The Medicaid 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. A Medicaid Annuity is also designed to help an annuity owner qualify an institutionalized spouse for Medicaid eligibility. This type of policy is becoming increasingly popular as nursing home care costs continue to rise.

What Is A Medicaid Annuity?

A Medicaid annuity is a financial product used to help individuals qualify for Medicaid coverage, a government-funded health insurance program that provides coverage for low-income individuals and families. Medicaid is a means-tested program, meaning individuals must meet specific financial criteria to be eligible for coverage. Individuals can qualify for Medicaid by “spending down” their assets, which means they must use their financial resources to pay for their care before receiving Medicaid benefits. A Medicaid annuity is a way to “spend down” assets by converting them into income payments that can be used for care.

Under Medicaid rules, an annuity must meet specific requirements to be valid. For example, the annuity must be irrevocable and non-assignable, meaning that the individual cannot cancel the annuity or transfer ownership to someone else. The annuity must also name the state Medicaid agency as the primary beneficiary in the event of the individual’s death. The annuity must provide a fixed payment schedule that cannot be changed. Medicaid annuities are often used with other Medicaid planning strategies, such as transferring assets to a Medicaid trust, to help individuals qualify for Medicaid coverage while preserving some financial resources for their families.

What Is A Medicaid Annuity?

How does a Medicaid Annuity work?

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.

The Deficit Reduction Act of 2005 established guidelines defining an annuity contract’s characteristics as a noncountable asset and excludable from the five-year look back.

Annuity purchasers give a lump sum to an annuity company for equal 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 in a covered nursing home care facility.

If you’re considering a Medicaid Compliant Annuity, please 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 companies offer a Medicaid-friendly annuity contract.

These restricted annuities are meant to provide the annuity owner their liquid assets as 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

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.

  • 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) cares for 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 some 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 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.
What Are The Benefits Of A Medicaid Annuity

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.


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 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.

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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 single, 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 based on the owner’s life expectancy. If the owner outlives that life expectancy, the contract terminates, and there is no more income.

Does an annuity count as income for Medicaid?

Yes, annuities may count as income for Medicaid eligibility purposes.

How does a Medicaid-compliant annuity work?

A Medicaid Compliant Annuity is a financial product designed to help to qualify individuals to pay for long-term care expenses. When purchased, the annuity will convert a lump sum into a stream of income that can be used to pay down nursing home costs or in-home care costs. This income stream must meet requirements to comply with Medicaid rules and regulations.

Are annuities exempt from Medicaid?

Yes, annuities are exempt from Medicaid. This is because annuities can be used to protect and preserve beneficiaries’ assets so that they will not be counted as part of the applicant’s asset limit for eligibility purposes. An annuity can provide a steady income stream without triggering a Medicaid penalty or disqualification.

Can you have an annuity and still qualify for Medicaid?

It is possible to have an annuity and still qualify for Medicaid in certain circumstances. For example, Medicaid asset protection, or “Medicaid spend down,” may be an option if your annuity meets specific requirements.

What is an irrevocable annuity?

An irrevocable annuity is a financial product that pays out a fixed income for a predetermined period. The annuity payments are guaranteed and cannot be changed or stopped once the contract is signed. An irrevocable annuity may provide lifelong income or at least five years.

Are annuities considered assets?

Yes, annuities are considered assets and may be counted as part of an individual’s net worth. Annuities can be used to generate ongoing retirement income or to save for the future. Annuities can also help protect your assets from taxation and may provide other financial benefits depending on how they are structured.

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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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