September 4, 2008
T here is no such thing as a Medicaid annuity. Annuities can however help some people shelter assets so that they can qualify for Medicaid long term care benefits. The reader is encouraged to consult an elder care attorney to understand the laws that apply in his state. Medicaid rules vary from state to state, so the following discussion is a general discussion of federal rules that impact the use of annuities for Medicaid planning.
Some retirees have concern about paying for ill health (long term care) in later years. One strategy is to exhaust one’s assets and then qualify for Medicaid support. Understandably, most people are not eager to exhaust their assets. When it comes to counting your assets to determine Medicaid qualification for long term care benefits, properly structured a nnuities may be an exempt or non-countable asset and can be retained by the person who also gains Medicaid benefits. But that annuity must meet the following criteria:
1. It must be an immediate annuity or deferred annuity that is now being annuitized
2. The guaranteed payments must be for the life of the owner, or term certain shorter than the owner’s life expectancy
Annuity agents often refer to annuities that meet the above criteria as “Medicaid annuities.”
While the state Medicaid authority will generally not force the person opting for Medicaid to liquidate the annuity (as they would with cash or other countable assets), the annuity payments that the person receives will be taken by the Medicaid Authority to offset its outlay of supporting the
ill person. So how can you come out ahead using a Medicaid annuity?
Let’s take the hypothetical case of Mrs. Johnson, age 80, who buys an immediate annuity with a refund provision. Her investment is $100,000 and she has no other assets. The refund provision says that if she does not recover her $100,000 investment before she dies, payments will continue to her heirs. Thus, the annuity potentially allows Mrs. Johnson to transfer assets to her heirs that would have normally been exhausted on her long term heath care.
But some states have moved to curtail this practice. For example, in Pennsylvania, the purchase of an annuity that fails to name the state as remainder beneficiary “for at least the total amount of medical assistance paid on behalf of the annuitant” is treated as a transfer, and causes a period of ineligibility for Medicaid benefits. In other words, that state basically says that if someone dies with an immediate annuity, the State will get paid back for the money it spent on the annuitant’s health care. If the annuity owner has failed to name the State as a beneficiary, the State will treat the purchase as a transfer. Transfers of assets within five years of applying for Medicaid benefits will cause the applicant to be ineligible for Medicaid benefits for a period of months based on the size of the transfer.
The bottom line: this method of sheltering assets using Medicaid annuities may be viable in some states and the implementation of Medicaid eligibility rules vary from state to state. Get proper advice from a qualified professional.