The Rewards and Risks of Using Medicaid Compliant Annuities (MCA)

Your parents are both 77-years-old and healthy when your father, Bill, has a sudden stroke and needs nursing home care. They’ve saved a small nest egg, but they’re worried it won’t be enough to cover the nursing home care for your father and the living expenses for your mother, Francine.

Even though it’s small, that nest egg still puts Bill over the asset limit for Medicaid, which could pay for his nursing home care if he qualified. But after talking to a Certified Medicaid Planner, you discover a way for your father to qualify and for your mother to make use of that nest egg – purchasing a Medicaid Compliant Annuity.

To learn more about these annuities and how they can help you or your loved ones qualify for Medicaid, contact us or read on.


How a Medicaid Compliant Annuity Affects Medicaid Eligibility

Before explaining how a Medicaid Compliant Annuity (MCA) affects Medicaid eligibility, we should first discuss Medicaid’s eligibility requirements. To qualify for Medicaid, individuals need to meet two financial requirements – an asset limit and an income limit. In most states in 2024, the individual asset limit for Medicaid long-term care coverage in a nursing home or at home is $2,000, and the individual income limit is $2,829/month. These limits can vary by state, marital status and Medicaid program.

Individuals are not allowed to simply give away their income or assets, or sell assets at less than fair market value, to get under these limits. To make sure they don’t, Medicaid uses the Look-Back Period. In most states, the Look-Back Period is five years. This means the state will look back into the applicant’s financial history for the five years prior to their application date to see if they have given away any income or assets, or sold any assets at less than fair market value.

However, there are strategies you can use to reduce your financial resources and get under the limits to become eligible without violating the Look-Back Period. One of those strategies is purchasing a Medicaid Compliant Annuity.

The concept is fairly straightforward. You reduce your assets so they are below your Medicaid limit by purchasing a Medicaid Compliant Annuity. However, the annuity will then pay back whatever you paid for it with regular monthly payments that begin as soon as the annuity is purchased. These monthly payments will count toward your Medicaid income limit, and it could potentially put you over the limit if this strategy is used in the wrong situation, so having a full understanding of your financial situation and the Medicaid eligibility rules in your state of residence is critical. It’s also critical the annuity meets the requirements to make it Medicaid Compliant, which we will discuss next.

 Not all annuities are Medicaid-compliant.


What Makes an Annuity Medicaid Compliant

All annuities are financial products that you purchase, in most cases, from an insurance company. Financial planners, banks and life insurance carriers may all sell annuities, but only insurance companies issue the policies that back them.

For an annuity to be Medicaid Compliant, it must be:

• Immediate – payments start as soon as the annuity is purchased
• Fixed – the payments must be the same every month
• Irrevocable – the annuity can not be changed or canceled in any way after it’s purchased
• Non-transferable – the annuity can not be transferred or sold
• Actuarially sound – payment schedule must be based on the owner’s life expectancy
• Full return of investment – payment schedule must plan to pay back the entire amount of the original price of the MCA
• Name the state as beneficiary – the owner’s state of residence will receive any funds remaining in the MCA if the owner dies before the annuity pays out in full

Before purchasing an annuity that you think is Medicaid Compliant and will help you qualify for Medicaid, we recommend connecting with one of our team of professionals at Eldercare Resource Planning by clicking here.


Best Time and Circumstances to Purchase a Medicaid Compliant Annuity

When and how much you spend on annuities matters. If you put in too much money too early, you’ll tie up cash that you might need for another emergency, medical or otherwise. If you wait too long, you may not be able to purchase an annuity that will span enough months to create payments small enough to keep you under the income limit.

The minimum purchase amount for Medicaid Compliant Annuities in many states is $25,000-$30,000. Buying an annuity in this price range can help the applicant get under the asset limit, but it won’t create too much of a monthly income stream. The monthly payments for a $25,000 Medicaid Compliant Annuity for a 75-year-old man would be around $200/month paid out over about 11 years, and for a 75-year-old woman they would be around $170/month paid out over roughly 13 years.

Medicaid Complaint Annuities can be helpful for seniors applying for either Medicaid’s long-term nursing home care or for long-term care coverage in the home. These annuities can also be useful for individuals, married couples with both spouses applying for Medicaid or married couples with only one spouse applying. In short, they can be useful for any type of Medicaid and any type of applicant.

However, Medicaid Complaint Annuities are probably most useful for married applicants with only one spouse applying for Medicaid’s long-term nursing home coverage or for long-term care in-home coverage via a Home and Community Based Services (HCBS) Waiver. That’s because the income of the non-applicant spouse is not counted toward the applicant’s income limit when it comes to nursing home coverage or HCBS Waivers, but the assets of both spouses do count toward the applicant’s asset limit. So, the couple could use almost all of their assets to reduce that total below the applicant’s asset limit by purchasing a Medicaid Compliant Annuity in the non-applicant spouse’s name, and the income generated by that annuity would not count toward the applicant spouse’s income limit. Again, this can be a complex strategy, and we don’t recommend trying it on your own.


How a Certified Medicaid Planner Can Help You Use a Medicaid Compliant Annuity

Our Certified Medicaid Planners at Eldercare Resource Planning can make sure you purchase a Medicaid Compliant Annuity at the right time and under the right circumstances. They know the asset and income limits in your state. They can help you determine if you meet those limits and, if you don’t, if a Medicaid Compliant Annuity is right for you.

They’ll know how much of your money to spend on the annuity to maximize your resources and ensure your eligibility. And they will make sure you buy an annuity that meets all the requirements of being Medicaid Compliant.

Annuities can be a great help to seniors trying to qualify for Medicaid, but they can also cause harm if they don’t meet Medicaid standards or if they aren’t used the right way. To ensure you get the help and not the harm, connect with our team of planning professionals.

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