A standard, open-market annuity might ruin your Medicaid exemption because Medicaid treats it as a countable asset with accessible cash value. To obtain Medicaid eligibility while owning an annuity, it must be a Medicaid compliant annuity.
An annuity is a contract between you and an insurance company, wherein you invest money and the insurer guarantees you a regular income stream of monthly payments. This can either be for a set period or for the rest of your life. Annuities are often used by seniors to provide income during their retirement.
However, most standard types of annuities do not meet the strict Medicaid rules for exempt assets. One problem is that standard annuities often allow the annuitant to cash out the policy, withdraw a lump sum payout, or sell the contract. Medicaid rules dictate that if an asset can be liquidated or sold, that asset must be counted towards the maximum resource limit. Another problem is that many standard annuities allow the contract to be altered, changed, or cancelled altogether. For an annuity to meet Medicaid’s rules, it must be irrevocable and non-assignable.
A third problem is that standard annuities may offer long-term deferrals, balloon payments at the end of a term, or terms that outlast your statistically calculated life expectancy. A Medicaid annuity cannot be a deferred annuity, it must begin immediately after purchase, and the payout period of the annuity must be actuarially sound, and mathematically expected to return your entire investment within your exact Medicaid life expectancy. Finally, many standard annuities name a spouse, child, or other loved one as the remainder beneficiary. A Medicaid-compliant annuity must name the state Medicaid agency as the primary remainder beneficiary, up to the exact amount that Medicaid paid for the annuitant’s long-term care.
Medicaid-compliant annuities are most commonly used by married couples in a scenario called crisis planning. The spouse who needs nursing home care will purchase a Single Premium Immediate Annuity, effectively creating a spend down to receive Medicaid benefits. The community spouse receives the monthly income, which protects them from impoverishment. The need for a Medicaid compliant annuity can be avoided by advance Medicaid planning by an estate planning or elder law attorney.