The Medicaid Annuity

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.

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.

Or…

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.

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.

Conclusion

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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