Medicaid Compliant Annuity Planning for a Married Couple
With over 45 states having passed the legislation associated with the Deficit Reduction Act of 2005 ("DRA"), and with Krause Financial Services having significant experience within many post-DRA states, it is clear that a Medicaid Compliant Annuity is still a viable planning tool for a married couple who wants to qualify the institutionalized spouse for Medicaid benefits.
The goal of a Medicaid Compliant Annuity planning in a scenario that involves a community spouse is to obtain immediate Medicaid eligibility for the institutionalized spouse while providing the community spouse with sufficient income and resources to maintain his or her lifestyle within the community.
As such, in order to provide a Medicaid planning opportunity to married couples in a post-DRA crisis Medicaid situation, the following example is provided:
Fact Pattern
Assume that Mr. and Mrs. Smith are both 84 years of age. On January of 2010 Mr. Smith entered a Florida nursing home, wherein he is receiving custodial nursing home care. With the Smiths having a home, one automobile, standard household furnishings and personal property, and $250,000.00 in a savings account, Mrs. Smith is entitled to retain a community spouse resource allowance of $109,560.00, while Mr. Smith is entitled to retain an individual resource allowance of $2,000.00, leaving a net spend-down amount of $138,440.00.
Medicaid Compliant Annuity
In order to eliminate the net spend-down amount, and to immediately qualify Mr. Smith for Florida Medicaid benefits, Mrs. Smith's elder law attorney recommended that she purchase a Medicaid Compliant Annuity. As such, in February of 2010, Mrs. Smith invested $138,440.00 into a Medicaid Compliant Annuity, which provided the following guaranteed monthly payments:
Months 1 - 84: $ 1,706.87
Total Payout: $ 143,377.08
With Mrs. Smith having a 7.02 year/84.24 month Medicaid life expectancy, and with her Medicaid Compliant Annuity returning more than $138,440.00 to her within her Medicaid life expectancy, the Medicaid Compliant Annuity is deemed "actuarially sound," and is a viable Medicaid planning tool.
Monthly Co-Pay Amount
On the assumption that Mrs. Smith has $700.00 of monthly social security income and with the monthly payment from her Medicaid Compliant Annuity taken into consideration, her total monthly income equals $2,406.87. With Mrs. Smith having a monthly maintenance needs allowance of $2,739.00, Mrs. Smith has a monthly income shortfall of $332.13. With this amount being shifted from Mr. Smith's monthly income of $1,500.00, his net monthly income equals $1,167.87. With his net monthly income then being reduced by his $35.00 monthly personal needs allowance, his monthly Medicaid co-pay to the nursing home equals $1,132.87.
Monthly Savings
With Mr. Smith paying approximately $5,500.00 per month for his nursing home care, by qualifying for Florida Medicaid benefits, and with Mr. Smith's Medicaid monthly co-pay being $1,132.87, the Smiths will save $4,367.13 per month.
Interesting Points
- Should Mr. and Mrs. Smith have not opted to proceed with the aforementioned Medicaid Compliant Annuity plan, and instead continued to privately pay, their spend-down amount of $138,440.00 would have been exhausted in approximately 25 months.
- By opting to proceed with the aforementioned Medicaid Compliant Annuity plan, Mr. Smith obtained immediate Florida Medicaid eligibility, and potentially saved $109,178.25. This amount was determined by multiplying Mr. Smith's monthly savings from the Medicaid Compliant Annuity plan of $4,367.13 by the 25-month time frame that Mr. Smith would have privately paid throughout.
Medicaid Claim
In a community spouse case, where the community spouse purchases a Medicaid Compliant Annuity in order to eliminate the spend-down amount, the concern following the Tax Relief and Health Care Act of 2006 is that upon the death of the community spouse any residual benefits remaining in the Medicaid Compliant Annuity will revert to the state Medicaid program. Likewise, in the aforementioned example, if Mrs. Smith does not survive the 84-month term of her Medicaid Compliant Annuity, the Florida Medicaid program would be entitled to collect the residual benefits remaining in her Medicaid Compliant Annuity, to the extent that medical assistance benefits were provided to the institutionalized individual.
Note: In a recent statistical study related to the duration of Medicaid Compliant Annuities for past clients, Krause Financial Services found that in 92% of the cases, the community spouse survived the term of his/her Medicaid Compliant Annuity.
