Medicaid Compliant Annuities
Presented By: Amy Beacham
Hi, I’m Amy Beacham, Communications Director for Krause Financial Services. Today, we’re going to talk about Medicaid Compliant Annuities.
A Medicaid Compliant Annuity, or MCA, is a product used to accelerate eligibility for Medicaid, which a joint state and federal health insurance program that pays for a person’s nursing home care. An MCA is a Single Premium Immediate Annuity with added restrictions to meet the requirements of the Deficit Reduction Act of 2005. It contains zero cash value and is considered income only. There are five main components the annuity must have in order to be considered Medicaid compliant.
First, it must be irrevocable, which means the parties of the contract cannot be altered. Second, it must be non-assignable, meaning the contract cannot be transferred or sold on the secondary market. Third, it must be actuarially sound, which means the term of the annuity cannot exceed an individual’s Medicaid life expectancy. Some states measure life expectancy by their own tables, and some states measure it by using the Social Security Administration table. Fourth, the annuity must provide equal monthly payments, with no deferral or balloon payments.
And finally, the state Medicaid agency must be a beneficiary. This is the most important requirement. The State is typically the primary beneficiary, but there are certain exceptions to this rule. If the situation does qualify for an exception, the State must typically be named contingent beneficiary.
The purpose of an MCA is to convert excess countable assets to an income stream. The Medicaid program employs strict asset limits. Any assets over these limits must be spent down. One quick way to do this is through the purchase of an MCA. Because the annuity has no cash value and it meets Medicaid’s requirements, the assets are essentially eliminated. Immediately after purchasing, the owner begins receiving monthly income.
An MCA is a crisis Medicaid planning tool, meaning it is used to help individuals already in a nursing home accelerate their eligibility for Medicaid benefits.
Strategies using MCAs vary depending on marital status. A common strategy for a married couple is to fund the excess countable assets above the Community Spouse Resource Allowance into an annuity for the benefit of the community spouse. He or she is the owner, annuitant, and payee of the contract, and the institutionalized spouse gains immediate Medicaid eligibility.
Planning for a single person is a little more complicated, but an MCA can still help. The Gift/MCA strategy is most popular. It involves the Medicaid applicant divesting about half of their assets and using the other half to purchase an MCA that will help them pay for care during the penalty period. The applicant is able to save about half their assets by making the gift and is able to gain Medicaid eligibility at the end of the penalty period.
For more information on how a Medicaid Compliant Annuity can help your client gain Medicaid eligibility, call our office at 855-552-5893.
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