How Medicaid Compliant Annuities Work

Basket of Golden Eggs Representing Medicaid Compliant Annuity

If you have needed to consider nursing home care for a family member, you are well aware of how expensive such care can be. Often, Medicaid funds are available to help pay for care, but they typically require the applicant to "spend down" their own assets first in order to qualify for benefits. This may have the effect of impoverishing the spouse who continues to live outside the nursing home, also known as the "community spouse." A Medicaid Compliant Annuity (MCA), also sometimes called a Medicaid Qualified Annuity is an option that can preserve assets for the benefit of the community spouse, while also allowing the spouse who is in the nursing home to qualify for benefits. Let's take a look at how Medicaid Compliant Annuities work.

An Overview of Medicaid Compliant Annuities

There are some assets that are "countable" for purposes of calculating Medicaid eligibility, and others that are not. Countable assets include mutual funds, CDs, stocks, IRAs, qualified retirement plans, and money market accounts. Broadly speaking, a Medicaid Compliant Annuity takes countable assets such as these and converts them into a non-countable asset: an annuity that provides a stream of income for the community spouse.

An MCA is an immediate annuity. An immediate annuity is a long-term contract purchased from an insurance company. In exchange for your lump-sum payment, you receive the right to immediate, regular payments. Immediate annuities are also tax-deferred. While MCAs are available through insurance companies, they are not available through every insurance company, so make sure the company you are dealing with offers this specific type of annuity.

Not all states recognize MCAs, and until fairly recently, Ohio was one of them. A recent court case ruled that MCAs are not an improper transfer of funds, so a community spouse can benefit from an MCA without disrupting the nursing home spouse's eligibility for Medicaid. Because MCAs have only recently become available to Ohio couples, many people, and even many financial planners and attorneys, do not understand what they are and how they work. They are such an important Medicaid planning tool, however, that you should make sure that your elder law attorney is experienced in using MCAs as part of your planning.

What Makes an Annuity Medicaid Compliant?

The stakes are high with the use of annuities in Medicaid Planning. If an annuity is "similar to" a Medicaid Compliant Annuity, but does not comply with all the requirements of an MCA, it will not achieve its intended goal, and your family could lose tens of thousands of dollars in assets, or more. This is why it is so critical to work with professionals experienced with MCAs, and not to be persuaded to purchase a different annuity product.

In order to be Medicaid compliant, an annuity must:

  • Be irrevocable and non-assignable, meaning it cannot be revoked or transferred to a person other than the community spouse.
  • Be actuarially sound, meaning that the owner of the annuity (the community spouse) should receive their investment back within their life expectancy, or a shorter time.
  • Providing for regular payments in equal amounts. No deferral of payments or "balloon" payments are permitted.
  • Name the institutional spouse as primary beneficiary of the annuity upon the death of the community spouse, and the Ohio Department of Medicaid as contingent beneficiary to the extent of Medicaid benefits paid for the institutional spouse.

MCAs can offer great peace of mind to families with one spouse in need of nursing home care and the other remaining in the community. If you are interested in learning more about MCAs, contact an experienced elder law attorney with experience in Medicaid planning who can help you determine if this newly-available option is right for you.

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