Is a Medicaid Annuity a Good Idea?

Vested Partners A Multi-Family Office Blog

For couples who face depleting their own assets, using a Medicaid-compliant annuity could be a way to preserve assets and still qualify for Medicaid.

What happens when one spouse needs nursing home care? Medicare typically does not cover long-term care.  The current median monthly cost of a private room at a nursing home is about $8,000, according to the recent article “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care” from CNBC. For people with limited assets and income, Medicaid will pay.

However, what about families who have some assets but are not wealthy enough to be able to pay for their care without leaving the well spouse impoverished? It is a common situation, which requires advance planning. Elder law attorneys work with families to determine what options are available.

For some families, spending down assets by paying off debt or making purchases to qualify is one way. For others, buying a Medicaid Compliant Immediate Annuity is another. This allows the couple to convert countable assets for Medicaid purposes into an income stream for the well spouse.

Medicaid Compliant Annuities are complex financial instruments and are not for everyone. They are often used in a crisis situation, when there are no other good options.

Medicaid has a five-year look-back period in Virginia. The program reviews all assets and transactions from the prior five years to make sure assets were not given away or sold for less than fair market value.

For a married couple, some assets in Virginia don’t count against you when applying for Medicaid.  These “exempt assets” include the home you live in, one vehicle, and prepaid funeral arrangements.

Assets which are not exempt are called “countable resources.” It doesn’t matter whether a countable resource is owned by the ill spouse or the well spouse, or jointly between the two. The limits on assets, which include cash, investments and bank accounts, among others, are determined by a formula, but the maximum countable resources a couple in Virginia could have in Virginia is $137,400 (as of the date of this blog post).

If a couple has more than the Medicaid formula allows for countable resources, they can purchase an annuity payable to the well spouse, based on their own life expectancy. For the annuity to be Medicaid compliant, it must meet several requirements. The state has to be named the remainder beneficiary for at least the amount Medicaid paid for the sick spouse’s nursing home care. The annuity must be an immediate annuity, meaning the income stream begins immediately, and it must be irrevocable.

The Medicaid rules are complex enough that hiring an elder law attorney is advisable.  Our office assists clients in becoming eligible for Medicaid long term care.  Click here to learn more.

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


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