Medicaid Compliant Annuity Planning for a Married Couple
With almost every state 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 plan 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. Johnson are both 84 years of age. On January 1, 2012, Mr. Johnson entered a Florida nursing home, wherein he is receiving custodial nursing home care. The Johnsons have a home, one automobile, standard household furnishings and personal property, and $250,000 in a savings account. Mrs. Johnson is entitled to retain a community spouse resource allowance of $113,640, while Mr. Johnson is entitled to retain an individual resource allowance of $2,000, leaving a net spend-down amount of $134,360.
After meeting with a Florida elder law attorney on January 5, 2012, Mrs. Johnson realized that with the nursing home currently charging $5,500 per month, without a Medicaid plan, their spend-down amount of $134,360 would be exhausted in approximately 34 months.
Medicaid Compliant Annuity
In order to eliminate the net spend-down amount, and to immediately qualify Mr. Johnson for Florida Medicaid benefits, Mrs. Johnson's elder law attorney recommended that she purchase a Medicaid Compliant Annuity. As such, in February of 2012, Mrs. Johnson invested $134,360 into a Medicaid Compliant Annuity, which provided the following guaranteed monthly payments:
Months 1 - 86: $ 1,619.36
Total Payout: $ 139,264.96
With Mrs. Johnson having a 7.17 year/86.04 month Medicaid life expectancy, and with her Medicaid Compliant Annuity returning more than $134,360 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. Johnson has $1,300 of monthly social security income and with the monthly payment from her Medicaid Compliant Annuity taken into consideration, her total monthly income equals $2,919.36. With her total monthly income exceeding her maximum Florida monthly maintenance needs allowance of $2,841, Mrs. Johnson is not entitled to receive any monthly income from Mr. Johnson.
On the assumption that Mr. Johnson has $1,500 of monthly social security income, his Medicaid monthly co-pay to the nursing home equals $1,465. This amount was determined by reducing Mr. Johnson's monthly income by his $35 month personal needs allowance.
Monthly Savings
With Mr. Johnson paying approximately $5,500 per month for his nursing home care, by qualifying for Florida Medicaid benefits, and with Mr. Johnson's Medicaid monthly co-pay being $1,465, the Johnsons will save $4,035 per month.
Interesting Points
- Should Mr. and Mrs. Johnson decide not to proceed with the aforementioned Medicaid Compliant Annuity plan, and instead continue to privately pay, their spend-down amount of $134,360 would have been exhausted in approximately 34 months.
- By opting to proceed with the aforementioned Medicaid Compliant Annuity plan, Mr. Johnson obtained immediate Florida Medicaid eligibility, and potentially saved $137,190. This amount was determined by multiplying Mr. Johnson's monthly savings from the Medicaid Compliant Annuity plan of $4,035 by the 34-month time frame that Mr. Johnson 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 DRA 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. Johnson does not survive the 86-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.
To reduce the exposure of a Medicaid reimbursement claim, Mrs. Johnson could reduce the 86-month term of her Medicaid Compliant Annuity to something less. It is recommended that above all else that the Medicaid Compliant Annuity's period certain should not be so short as to create an unreasonable amount of monthly income. Essentially, the total monthly income to be received by Mrs. Johnson should be reasonable in light of her current and future monthly needs.
Note: In a recent statistical study related to the duration of Medicaid Compliant Annuities for past clients, Krause Financial Services found that in 94% of the cases, the community spouse survived the term of his/her Medicaid Compliant Annuity.
