Medicaid annuity - objective planning advice for the medicaid annuity, arizona medicaid annuity regulations, connecticut medicaid's treatment of annuities.

Medicaid Annuity - Objective Planning Advice for the Medicaid Annuity

Discover the Medicaid Annuity as an asset protection tool.

A Medicaid annuity is the term given to the process of using an immediate annuity to help protect assets against expected costs of nursing homes and healthcare charges.

Since Medicaid won't pay for nursing home care if you have liquid assets of more than $2,000, many individuals are using a technique known as Medicaid annuity to protect their assets. An individual effectively transfers all of their wealth to a third party insurance company to purchase an immediate annuity, which in return guarantees the Medicaid annuity owner a fixed monthly income for life.

While a handful of states disapprove and prevent this technique through look back clauses that identify spend down strategies, most states have a similar policy towards the Medicaid annuity. The basic requirements to qualify include that the annuity contract must be irrevocable, nontransferable, actuarially sound, and include equal payments over the lifetime of the annuitant without a benefactor or balloon payment upon death.

For many individuals that have accumulated up to $200,000 in retirement savings, the cost of nursing home care can be devastating over a very short period of time. In the absence of long term care insurance, many individuals in the past have been advised to impoverish themselves to qualify for Medicaid assistance. This can leave the remaining spouse with financial difficulties in the future.

Depending on your income, state regulations, net worth and retirement objectives, the Medicaid annuity could be an ideal tool for you. To learn more information about medicaid annuity, please visit Annuities Institute.

Arizona Considers Medicaid Annuity Regulations Invalidated By New Jersey

As Medicaid costs consume ever-larger portions of state budgets around the country, states are becoming more aggressive in their attempts to curtail what they might see as abuses of the Medicaid eligibility process. A primary target of attacks in Arizona and elsewhere has been the use of annuities in Medicaid planning. Last month two New Jersey courts made clear that federal law permits most of the practices challenged by the states.

The case of F.K. (the court uses only initials) demonstrates the most common approach to the use of annuities. F.K.’s wife, no longer able to care for him, placed him in a local nursing home. She could not get Medicaid assistance with his care immediately because the couple owned assets of about $300,000, well over the limit for eligibility. Still, she could not afford to pay for his care with their combined incomes.

F.K.’s wife attempted to solve the problem by purchasing a single-premium immediate annuity for $273,538. With the medicaid annuity in place she would receive a monthly check—but the original principal would no longer be available to her and would not prevent F.K. from qualifying for Medicaid. Because New Jersey had already served notice that it intended to attack annuity planning, Mrs. F.K. even took the extra step of naming the state as beneficiary of the annuity if she should die before it finished making payments to her.

The trouble with that plan was that when New Jersey finally acted a few months later the state simply chose to ignore annuities. It announced that the purchase price would still be treated as available despite the fact that it simply was not. The Appellate Division of the New Jersey Superior Court (the state’s court of appeals) shot that theory—and New Jersey’s ill-fated regulation—down in straightforward language. Estate of F.K. v. Division of Medical Assistance and Health Services, January 4, 2005.

Just two weeks later three different judges from the same court also invalidated New Jersey’s attempt to require that the state be named as beneficiary on annuities. In the second case, involving a similar annuity purchased by a husband to secure eligibility for his wife, the second appellate court ruled that federal law simply does not permit the state to require that it be named as beneficiary. A.B. v. Division of Medical Assistance and Health Services, January 21, 2005.

The two New Jersey cases come down at the very moment that Arizona’s Medicaid program, ALTCS, is seeking similar rules from the Arizona legislature. Senate Bill 1161, introduced by Senator Carolyn Allen and assigned to the House Health Committee she chairs, would closely follow several of the objectionable provisions of the New Jersey regulations. If adopted, the state faces certain litigation and likely failure in an expensive attempt to cut Medicaid costs. For more information about medicaid annuity please visit Elder Law Issues.

Connecticut Medicaid's Treatment of Annuities

These rules apply to Annuities owned by the Medicaid Applicant or their Spouse and are applied on a case-by-case basis by Attorneys and Eligibility Workers for Connecticut’s Medicaid Program. Annuities will be treated as an asset or as income, as described below.

Annuity is treated as an ASSETAnnuity is treated as an ASSET

1. Redeem it for Cash – After the annuity has been purchased but before it is annuitized;
2. Sell it on the open market – Attorney’s for CT Medicaid program will determine if annuity is Assignable, and if so, it’s fair market value;
3. Treat it as a Transfer of Assets – When not Assignable, Eligibility Workers for CT’s Medicaid program will determine whether the transfer was made to qualify for Medicaid. CT does not use the same "actuarially sound" rules that some other states use. For example, CT does not rely solely on Social Security’s Life Expectancy Tables. In fact, when the applicant is the annuitant, the Table is generally not used, but rather the actual medical prognosis is used to determine how long the applicant is expected to live. Factors include: age and health prognosis of the transferor, the actuarial soundness of the investment, the timing of the transfer in relation to periods of institutionalization and applications for assistance, potential beneficiaries, and amount of the community spouse’s other income and assets.
4. Impose Penalty Period – If the creation of the medicaid annuity is determined to be an improper transfer (the individual must prove to Medicaid that the entire transfer was made exclusively for some other purpose besides gaining access to Medicaid assistance), a penalty period is assessed based on its Uncompensated Value. The Uncompensated Value is the difference between the value of any assets used to create the medicaid annuity and the amount it can be sold on the open market, less any Compensation actually received by the annuitant. Note, that Compensation is limited to return of principal, it does not include interest, dividends or other such return on investment.

Annuity is treated as INCOME Annuity is treated as INCOME

All income generated by the annuity is considered available to pay for the annuitant’s care. The only exceptions are:

1. The monthly Personal Needs Allowance for nursing home care which is currently $57, (higher amount for home care) and
2. Allowance for private medical insurance premiums
3. Income diverted to a community spouse (spouse at home) as allowed under Medicaid. The spouse at home is allowed to have monthly income (from all sources, including distributions from an annuity) between $1,561.25 and $2,377.50. Additional amounts can be granted on a case-by-case basis through a Fair Hearing.
   Note: An asset transfer penalty may be imposed if the annuity payments cause the total income to go above the appropriate limit.
   
   Recovery of Medicaid Payments: Medicaid payments are considered a loan from the State and must be repaid, if possible, at time of death. Connecticut’s Medicaid program is required to recover any unprotected Assets*, (including any principal left from the Annuity); up to the amount of Medicaid payments, going through Probate. The State is the first creditor to be paid by the estate. *Assets protected under the Connecticut Partnership for Long-Term Care program are not subject to Medicaid recovery.

For more information about medicaid annuity please visit Connecticut State Office of Policy and Management.