A Medicaid Compliant Annuity is not your typical annuity contract. When properly used a Medicaid Compliant Annuity can help an individual gain immediate Medicaid eligibility. These are specialized annuities normally used during crisis planning as a Medicaid spend-down tool and can help diminish the stringent five-year look back period provision.
First lets begin with Medicaid’s eligibility requirements. Applicants must meet certain non-financial and financial criteria, including asset and income parameters that vary based on their state of residence and marital status. While applicants are allowed to keep unlimited exempt assets, their countable assets must be under a certain limit.
Medicaid Eligibility Requirements:
- Applicant must be 65 years of age or older or disabled
- Must be a U.S. citizen or qualified alien
- Applicant must be residing in a Medicaid-approved facility – typically a skilled nursing home (some states offer waiver programs that extend benefits to include assisted living facilities or at-home care)
- Have less than $2,000 of countable assets in their personal name (amount varies by state)
Having too many countable assets is the primary reason most people don’t qualify for Medicaid. The Medicaid asset restrictions often require applicants to spend down thousands of dollars. Purchasing a Medicaid Compliant Annuity allows them to accomplish this in a quick and efficient way.
A Medicaid Compliant Annuity may be right for you, if you’re: currently residing in a nursing home or have a spouse that is; have exhausted Medicare and any Long-Term Care benefits; pay out of pocket for care; have to many countable assets to qualify for Medicaid.
Medicaid Compliant Annuity:
A Medicaid Compliant Annuity (MCA) is a Single Premium Immediate Annuity (SPIA) that meets the requirements outlined in the Deficit Reduction Act of 2005 (DRA). MCAs are ideal for those who are in a nursing home indefinitely, are paying out of pocket for care, and have excess countable assets. An MCA can be used as a spend-down tool in crisis Medicaid planning as it converts excess countable assets into an income stream that has zero cash value.
The specific plan for using an MCA can vary greatly depending on marital status, state of residence, and other factors. Here are some situations where they have been successfully used:
Married Couple– the MCA can be purchased by either the community spouse or institutionalized spouse using excess countable liquid assets. Either way, the institutionalized spouse gains immediate Medicaid eligibility following the purchase of the annuity.
Single Individual– a single person has two options: They can gift a portion of their countable assets to children and use a MCA with the remaining assets to help pay for care during the penalty period. Or invest the full amount of their liquid assets into the MCA and name the beneficiary.
Although the state Medicaid agency is typically named primary beneficiary, exceptions exist for certain MCA cases. Other beneficiaries may include family members or a trust.
In order for an annuity to be considered Medicaid compliant the following requirements must be met:
- Be Irrevocable- payment amount, term, and parties to the annuity contract cannot be altered.
- Be Non-Assignable- the annuity contract cannot be assigned to another party or sold on the secondary market.
- Be Actuarially Sound- term of the annuity must be equal to or shorter than the owner’s Medicaid life expectancy, which is determined by life expectancy tables.
- Provide Equal Payments- annuity contract must provide equal monthly payments with no deferral or balloon payments.
- Name the state Medicaid agency as beneficiary- the state Medicaid agency must be named primary death beneficiary to the extent of benefits paid on behalf of the nursing home resident. Exceptions to this rule vary by state but may apply in certain cases involving a married couple or a minor or disabled child.
An MCA can be funded with either non-qualified or tax-qualified funds. The minimum investment amount is $5,000, and the minimum term length available is two months. Here are some ways to fund a MCA:
Personal Savings– personal checking & savings, money market accounts, and any other liquid cash account proceeds can be used to purchase a MCA.
IRA– proceeds from current retirement accounts can be transferred to fund a MCA. Benefits received will be taxed as payments from the IRA-MCA are made to the payee within each calendar year.
Cash Value Life Insurance– cash value built-up within an active whole life or universal life insurance policy can be used to fund a MCA. A Section 1035 Tax-Free Exchange can be utilized in most cases.
Annuities– current annuity policies in place can be used to fund a Medicaid Compliant Annuity (MCA). A Section 1035 Tax-Free Exchange would allow you to avoid the immediate tax consequences of liquidating the account. Rather, the gain is taxed as payments are made over the term of the MCA.
If you currently own a pre-existing annuity, we offer complimentary annuity valuation services. We will analyze your preexisting annuity to determine whether it is Medicaid compliant, if it is not, we will perform a valuation process to determine its fair market value and can sell it on the secondary market for you.
How We Can Help?
Our priority is not just to help you qualify for Medicaid benefits—it is also to achieve the best possible result for you and your family given the circumstances of your situation. Creating a MCA strategy is not a one-size-fits-all plan, and neither is choosing a Medicaid advisor to work with.
Our trusted advisors specialize in Medicaid asset protection. This combined with our exclusive carrier products our clients can be sure they’re working with a knowledgable advisor to assist them through the MCA process.
Contact us today to speak with one of our licensed advisors to see how a Medicaid Compliant Annuity might fit into your planning.