Medicaid Qualified Annuity Examples
Here you can read examples of how people can use Medicaid Qualified Annuities to:
- preserve assets for a community spouse or family members
- create in income stream for a community spouse
- reduce monthly pay rates using Medicaid Qualified Annuities
The first 3 are examples of how single individuals used Medicaid Qualified Annuities to save money and preserve their assets for their families. Example #4 is a married couple who preserved assets and created enough of an income for the spouse to continue living at home.
Medicaid Annuities used to Qualify for Medicaid fast and reduce monthly nursing home costs
How John passed over $55,000 to his family
John is single, 85 years old and entering a particular nursing home located in King of Prussia, PA. He has $100,000 in excess resources and an income of $1,950/mo. This nursing home has a private pay rate of $376 per day for a semi-private room and $186 for a Medicaid pay rate for the same room.
John uses the $100,000 in excess resources to purchase a 4 year Medicaid Qualified Annuity. John becomes immediately qualified for Medicaid and pays the Medicaid rate for his care. John will save $200/day paying the Medicaid rate. That’s a savings of almost $6,000 per month.
Johns' monthly pay rate is now $5,657. with his $1,950/mo income and his monthly income from his annuity, Medicaid only pays a monthly benefit of $1,500.
John passes away 12 months later. His balance in the annuity is $73,904. Medicaid is the first beneficiary and recoups their benefit payout of $18,000,
Johns' family will receive the balance of $55,904
If John had not purchased the annuity, his $100,000 would have only paid his nursing home costs for 8.5 months... Leaving his estate still owing the nursing home $40,530
With the annuity – his family will receive $55,904 Without the annuity - Owe $40,530 to the nursing home
Annuities used for Asset Protection Purposes
How Bill protected $100,000 with Asset Protection Strategies using a Medicaid Qualified Annuity
Medicaid annuities can be purchased for Asset Protection purposes and will cover an ineligibility period caused by “gifting” which is transferring funds or giving money or assets to family members [transferring funds for less than “fair market value’ triggers a penalty period or ineligibility period].
Bill, who is single and 80 years old, has to enter a nursing home in PA. His resources include $100,000 in stock, $90,000 in cash and an income of $1,800/month. Bill wants to be sure his $100,000 in stock is given to his family and not used for nursing home costs. Therefore, Bill creates an irrevocable trust and transfers his stock to his family, creating an ineligibility period of 11.4 months [$100,000 divided by the penalty divisor rate for PA. of $8766.39/month for “gifting”]. He uses his cash of $90,000 to purchase a short term Medicaid Qualified Annuity for 12 months giving him a monthly income of $7,560. He is immediately qualified for Medicaid and with the annuity income and his personal income, Bill has enough to pay the nursing home for the 11.4 month period until his Medicaid benefits begin to pay the full amount of his nursing home costs. Bill has prevented his $100,000 of stock from being used for nursing home costs, secured his Medicaid eligibility and created a very nice gift for his family.
Annuities purchased for Wealth Transfer purposes
How Eleanor Saved over $61,000
Medicaid Qualified Annuities can also be used for Wealth Transfer purposes. See how Eleanor and her family saved $69,405 from the nursing home
Eleanor is a single 85 year old lady entering a nursing home in PA. Her assets are;
1. Income of $1,050/month
2. Non IRA savings of $136,900
3. Minimal personal property
4. A funeral trust of $6,000
Her private pay rate at the nursing home is $8,100 and the Medicaid rate is $4,500
Step 1 – determine the spend down amount – Eleanor is allowed to keep;
1. Her personal property
2. Her funeral trust
3. $8,000 of her savings [2,0000 + 6,000 disregard due to her income]
Then calculate the spend down amount – subtract the amount she can keep [$8,000] from her savings of $136,900 = $128,900
Step 2 – purchase a Medicaid Qualified Annuity to eliminate the spend-down amount or [excess resources].
Investment amount Period Certain Monthly Payout Total Payout
$128,900 67 months $2,019. $135,273.
At age 85, Eleanor is expected to live 5.7 years according to the Social Security actuary table, this is what sets the Period Certain time frame.
At this point Eleanor is now immediately qualified for Medicaid and no longer has to be concerned about paying the high nursing home costs.
Step 3 - determine what her co-pay will be – add her income of $1,050 to her annuity income of $2,019 = $3,069. and subtract her personal needs allowance of $45, her co-pay amount is $3,024. This is the amount she will pay to the nursing home each month towards her care.
Step 4 – when Eleanor passes [Eleanor passed 12 months after entering the nursing home], you can now repay the state for her Medicaid benefits [they are first beneficiaries of the annuity balance].
The monthly Medicaid rate was $4,500 subtract that from her co-pay of $3,024 = $1,476. Multiply that by 12 months of care = $17,712. That’s the amount she will owe the state for her care.
Step 5 – determine the wealth transfer amount – take the total amount paid from the annuity [$2,019. x 12] =$24,228. Subtract that from the total payout of the annuity –which is $135,273 = $111,045. Subtract the amount paid from Medicaid for her care [$17,712] from the balance of $111,045 = $93,333. That is the amount that her beneficiaries will receive from the annuity.
Eleanor’s wealth transfer at her time of passing will be $93,333
If Eleanor had not purchased the annuity and paid directly from her savings she would have been paying the full private pay rate each month[$8,100] not the Medicaid rate and would have only been able to transfer $31,700 - her beneficiaries saved $61,633
Annuities used as an alternative to the income first rule
How Frank and Sarah saved $100,000 and prevented Sarah from having an inadequate income after he passed
Since the “income first” rule can leave the community spouse impoverished when the Medicaid recipient dies, Frank used a Medicaid Qualified Annuity to ensure his wife would have an adequate income after he passed.
Frank was an 80 year old man and entered a nursing home in PA. He and his wife Sarah [age 82] had excess resources of $100,000, he had a monthly income of $1,700, she had an income of $900. She was permitted to have a MMNA of $2,300 due to her monthly expense needs. Under the Medicaid rules they could have used Franks income to cover the $1,400 shortfall. However, using the income first rule would not help Sarah after Frank passed, she would again be looking at a shortfall of needed monthly income. To ensure his wife had enough income for her needs, he purchased a Medicaid Qualified Annuity for $100,000 which would give Sarah an additional income of $1,296 per month for 7 years [her life expectancy based on SS tables].
After the purchase Frank became immediately qualified for Medicaid and this gave Sarah the income she needed now and after Frank passed.