This type of annuity is used when an individual needs to qualify for Medicaid but has resources over and above the limits permitted by Medicaid guidelines.
Medicaid Qualified Annuities are an essential tool for Medicaid planning, they take excess countable resources and convert them to a stream of income. The income is then passed to the spouse of the individual in the nursing home supplementing their income and preserving the family assets or in the case of a single individual, it can be used to fund the nursing home at a reduced “Medicaid rate” [which is usually up to 55% less than private pay rates] which will allow the funds to last longer. The individual can also “gift” a portion of their resources and use the rest to fund the nursing home temporarily during the “penalty period”. See below and our webpage for more detailed examples.
Medicaid annuities are funded with a single payment, they are immediate annuities, meaning they begin paying an income immediately or within 2 months and they are structured to meet the guidelines set by the Deficit Reduction Act of 2005 section 6012. They are available only through a select few insurance companies and are generally used as Individual and Community Spouse Medicaid Qualified Annuities.
What is the Deficit Reduction Act [DRA]?
The DRA was signed on Feb. 08, 2006 and in part, established new guidelines for Medicaid including the eligibility criteria. Section 6012 particularly refers to the evaluation and treatment of annuities as related to eligibility. It states that in order to not be treated as a transfer, the annuities must meet certain guidelines as stated below;
1. The annuity must be irrevocable and non-assignable
2. The annuity must be actuarially sound, meaning the payment schedule must not exceed the life
expectancy of the annuitant [person receiving the payments].
3. The annuity must provide payments in approximately equal amounts with no deferred or balloon
4. The state agency must be named ass remainder beneficiary;
a. Under the DRA the annuity must name the state as the beneficiary in the first position [from
this, they will recoup the dollar amount of Medicaid benefits paid to the individual only].
Unless there is a community spouse and/or a minor or disabled child.
b. If there is a community spouse and/or a minor or disabled child, the state may be named in
the 2nd position after those individuals.
What are the benefits of a Medicaid Qualified Annuity?
1. Reduce or eliminate the high cost nursing home care with quicker Medicaid qualification.
2. Converting excess countable resources to a non-countable income stream for the community
spouse will accomplishing 2 goals;
a. Preserve assets and prevent them from being used for the high cost of nursing home care.
b. Prevent the community spouse from having insufficient income to pay for daily needs and
3. A single individual can purchase a Medicaid annuity and convert excess resources to an income
stream, immediately qualifying for Medicaid. Then use the income to fund their nursing home
costs at a reduced Medicaid rate [up to 55% less than private pay]. Their funds will then last
longer and there’s a potential to pass along the excess to their beneficiaries.
4. Asset protection for a single individual. The annuity will shelter assets and allow you to pass them
to a family member. Example - "gifting" a portion of excess resources to a family member [this
will trigger a penalty based on the amount gifted], use the remaining [after calculating how much
is be needed to properly fund penalty period] to purchase an annuity which will pay the nursing
home during the penalty period. The assets are sheltered and once the penalty period is over the
individual will immediately qualify for Medicaid, which will pay the full amount of nursing home costs.
Please note: The above examples have been simplified to save space. Click to view more detailed examples of techniques used to save tens or even hundreds of thousands of dollars and help financially qualify the individual for Medicaid.
For more information please visit our website…. www.mymedicaidannuity.com