What Is A Medicaid Compliant Annuity?
A Medicaid compliant annuity is a single premium immediate annuity (SPIA) purchased on or after February 8, 2006, that meets the guidelines described in the Deficit Reduction Act of 2005 (DRA). Because the income from this type of annuity is not considered a countable resource, purchasing a Medicaid compliant annuity may help an individual or a couple, who would otherwise have too many resources, to qualify for Medicaid. Generally, in order to qualify for Medicaid, you must meet your state’s impoverishment rules. Also, if you transfer assets for less than their fair market value, such as through gifts, you may be disqualified from receiving Medicaid benefits for a period of time.
A potential solution.
According to federal law, the purchase of a Medicaid compliant annuity by the applicant or the applicant’s spouse is not deemed a transfer that creates a disqualification period under Medicaid, nor is the income from such an annuity considered a countable resource. The Medicaid compliant annuity may be an individual retirement annuity, or it may be purchased with cash or with proceeds from certain retirement assets, such as an IRA. Also, it must be non-assignable and irrevocable, actuarially sound, provide for benefit payments in equal amounts with no deferred or balloon payments, and name the state Medicaid program as the primary beneficiary (with some exceptions). An annuity is actuarially sound if the original cost of the annuity will be paid within a term equal to or less than the actuarial life expectancy of the annuity owner.
If the state is the primary beneficiary, why purchase an annuity?
When an individual becomes a “Medicaid” patient, the long term care facility is reimbursed at the Medicaid rate. That rate can be significantly lower than the private pay rate. If there are any survivor benefits from the annuity, the state will claim those benefits up to the amount the state paid. If that amount is less than the amount of the survivor benefit, the patient’s survivors receive the balance. If not for the purchase of the annuity, the patient would pay at the higher private rate until “impoverished” and unable to preserve any assets for his or her family.
Although federal law permits the use of Medicaid compliant annuities, some states have taken the position that the income from a Medicaid compliant annuity is a countable resource, and that the purchase of such an annuity is a transfer for less than fair market value resulting in a disqualification period. States differ in their application of annuity rules, so check with an attorney experienced with Medicaid planning before buying a Medicaid compliant annuity.