Medicaid Approved Annuities

An annuity is a contract with an insurance company to pay to the owner or a beneficiary the invested amount with interest.  The Federal act regarding annuities purchased after 2006 is not totally clear on how annuities are to be treated.  The governing law tells only whether an annuity will be treated as an improper transfer- it does not state whether it will be an available resource.  Ohio Medicaid had developed rules it follows when reviewing annuities for Medicaid eligibility purposes.

     Annuities purchased with funds derived from income tax free retirement plans established under Section 408 of the Internal Revenue Code will be deemed an improper transfer if the State of Ohio is NOT named as primary beneficiary or secondary beneficiary behind a spouse or disabled child.

     For annuities  the annuity will not be deemed an improper transfer if the State of Ohio is named primary beneficiary or secondary beneficiary behind the spouse or disabled child;

It is irrevocable;

It is non-assignable;

It is actuarial sound (i.e., payment period not longer than the life expectancy of the annuitant in accordance with Social Security tables); and

It provides for payment in equal amounts with no balloon or deferral amount.  

     Annuities can be very important under certain circumstances because purchase of an annuity may be used to convert a countable resource into a non-countable resource or income. 

     If the community spouse annuitizes a retirement account or purchases an annuity before the snapshot date, the annuity will not be part of the couple’s resources on the snapshot date.  If the annuity otherwise complies with Medicaid annuity requirements it would not be an improper transfer.

     It would not be an improper transfer if the spouse purchases an  annuity after snapshot date using her Community Spouse Resource Allowance (CSRA).  However, usually it does not make sense because there is no reduction or countable resources and the institutional spouse would still need to spend down his share of resources.

     If after institutionalization, an annuity is purchased for an amount greater than the Community Spouse Resource Allowance (CSRA) the excess amount will be deemed an improper transfer.  However this may make sense under certain circumstances, for example, when the institutional spouse will leave the facility during the penalty period or when the community spouse has income that exceeds the Minimum Monthly Maintenance Needs Allowance.

     Purchase of an annuity may be combined with gifting using the annuity to private pay for the nursing home during the penalty period saving a percentage of the amount transferred.