Medicaid Annuity
To illustrate how a Medicaid annuity works, assume a typical fact pattern in which a husband and wife live together and one of them needs long-term nursing home care.
That spouse is commonly referred to as the "institutional spouse." The healthy spouse is called the "community spouse." We'll assume the institutional spouse's medical condition qualifies him or her for Medicaid. So, the only issue is whether they will financially qualify for Medicaid.
OK, so what are the rules in this situation?
Well, the key concept to understand is that the government has an interest in making sure the community spouse can support him or her self.
So, as long as the community spouse continues to live in the couple's home, he or she can keep the house and the car and those assets will not be considered for purposes of qualifying the institutional spouse for Medicaid.
But, the institutional spouse is expected to "spend down" half of his or her non-exempt assets that have a value above $2,000.
So, suppose the couple owns $200,000 in stocks, bonds and other cash assets? Well, the institutional spouse would normally be considered to own half ($100,000) of those assets and must spend them down to under $2,000 before Medicaid will start paying for the nursing home.
BUT – there is an important exception to this rule.
If that $100,000 is spent to purchase an annuity payable to the community spouse (with a payout term equal to or less than his or her life expectancy) and names the government as the contingent beneficiary of any remainder payment (if he or she dies before all payments are made) – then that $100,000 is not considered a “countable resource.”
This is what is commonly referred to as a Medicaid annuity.
So, in summary, the community spouse is able to keep the house, car, his or her $100,000 in cash AND collect an annuity equivalent to the value of the institutional spouse's $100,000.
Maybe not such a bad deal after all!
Now, the example above is obviously only one hypothetical Medicaid annuity example. It does not address:
- what happens if the community spouse later needs Medicaid coverage
- what is a countable resource or asset
- whether the state will collect any excess Medicaid annuity payments or file a lien on the house or car upon the second spouse's admission to a nursing home or death
- the situation of how a single person can protect his or her assets and still qualify for Medicaid (more difficult, but can be done)
Suffice it to say that Medicaid annuities are a complicated subject. Indeed, the whole area of Medicaid estate planning is complex. The rules change often and vary from state to state.
In fact, each state has specific language that must be in a Medicaid annuity for it to qualify. Some states do not allow Medicaid annuities at all. Well, they allow them, but they remain a countable resource or asset.
But, please never assume there is nothing you can do to protect your assets. There are almost always legal alternatives to save at least some of your assets.
It is better, of course, if you plan it out in advance. But, even if you or your parent or other loved one is already in the nursing home -- there may well still be things that can be done.
Do not rely on what friends, or nursing home staff, or even a Medicaid caseworker to advise you.
You need to talk to someone who is knowledgeable and experienced in how Medicaid really works. Even most attorneys are not qualified to advise you about how to protect your assets from Medicaid.
The information above is only meant to give you some ideas about what might be possible in your situation. It is not legal advice. There are many different ways you could preserve your assets in the event you need long-term care.
If you are interested in Medicaid annuities or other ways to protect your assets and still qualify for Medicare (and everyone should be) – you really must discuss these issues with an experienced and knowledgeable elder law or estate planning attorney in your state.
If you need help finding someone who knows what they are talking about (when it comes to Medicaid qualification), let us know by using our Contact Us form and we'll try to point you in the right direction.
You would also benefit from reading one (or more) of these books about medicaid planning and/or protecting your assets from the nursing home:
Have you heard about a "Medicaid Trust?" If interested, go from
Medicaid Annuity to Medicaid Trust
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