Medicaid Annuities

San Antonio Express-News August 7, 2007 Medicaid Annuities copyright 2007, Paul Premack
Dear Mr. Premack: Under what circumstances and policy provisions, if any, is a single-premium deferred annuity owned by a married person a "non-countable" asset for Texas Medicaid eligibility purposes? Thank you. – MM There is much history behind annuities as they relate to Medicaid law. In broad terms, annuities are an insurance product that can be used for long-term investment purposes or to create a monthly cash flow for the purchaser. In a "deferred annuity" interest is accumulated so that the annuity’s value will grow. Withdrawals are made only when the contract matures (if taken too early there may be a penalty), or when the annuitant dies. In an "immediate annuity" routine payments are made to the annuitant, consisting in part of return of the invested funds and in part of interest earned. The type of Medicaid you are asking about is the public benefit program helping the elder and disabled pay for long-term care. To qualify for Medicaid, a person must meet several standards, one of which is that the person’s countable assets cannot exceed $2000. Some assets are classified as “non-countable” – that is, their value does not count against the $2000 limit. A person’s homestead is non-countable up to $500,000 in value so long as that person has the intention of returning to it upon release from institutional care. When a Medicaid applicant is married, the at-home spouse is also allowed by law to keep half of the countable resources up to $101,640. All deferred annuities are countable resources. So for an unmarried applicant, a deferred annuity that has value over $2000 will keep the applicant from qualifying for benefits. For a married applicant, if the deferred annuity fits into the at-home spouse’s allowance, the at-home spouse can keep it. Any part of it that cannot fit into the spousal allowance will keep the applicant from qualifying for benefits. For example, if the couple’s countable resources total $100,000 – part of which is a $30,000 deferred annuity – then the at-home spouse’s allowance is half of $100,000. That $50,000 half could include the $30,000 deferred annuity plus $20,000 from other sources. On the other hand, if the deferred annuity was $60,000 then it exceeds the $50,000 allowance by $10,000; that excess would have to be spent down to $2000 before Medicaid would be approved. For several years, and most recently since the laws were again tightened in early 2006, immediate annuities have also been counted as resources unless the annuity is 1) irrevocable, 2) paid out in equal monthly installments, 3) paid out entirely within the applicant’s statistical life expectancy, and 4) repays the state for its Medicaid expenditures except for payments made to the applicant’s spouse. If it meets those restrictions, then the immediate annuity is not a resource. If it does not meet those requirements, it gets the same treatment as a deferred annuity. When an immediate annuity meets those requirements (so is not a countable resource) the payments made from it on a monthly basis are countable income. If the applicant’s income exceeds $1,869 per month, the patient may be disqualified from Medicaid. If the annuity payments are made to the applicant’s spouse, the payments when cumulated with all the other income the couple has cannot be retained when the income exceeds $2,541 per month. The rules require that payments from an immediate annuity be made in equal amounts each month over the projected lifetime of the patient, which may be only a handful of years. The monthly payments could, then, be fairly sizeable – which makes it more likely that the income limits will be surpassed. Immediate annuities with all the required restrictions are rarely practical as a Medicaid planning tool unless the applicant is married and they both have fairly low monthly incomes from other sources.
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