Nursing home Medicaid is a program that pays for nursing home care for those who have a medical need for such care. Along with showing a medical need for nursing home care, an applicant for nursing home Medicaid must have income and assets under specified levels. Medicaid rules contain complex definitions as to what type of assets are counted and restrictions on transferring of assets. A Medicaid qualified annuity is used when a Medicaid applicant has assets over the limit, and all other methods of reducing assets, such as buying burial fund and paying of debt. A Medicaid qualified annuity turns what Medicaid considers to be an asset into an income stream.
Use of annuities for single individuals applying for Medicaid
A Medicaid qualified annuity is used for a single, nonmarried, individual applying for Medicaid when they have more assets than the Medicaid limit, even after spending down assets by paying off debt or buying a burial fund. If the Medicaid applicant gives away money, there will be a penalty period. This penalty period is calculated by dividing the amount of money given away by the average cost of a month of nursing home services in the state to arrive at the number of months the applicant is ineligible to receive nursing home Medicaid. To reduce the amount of the penalty period, a calculation is made of the optimal amount of money that can be given away. The calculation also produces an amount that can be used to buy an annuity that will provide monthly income to the Medicaid applicant during the penalty period. The annuity payment amount is calculated to be exactly what is needed, when combined with other income such as Social Security, to pay the monthly nursing home bill. The use of the Medicaid qualified annuity allows the single Medicaid applicant to give away as much money as possible and still have sufficient income to pay for the nursing home through the penalty period.
Use of annuities for married couples where one spouse is applying for Medicaid
Medicaid qualified annuities are also useful for a married couple who has too many assets. For Medicaid qualification, Georgia Medicaid counts the combined assets of a couple, but only counts the income of the spouse who is applying for Medicaid. This provides a planning opportunity for the excess assets of the couple to be converted into an income stream for the spouse who is not applying for Medicaid. A Medicaid qualified annuity is purchased in the name of the spouse who is not applying for Medicaid. This reduces the assets of the couple to a level that meets the Medicaid requirements. The spouse not applying Medicaid then receives the payments from the annuity for a specified number of months.
Requirements for an annuity to be considered Medicaid compliant
All of the following conditions must be met for an annuity to be considered Medicaid compliant and not count as an asset
- The annuity must be for a fixed number of months.
- The payments must be fixed and all be equal, no balloon payments
- The annuity must be nonassignable and nontransferable. Georgia requires that the annuity have letters from three financial companies confirming that they would not pay for the annuity.
- The Georgia Medicaid office has to be named the first beneficiary of the annuity up to the amount that Medicaid paid. If the spouse holding the annuity dies before all payments are paid out, Medicaid will receive the lesser of the remaining payments or the amount Medicaid spent on care
Annuities are just one of the tools that can be used to qualify someone for nursing home Medicaid. The qualification process for Medicaid is very complex; it is recommended that Medicaid applicants seek the services of an experienced elder law attorney.