Issue Alert: Medicaid Annuities
Vol. 7, #6
An annuity is a financial arrangement in which the purchaser gives money to the annuity company and the annuity company agrees to pay the money back to the purchaser, with interest, over a period of time.
Life insurance companies and annuity salespeople have begun aggressively marketing products they call 'Medicaid Annuities" or "Medicaid Friendly Annuities." Salespeople sometimes claim that these annuities will shelter your assets from being used to pay for long term care because they are not counted for Medicaid eligibility purposes. The sales pitch may include frightening statistics about the likelihood and high cost of long term care, but little information on alternative planning techniques or community resources. Disadvantages of annuities may be downplayed or ignored.
Medicaid is a government benefit program that helps those with limited resources pay for health care costs. One form of Medicaid assistance provides financial support to elderly and disabled persons who live in Medicaid certified nursing homes.'
Annuities that can be liquidated count toward the Medicaid asset limit. The so-called "Medicaid Annuity" or 'Medicaid Friendly Annuity" is NOT counted toward the Medicaid asset limit because it is irrevocable, it cannot be transferred or assigned, and it pays you back your entire investment within your life expectancy. In addition, the 'Medicaid Annuity" or "Medicaid Friendly Annuity' is an 'immediate" annuity because it begins paying you back your investment in installments immediately after You purchase it. However, because the annuity is irrevocable (which means you can't change anything about it), you only receive your agreed upon installment payments. After you start receiving payments, you cannot access the principal for any reason.
While annuities can be used to protect assets in some situations involving Medicaid certified nursing homes, the promises being made by salespeople regarding "Medicaid Annuities" are often misleading. Individuals being approached about "Medicaid Annuities" should understand the following:
- Annuities are a complex financial investment. Your investment choices and the financial strength of the insurance company from whom you purchase the annuity may affect how much money you receive.
- If the annuity is an irrevocable, nonassignable, immediate "Medicaid Annuity" or "Medicaid Friendly Annuity", you only receive your agreed upon monthly payment. You cannot access the principal for any reason. For example, if you leave the nursing home and return home and need the principal to help pay for assisted living services, it will not be available to you.
- Some annuities are revocable and offer the capability of being converted to an irrevocable Medicaid annuity. If you want, to withdraw your funds from this type of annuity while it is revocable, you may incur large penalties and taxes.
- For married couples, payments from annuities. may, interfere with special Medicaid rules protecting income for the at-home spouse.
- For married couples, purchasing an irrevocable Medicaid Annuity before a nursing home admission may decrease the amount of assets a couple would otherwise get to keep to qualify for Medicaid.
- Annuity salespeople receive high commissions from the sales of these products. A misinformed or overly ambitious salesperson may exaggerate the benefits of these products in order to make a sale.
- In many situations, annuities may be more restrictive than helpful. Annuities sold on the pretense that they can assist in obtaining Medicaid may prevent an individual from being able to afford living in a less restrictive setting, such as an independent living center, adult foster care home, or assisted living facility.
- Many of the same annuity products now being promoted as the best and only answer for Medicaid planning in Michigan have been rejected in other states where they have been used for asset protection. Michigan Medicaid law may change to allow the state to refuse Medicaid assistance as a result of the annuity. The state may or may not "grandfather' existing annuity arrangements.
- "Medicaid Annuities" are being sold to people who have no present expectation of needing long term care. There is little or no benefit to purchasing a Medicaid, Annuity in advance of needing long term care.
Medicaid is a complex government program. Each person's family situation and financial situation is different. One size does NOT fit all. There are many options for protecting assets and obtaining Medicaid assistance. Annuity salespeople are not qualified to give advice regarding the Medicaid regulations, and probably understand very little about other options that may be available for protecting assets. People who want complete advice regarding Medicaid planning and asset protection should talk to a qualified elder law attorney.
For general questions about Medicaid annuities and other elder law related issues, contact the Legal Hotline for Michigan Seniors toll free at 1/800/347-5297. Check with your Area Agency on Aging for available senior resources in your county or at the Eldercare Locator toll free at 1/800/677-1116.
The Office of Services to the Aging would like to thank Douglas G. Chalgian, Lauretta K. Murphy, David Shaltz and Josh Ard, Elder Law attorneys and members of the State Bar of Michigan Elder Law and Advocacy Section, for their work in developing this Issue Alert.
Copies of this and past Issue Alerts can be obtained from the Michigan Office of Services to the Aging (OSA) by contacting Mark Man6que at 5171373-4076. Issue Alerts are also available on OSA's website at: www.miseniors.net.
August 2002 Permission is given to reproduce this Issue Alert in part or in its entirety.
1 It is wise to plan for meeting long term care costs before they are needed. For many people, long term care insurance or saving and investing to cover these potential costs are superior options that maximize a person's health care choices. For people who cannot qualify for or afford long term care insurance or do not have sufficient resources to pay for nursing home care, Medicaid can become the program of last resort for paying these costs. A nursing home resident must meet strict financial eligibility requirements to qualify for this " of Medicaid assistance. As a result of these requirements, elderly and disabled people who seek Medicaid assistance will often be required to 'spend down' some of their assets before they become eligible.