Should I Get a Medicaid Annuity?

Asking the question “Should I Get a Medicaid Annuity” is a good one. Usually this comes up when someone needs to go into a nursing home or assisted living facility soon or more often right now.

The prospect of going into a nursing home is not only emotionally daunting. For many, it is financially daunting as well. Depending on the situation, you’ll no doubt have to make numerous decisions – all of which have different implications. For example, should I get a Medicaid annuity? Is it your only option? Is it the best option? Keep reading to find out.

Qualifying for Medicaid long-term care benefits

Let us dig in and see should I get a Medicaid annuity further. Here’s the thing. You can’t qualify for Medicaid benefits relevant to nursing home care unless you have substantially limited financial resources or “countable assets.”

For example, most states have an asset limit of $2,000 for an individual senior applicant this year.  You should be aware, however, that in this context  a married couple’s assets are classified as jointly owned. This is the case even when one spouse applies for long-term care Medicaid benefits.

If your  assets exceed the limit imposed by Medicaid,  you must reduce them accordingly.  However, you cannot give them away or sell them for less than fair market value to meet Medicaid’s asset limit. Doing so is a violation of Medicaid’s so-called Look-Back Rule, and you will be temporarily ineligible for Medicaid benefits.

Now let’s talk about income. This year,  most states cap a senior applicant’s allowable income at  $2,742 a month in income. As we will see, this is also an important aspect of any conversation about annuities.

What is a Medicaid annuity?

In answering the question of should I get a Medicaid annuity let’s dig deeper. Generally speaking, an annuity is a financial mechanism that allows you to turn one cash payment into recurring income. Specifically, you can buy an annuity from an insurance company for a set amount, which is then converted into an income stream and returned to you.

Buying a Medicaid annuity (and often paying a high fee in doing so), or Medicaid Compliant Annuity, allows you to reduce your assets without violating Medicaid’s so-called  Look-Back Rule. In other words, you can turn “countable” (non-exempt) assets into “non-countable” (exempt) assets. This is because Medicaid doesn’t count assets toward the asset limit once they have been converted into an income stream. Single Medicaid applicants should keep in mind, however, that  income from an annuity is counted towards Medicaid’s income limit.

To be classified as a Medicaid Compliant Annuity in Florida, the annuity must:

• Be an immediate annuity
• Name the state as the primary beneficiary
• Be irrevocable
• Be for a term less than the annuitant’s life expectancy (as set forth in Medicaid Tables)
• Be non-transferable
• Be payable to the nursing home (for single applicants)

Be aware that deferred annuities are not Medicaid compliant and should not be used for Medicaid planning purposes. These annuities differ from immediate annuities, or Medicaid compliant annuities in that the funds are not converted into an income stream straight away. Instead, the funds remain in the annuity to grow over time. Accordingly, you may not start to get payments for several years – or even longer.  Furthermore, this type of annuity can be revoked, which means investment owner can cancel and withdraw the money in the account whenever they wish. This information clearly answers the “Should I get a Medicaid Annuity” at least in part with don’t buy one now that is a deferred annuitiy for Medicaid purposes.

With all of that being stated, there are methods for converting deferred annuities into Medicaid Compliant annuities if necessary.

Be sure to consult financial and legal professionals before buying an annuity

The bottom line for you or a loved one going into a nursing home is that you shouldn’t feel pressured into getting a Medicaid annuity. This is because these financial tools have significant shortcomings. Among other things, you may find that you are stuck with a low-yielding investment with the rest going to Medicaid. Also some non-attorney Medicaid planners may sell annuities as part of how they profit from their work thus they have a financial interest in what you do that an attorney does not have and by Bar rules can not.

Experts also point out that purchasing a Medicaid annuity is a viable solution in a small percentage of cases so one can not say never should I get a Medicaid annuity. The experts also say there are often other options that are much better for both the applicant and his or her family.

Finally, it is important to note that Medicaid laws, rules, and interpretations are always changing. Therefore, it is crucial that you consult with financial and legal professionals before purchasing a Medicaid annuity.

Want to learn more about Medicaid planning and Elder Law issues? Then take a look at our free ebooks available for download now.

Thinking about hiring an attorney for Medicaid plannng?  You probably need to read now about how Attorney Frazier works with clients.