Fixed Indexed Annuities with LTC Riders: Offer LTC income from the annuity’s value or a multiple of the contract value with a cap. Not Medicaid-compliant but useful for moderate-income retirees.
Funding a Partnership Annuity
Most Medicaid-compliant annuities are funded with non-qualified (after-tax) dollars. In some cases, you may use IRA assets, but doing so requires meeting specific IRS and Medicaid guidelines. These are generally single premium immediate annuities (SPIAs) or deferred income annuities (DIAs) structured to start income right away.
Do Annuities Count Against Medicaid?
Yes, unless the annuity is structured to be Medicaid-compliant. The wrong structure will count as a disqualifying asset or transfer. That’s why proper planning and guidance are essential.
Annuities vs. Partnership Annuities
| Feature | Regular Annuity | Partnership Annuity |
|---|---|---|
| Medicaid Spend-Down Protection | ❌ Not Protected | ✅ Yes, if qualified |
| State as Beneficiary Required | ❌ Optional | ✅ Mandatory |
| Flexibility | ✅ Greater | ❌ Irrevocable |
| LTC Coverage | ❌ Not included | ✅ Works with PLTC plan |
| Income Stream | ✅ Yes | ✅ Yes |
How to Compare and Buy Partnership Annuities
You cannot buy partnership annuities directly from most insurance carriers—they must be structured correctly through an experienced annuity broker who understands both insurance and Medicaid planning laws in your state. Be sure to compare:
- Issuer financial strength (AM Best A- or better).
- Claims-paying history.
- Income payout terms.
- Compliance with your state’s Medicaid partnership rules.
- Integration with existing LTC policies.
Annuities That Provide Medicaid-Compatible Income
If a partnership annuity isn’t suitable or available, consider:
- Deferred Income Annuities with short deferral windows.
- Single Premium Immediate Annuities (SPIAs) that meet Medicaid guidelines.
- Fixed Indexed Annuities with liquidity riders, as a backup income stream (though not Medicaid compliant).
Take Action: Protect Your Assets from Long-Term Care Spend-Down
You don’t have to lose your life savings to nursing home bills. If you’re concerned about long-term care costs and Medicaid eligibility, a properly structured annuity can protect your assets and provide income. Contact The Annuity Expert today to compare annuities, understand your Medicaid options, and get free quotes on annuities that help secure your legacy and income.
Book A Free Consultation
Get help from a licensed financial professional. This service is free of charge.
Let Us Answer Your Questions
Not quite ready for a meeting, but you have a question that needs answering? We’re happy to help. Leave an inquiry below, and one of our staff will respond via email.