Using Annuities to Qualify for Medicaid

2 Comments

An annuity is an insurance product that pays out income. Annuities are a popular choice for investors who want to receive a steady income stream in retirement, particularly for senior parents when the time comes to move to an assisted living community or nursing home.

Here's how an annuity works: you make an investment in the annuity, and then the insurance provider will return your payment and agree to give you either a constant stream of income (monthly, quarterly, annually) or a one-time financial payout at a pre-designated time in the future (usually after you retire from the workforce). Before considering an annuity, research it thoroughly first, to decide whether it's an appropriate investment.

How Annuities Qualify Seniors for Medicaid

Some elders use annuities as a non-countable asset in order to qualify for Medicaid. Here is how it works.

An annuity can be private (made between a senior and a family member) or commercial (made with an insurance company). Medicaid only allows commercial annuities. In order to be approved for Medicaid purposes, this type of annuity must be fixed (all monthly payments the same), irrevocable (once signed, it cannot be revoked or changed), un-assignable (it cannot be sold or transferred to anyone else), and immediate (payments must start right away).

Here's an example: According to the Medicaid rules, a male age 70 has a life expectancy of 12.8 years. Accordingly, he cannot purchase an annuity with a guarantee period that exceeds 12.8 years without causing a period of disqualification from Medicaid. So let's stick with 12.8 years. Because he is guaranteed payments for the longer of his life expectancy or 12.8 years, the monthly payments will be lower. In this example, they drop from $400 to $354 per month.

But what if you died unexpectedly after two years? The annuity payments would stop. Most people do not like that, and therefore will typically purchase the annuity with a "guarantee period" of a certain number of years.

According to the Medicaid rules, a male age 70 has a life expectancy of 12.8 years. You cannot purchase an annuity with a guarantee period that exceeds 12.8 years. If you do, there will be a period of disqualification from Medicaid. So let's stick with 12.8 years. Because you are guaranteed payments for the longer of your life expectancy or 12.8 years, the monthly payments will be lower. In this example, they drop from $400 to $354 per month.

So why would anyone do this? What if a senior parent was in a nursing home and has $50,000 too much in the bank? He or she 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 in 2006, the state has to be named as the beneficiary of the annuity up to the amount of Medicaid benefits it paid on the senior's behalf, during his or her lifetime.

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 assisted living or 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.

For assistance with using annuities to pay for long-term care and deciding if they are right for you, speak with an elder law attorney who has specific expertise in Medicaid planning.

K. Gabriel Heiser is an attorney with over 25 years of experience in elder law and estate planning. He is the author of "How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets," an annually updated practical guide for the layperson.

Visit Medicaid Secrets

View full profile

You May Also Like

Free AgingCare Guides

Get the latest care advice and articles delivered to your inbox!

2 Comments

I am new to this but getting educated very fast since I had to put my mom in a nursing home, luckily she doesn't have much, and when I say much I mean she basically has nothing besides a Mobile worth 30.000 thousand if she's lucky and a insurance policy that is worth 5,000 as of today and that is over the limit in R.I.. I was short by 43 days to owning the home for 5 years and DHS is attempting to put a lien on it but there are exemption and one is if you took care of your parent for more the 2 years and if it kept her from going into a nursing home you are okay and they will not attack like piranhas!!! That is what I am going through now, as far as the 5,000 I will not take it out BUT I have to give DHS 1,600 dollars so he will not be over the limit since if she passes I get 7,500 so it would be stupid to take it out rather then pay the 1,600. My mom only get 1,275.00 per month and that's it!!! so if you look at her total income it's basically poverty BUT the mobile home is the issue which I hope to settle soon since I promised my mom she would have aplace to come home to if needed since I haven't told her about whats happening since she would get sick, shes had two break downs already and suffers from dementia, its sad when someone works there whole life and has to be put through this and if you have NOTHING you will be fine, That's our government and it SUCKS so good luck to all of you going through this, I have a lawyer thank god since the forms and what they ask for is EVERYTHING besides DNA! have a great day!!!!
Mom in nursing home but long transfer penalties to wait for medicaid. ..can u do this annuity to help pay for nursing home during penalty period?