What’s a Medicaid Annuity?

POSTED ON: February 21, 2022

It’s not uncommon for older couples to reach a point when nursing home care is needed for one spouse — and the cost isn’t something they were prepared for.

What’s a Medicaid Annuity?

Medicare does not cover long-term care. While Medicaid is available when a senior’s financial resources are minimal, some couples face the possibility of depleting their own assets to pay for nursing home care and leaving the healthy spouse in a precarious financial situation.

CNBC’s recent article entitled “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care” says that some seniors are in a difficult position because they have extra cash that will keep them from qualifying for Medicaid initially. While some couples “spend down” their assets — paying off debt or making purchases that will not inhibit their Medicaid eligibility to qualify, another option may be to purchase a Medicaid annuity. This lets you convert countable assets (for Medicaid eligibility purposes) into an income stream for the healthy spouse — and not have it factored into the calculation.

Note that when you apply to have Medicaid cover the cost of institutional care, Medicaid takes a snapshot of your assets to determine eligibility. Assets are viewed jointly, even if they are in your spouse’s name. The specific limits on those assets (including cash, investments, bank accounts, etc.) are limited to $2,000 for a single person in Louisiana.  However, for married couples, Louisiana allows the healthy (“community”) spouse to keep up to $137,400 in assets (i.e., cash, investments, bank accounts) that do not count toward the eligibility calculation. Assets above that threshold are considered available to pay for the other spouse’s care.

In addition, Medicaid has a five-year “look-back” period in Louisiana.  That means they can review the previous five years to be sure any assets were not transferred to family members, just so the person could qualify for Medicaid.

An individual’s or couple’s income also is a concern.  Louisiana has a limit, $2,523 per month, if there is a well spouse at home, and only $38 per month for a single person or a widow/widower.  That is where a Medicaid annuity comes into play. A client can utilize resources to purchase the medicaid annuity, thereby converting assets into an income stream. If the client is a couple, some of that income could be used to fill up the $2,523 threshhold, and the rest can be used to pay through a penalty period thereby saving resources.

The annuity must meet certain requirements, such as the state generally must be named as the remainder beneficiary for at least the amount that Medicaid paid for the ill spouse’s nursing home care.

It also must be an immediate annuity (it begins paying the income stream right away instead of being deferred) and be irrevocable.

Ask an attorney who specializes in elder law about a Medicaid annuity for your situation.

BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.

If you liked this article, “What’s a Medicaid Annuity?” read these additional articles: Should I Delay Claiming Social Security? and What Foods are Bad for Joints as Aging Occurs? and What Should I Eat to Prevent Kidney Stones? and What are Common Mistakes People Make with Living Trusts?

Reference: CNBC (Jan. 26, 2022) “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care”

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