Medicaid (a/k/a MassHealth) is a state and federally funded program that pays medical and long-term care expenses for people who meet the eligibility criteria of the program. While there are many programs available to individuals living in the community, the primary reason that clients consult with me about Medicaid is for payment of long-term nursing home costs.
The application process for long-term care Medicaid benefits is often long and difficult, and the eligibility rules are complicated. One of the most misunderstood aspects of the eligibility rules concerns annuities. Many clients tell me that they have been advised that annuities are not countable for Medicaid eligibility purposes. In general that is not true – annuities are countable when determining Medicaid eligibility. However, there is a germ of truth in that statement because an annuity can be a good planning tool for a married couple when one spouse needs long-term nursing home care.
An annuity is a complex financial product but for long-term care Medicaid eligibility purposes, we focus on whether it is a ‘deferred’ annuity or an ‘immediate’ annuity.
With a deferred annuity, an individual invests a lump sum of money in an annuity contract with the plan to leave the funds untouched for some period of time. The invested funds grow income tax free so long as there are no withdrawals from the annuity. The funds are available to the owner of the annuity at any time, although there may be a penalty if the funds are withdrawn too soon.
With an immediate annuity, an individual invests a lump sum of money in an annuity and the financial institution pays a guaranteed stream of income to the owner for a set period of time. For example, if I invested $50,000 in an immediate annuity with a term of 5 years, then I would receive about $850 every month for the next 60 months.
For Medicaid eligibility purposes, a deferred annuity is a countable asset. That means that if either spouse owns a deferred annuity, the lump sum value of that annuity is considered as an asset in determining Medicaid eligibility. (The eligibility threshold for a single person is $2,000 of countable assets; a spouse living in the community may keep an additional $119,220 of countable assets in 2015.)
If you have an immediate annuity and you are applying for long-term Medicaid benefits, the annuity is not a countable asset but the monthly payment you receive from the annuity will have to be paid to the nursing home. For example, if I have $2,000 in the bank and no other assets, and I receive $4,000 per month from an immediate annuity, I will be eligible for Medicaid benefits to pay for my nursing home care. However, I will be required to give the nursing home my $4,000 annuity payment each month to be used towards the cost of my care.
Conversely, a spouse of a nursing home resident who is living in the community does not need to pay her income to the nursing home for the care of her spouse. So in my above example, if the spouse in the community is the one receiving the $4,000 per month annuity payment, she would not need to pay that to the nursing home. That is why an immediate annuity can be a good planning tool for a married couple where one spouse needs nursing home care.
These rules are complex and there are many factors which affect a person’s eligibility for Medicaid benefits. If you have questions about Medicaid eligibility, don’t rely on the advice of your neighbor, your brother-in-law, or even your financial advisor – consult with an experienced elder law attorney to get the right advice for your situation.
June 2015