Medicaid and Annuities

The Medicaid program's treatment of annuities is one of the biggest sources of confusion for my clients.

So...if you have an annuity and you apply for Medicaid, is that going to be a problem?  The answer is the same as it is for most legal questions:  "It depends".

The current rule regarding annuities, which has been in place since February of 2006, is that an annuity is not a countable asset for Medicaid eligibility purposes if the following requirements are met:

1.  "Actuarilly sound".  In other words, the payment term of the annuity cannot exceed the annuity owner's life expectancy.  Furthermore, the grand total of the annuity's planned payments cannot exceed the cost of the annuity.

2.  Non-transferable.  Pursuant to the annuity contract, the annuity owner must be prohibited from transfering ownership of the annuity to another person.

3.  Irrevocable.  Except for the regular annuity payments, the annuity owner cannot withdraw funds from the annuity.

4.  State as Beneficiary.  Here's the one that my clients find the most frustrating; the State must be the primary beneficiary upon the annuity owner's death, up to the cost of care that the State has provided for the annuity owner.   If there is a spouse or a minor or disabled child, then the State must be the secondary beneficiary.

The State is generally wary of annuities and they will strictly apply this test.  So keep this information in mind if you are a senior and considering the purchase of an annuity.

Comments

[Ericeddler]

If it's the annuity you're worried about, why not just turn it into cash by way of a cash out annuity. A good example of a cash out annuity and why you would get one is Earl's story here: http://www.jgwentworth.com/annuity/annuity-buyer-story/annuity-cash-out-earl.aspx
Hope that helped,
-Eric

[Christie Hartshorn]

Before considering purchasing annuity better have a professional advice from financial experts not all annuities are fit for your lifestyle.

[Giana Forzareli]

Thank you for giving me great talking points for my political science class. We have to create a presentation on the medicaid issue and the new election. I will be able to discuss the types of annuity and create a timeline since this rule was established in 2006. I cant wait to start my project now that I have great resources like this post. Keep up the great work. Thanks.