Medicaid and Annuities (Part 2)

       In last week’s blog, I started to tell you about annuities and how unique they are when we are considering Medicaid.  In order to achieve Medicaid eligibility, I must spend down my assets to below $2000 (married couple rules permit assets up to, in some cases, $120,900).

       Remember that an annuity in its basic form involves taking an asset and turning it into a stream of income.  Is it possible, then, that an annuity is not an asset for Medicaid purposes, but instead is really income?  If true the annuity would not need to be spent down.  The answer, as with much surrounding Medicaid is sometimes yes and sometimes no.

       There are Medicaid regulations that address the question and provide that certain types of annuities are in fact treated as income and not assets.  They are commonly referred to as Medicaid compliant annuity.  The requirements are that the annuity must be an immediate annuity.  It must also be noncancelable, nonassignable and actuarially sound.

       Let’s break it down.  Remember from last week that an annuity can be immediate or deferred.  If I buy an annuity from the insurance company for $100,000 and under the terms of that contract I immediately begin receiving monthly payments from the company, that is an immediate annuity.  If I purchase a deferred annuity that means I don’t start receiving monthly payments until sometime in the future.  Deferred annuities are treated as assets by Medicaid.

       A Medicaid compliant annuity must be noncancelable and nonassignable.  In other words, it must be one that can’t be converted from income back to an asset.  I can’t cancel it and get my original investment back and I can’t sell it to someone for a lump sum and assign the future payments to that person.  If I could, then the State of New Jersey would tell me to sell the annuity and take the money from the sale and spend it down first before it will agree to pay for my care.

       The annuity must also be actuarially sound.  That means that if I am 80 years old, I can’t buy an immediate annuity that pays out over 20 years.  The term of the annuity must be no longer than the life expectancy of an 80 year old.  This raises the monthly payment and causes the annuity to be paid out faster which is what the State wants me to do.

       One other word about commercial vs. private annuities.  While private annuities should be permitted under the federal Medicaid regulations as written – at least as long as they are Medicaid compliant as I have stated above – New Jersey rejects them and will deny any Medicaid application where the applicant has entered into a private annuity contract.  That annuity will be treated as an asset subject to Medicaid spend down rules.

       As you can see, annuities are tricky when it comes to Medicaid.  They can be a good option for some and not for others.  It depends on the particular facts and variables.  It is also important when considering this option to work with someone, such as an elder law attorney, who has experience both with annuities and Medicaid regulations.