Purchasing a Medicaid Compliant Annuity: Pre Snapshot Date vs. Post Snapshot Date

Purchasing a Medicaid Compliant Annuity: Pre Snapshot Date vs. Post Snapshot Date

When purchasing a Medicaid Compliant Annuity in a traditional spousal situation, two important figures come into play for considering the Community Spouse Resource Allowance (“CSRA”) and the snapshot date.  The snapshot date is the date used to calculate a couple’s total countable assets – typically the first date of continuous institutionalization.  The CSRA is a portion of those assets the community spouse may retain in order to avoid spousal impoverishment.

To determine the CSRA, the figure determined by the snapshot date is divided by two.  Some states have a standard CSRA, and some states are minimum/maximum states, meaning they have a minimum CSRA and a maximum CSRA.  The community spouse is entitled to retain at least the minimum (generally $24,720), but no more than the maximum (generally $123,600), therefore the CSRA is one-half of the countable assets or $24,720, whichever is greater, up to a maximum of $123,600.

It is important to note that the CSRA cannot be determined until after the snapshot date has been established.  After the CSRA has been determined, the excess countable assets can be used to purchase a Medicaid Compliant Annuity, which spends-down the client to the appropriate asset limit and gains eligibility for the institutionalized spouse.

However, what happens if the Medicaid Compliant Annuity is purchased prior to the snapshot date?  Does the client achieve the same result?  At first glance, the two options may seem to have the same outcome – the client uses excess countable resources to purchase a Medicaid Compliant Annuity, the community spouse is allowed to retain some assets as determined by the CSRA, and the institutionalized spouse obtains Medicaid eligibility.  So, what’s the difference?

Consider the two scenarios below:

Scenario One:  Purchasing a Medicaid Compliant Annuity After the Established Snapshot Date

Suppose a married couple in North Carolina has countable assets of $260,000 as of the snapshot date.  The community spouse would like to retain as much as possible outside of the annuity.  To calculate the CSRA, divide the assets as of the snapshot date by two, equaling $130,000.  Because North Carolina is a minimum/maximum state with a minimum CSRA of $24,720 and a maximum CSRA of $123,600, and the division of the assets in half is greater than the maximum, the CSRA will equal the maximum at $123,600.

Now that the CSRA has been established, the annuity investment amount can be determined.  In this case, deduct the CSRA of $123,600 from the countable assets of $260,000.  This results in an annuity investment amount of $136,400.  Any excess countable resources have now been spent-down by purchasing a Medicaid Compliant Annuity.  The institutionalized spouse is immediately eligible for Medicaid benefits and the community spouse has retained the maximum CSRA as allowed by the state of North Carolina.

Scenario Two:  Purchasing a Medicaid Compliant Annuity Before the Established Snapshot Date

Suppose the same couple had not yet established their snapshot date.  The clients’ total countable assets still equal $260,000.  If the annuity investment amount of $136,400 (as determined above) is put into the Medicaid Compliant Annuity, those funds are immediately eliminated as countable assets.  After purchasing a Medicaid Compliant Annuity, the clients’ total countable assets now equal $123,600.

With the total countable assets now at $123,600, the snapshot date has been established.  To calculate the CSRA, divide the assets as of the snapshot date by two, equaling $61,800.  Because North Carolina is a minimum/maximum state, and the resulting figure is below the maximum of $123,600, but above the minimum of $24,720, the CSRA will equal the resulting figure of $61,800.  Because the CSRA is only $61,800, the clients are left with excess countable assets of $61,800, which will still need to be spent down in order to qualify for Medicaid.

Why is this Significant?

Some may be wondering, “Why does this matter?  Can’t the excess $61,800 just be put into a second Medicaid Compliant Annuity?”  Yes, that could be a solution to the excess countable resources created in the second scenario, however, the problem is not how to spend excess countable resources, the problem here is the difference in the CSRAs.  Simply put – a higher CSRA achieves a better result for your clients.

Assume the community spouse in Scenario One owns an IRA consisting of $75,000 (a countable resource in the state of North Carolina).  With the CSRA at $123,600, the community spouse can retain the entire IRA as is, therefore avoiding potential tax consequences.  Also significant, this scenario allows for the maximum amount of cash-on-hand should any unforeseen expenses arise.  The more resources available to the community spouse, the more secure his or her financial future will be.

Now assume the same community spouse is subject to Scenario Two.  A portion, if not all, of the IRA must be liquidated, facing tax consequences as a result, or rolled over into an additional tax-qualified MCA.  Not only that, but the amount of available resources the community spouse could have retained in Scenario One is cut by one-half.  Also, due to the smaller CSRA, the couple now has an excess of $61,800 to be spent-down.  This scenario leads to additional (and unnecessary) spend-down strategies, additional fees and/or penalties, and most notably, fewer resources available to your clients.

The difference between the two scenarios in question is a difference of over $60,000 in your client’s pocket.  Waiting to purchase a Medicaid Compliant Annuity until after the snapshot date has been established will allow for the community spouse to retain the highest CSRA possible.  Moreover, waiting to purchase the Medicaid Compliant Annuity will allow for a smoother eligibility process, as illustrated above.  The CSRA is an extremely important figure in a client’s path toward Medicaid qualification, and purchasing a Medicaid Compliant Annuity too soon can jeopardize a community spouse’s CSRA, as well as his or her financial future.