So why would anyone do this? What if you are in a nursing home and have $50,000 too much in the bank. You could purchase one of these annuities and immediately qualify for Medicaid without having to spend down the $50,000. The $354 will have to be paid to the nursing home each month, and Medicaid will pick up the difference. Under new laws that became effective Feb. 8, 2006, the state will have to be named as the beneficiary of the annuity up to the amount of Medicaid benefits it paid on your behalf, during your lifetime.
If you live to your full life expectancy and then die, the annuity payments will stop, and the state will be unable to receive any reimbursement. But what if you happen to die after 2 years? In that case, the annuity payments will continue for the balance of the guarantee period, but must first go to the state until your Medicaid "bill" is fully paid. After that, if any payments are still to be made, they can pass to your family members.
So if the Medicaid "bill" is for two years of Medicaid coverage, it could easily be in the amount of $96,000 (assumes $4,000/month). Since that exceeds the value of the annuity, the state will receive all of the remaining payments and your family will get nothing.
As you can see, using the entire amount of excess funds to purchase a Medicaid annuity for a single individual rarely makes sense. However, in order to be sure, you simply must "run the numbers": how much money is there to invest in the annuity? What is the age of the nursing home resident? What is the expected life expectancy of the resident? Once you know those factors, you can try different scenarios and see whether or not it makes sense to purchase the annuity. If not, then other Medicaid planning techniques should instead be considered.