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I recently reviewed the letter submitted to the Center for Medicaid and State Operations ("CMS") by the National Association of State Medicaid Directors ("NASMD") that was dated March 10th, 2010.  If you have not yet seen the letter, you may review it here.

The NASMD letter requested that CMS take the position that a Medicaid Compliant Annuity ("MCA") purchased by a community spouse "should be treated as a trust-like device, and that the entire amount used to purchase the MCA should be counted in determining Medicaid eligibility."  NASMD's goal is to have the MCA be treated as a countable resource, thus disqualifying the institutionalized spouse from becoming eligible for Medicaid benefits.

In support of the aforementioned position, NASMD improperly alleged that community spouse MCAs were nothing more than "financial schemes that inappropriately shelter resources and assets from properly being counted under the Medicaid eligibility rules."  NASMD further improperly alleged community spouse MCAs funded with "hundreds of thousands of dollars," and are "often structured to pay-out quickly - 12 months or less."

It has always been my opinion that a community spouse's MCA should not be so short as to create an unreasonable amount of monthly income.  The total monthly income received by a community spouse should be reasonable in light of his or her current and future financial needs.  The fear was that aggressively short MCA planning techniques would catch the attention of state Medicaid agencies, which is what appears to have happened.

The purpose of this blog post is not to inform you, as an elder law attorney, that you cannot implement this type of planning, but rather to bring the NASMD letter to your attention and create awareness.  I feel that it may be in the best interest of all practitioners to follow a more conservative approach in future community spouse planning scenarios that involve MCAs.

Situations exist wherein a short-term MCA is completely appropriate, such as to provide a community spouse with reasonable monthly income to maintain his or her standard of living, or more often in an individual planning case with a small spend-down amount.  It is the goal of Krause Financial Services to protect short-term MCAs, and to ensure that they are available to utilize in the appropriate planning scenarios for years to come.

Finally, the National Academy of Elder Law Attorneys ("NAELA") has provided a response to the NASMD letter.  For your convenience, you may review NAELA's response here.