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Is a Medicaid Annuity a Good Idea?

Is a Medicaid Annuity a Good Idea
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For couples who face depleting their own assets, using a Medicaid-compliant annuity could be a way to preserve assets and still qualify for Medicaid.

What happens when one spouse needs nursing home care? Medicare typically does not cover long-term care. The current median monthly cost of a private room at a nursing home is about $8,000, according to the recent article “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care” from CNBC. For people with limited assets and income, Medicaid will pay.

However, what about families who have some assets but are not wealthy enough to be able to pay for their care without leaving the healthy spouse impoverished? It is a common situation that requires advanced planning. Elder law attorneys work with families to determine what options are available.

For some families, spending down assets by paying off debt or making purchases to qualify is one way. For others, buying a Medicaid Compliant Immediate Annuity is another. A Medicaid Compliant Immediate Annuity allows the couple to convert countable assets for Medicaid purposes into an income stream for the healthy spouse.

Medicaid Compliant Annuities are complex financial instruments and are not for everyone. They are often used in a crisis situation when there are no other options.

Medicaid has a five-year look-back period in most states. The program reviews all assets and transactions from the prior five years to make sure assets were not transferred out of ownership solely so the person can qualify for Medicaid.

All assets are counted, whether owned by the ill spouse or the healthy spouse. The limits on assets, including cash, investments, and bank accounts, vary slightly by state. However, they can be as low as $2,000. An experienced elder law attorney helps to navigate this process.

For a married couple, the healthy spouse may have up to $137,400 in total assets in some states. Anything above that is considered available to use for long-term care. Some states have income limits, while others do not count the healthy spouse’s income.

Based on their life expectancy, if a couple has $100,000 above the state’s asset cap, they can purchase an annuity payable to the healthy spouse. For the annuity to be Medicaid compliant, it must meet several requirements. The state has to be named the remainder beneficiary for at least the amount Medicaid paid for the sick spouse’s nursing home care. The annuity must be immediate, meaning the income stream begins immediately, and it must be irrevocable.

The state runs Medicaid programs, so each state has its own rules, asset limits, etc. A detailed conversation with a local elder law attorney with experience with Medicaid will be necessary. Some states do not allow the use of annuities for Medicaid planning.

Reference: CNBC (Jan. 26, 2022) “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care.”