As this blog discussed in the past, the Third Circuit case of Zahner v. Pennsylvania Department of Human Services, which issued a major victory to Medicaid recipients everywhere. While the case is only binding to the states under the jurisdiction of the Third Circuit (New Jersey, Pennsylvania, Delaware and the Virgin Islands) it is the only Circuit Court of Appeals opinion in the nation on the issue of short term annuities in the context of Medicaid eligibility and it is a well reasoned opinion resting on a solid foundation of the facts as they are applied to the law.

With respect to Zahner, the Court held that under Medicaid’s Safe Harbor Provision, a short term annuity that does not, at the time of purchase, extend beyond the anticipated life span of the purchaser does not violate Medicaid’s policy against transferring assets within a set lookback period of time and thus does not disqualify a person from qualifying for Medicaid by their purchase. Many people do this so as to protect the collective assets of a couple when one spouse is about to enter a nursing home, to ensure that the community spouse (the spouse not in the nursing home) has a stream of income.

In the absence of a decision to purchase such a short term annuity, there is a possibility that the community spouse will life at a level lower than he/she would be comfortable with. There is a somewhat complex formula to determine the amount of assets that the community spouse may have and they income that they may be able to keep when there is one spouse in the hospital. This helps to preserve the assets of the couple and shield it from a Medicaid lien. It can also allow the institutionalized spouse to pay a nursing home during a waiting or penalty period if any until they are eligible for Medicaid to pay for their nursing home stay.

Under the ruling of Zahner, it cannot be counted as income, as an asset and the purchaser cannot be penalized for its purchase provided the annuity meets certain hallmarks as outlined in the law. The Court in Zahner indicated that one of the more salient issues is that the annuity cannot at the time of purchase have a payout life greater than the anticipated lifespan of the beneficiary. This requirement was to ensure that the annuity was not a way to pass assets on to the heirs of the annuity beneficiary.

But what of folks who have to enter a nursing home but did not make any planning before hand to qualify for Medicaid? As noted, purchase of an annuity can be a way to pay for the nursing home expenses during the time that they are in the nursing home but still ineligible for Medicaid due to any number of reasons. As such, the use of a short term annuity can be used by any person applying for Medicaid at any stage in that process to ensure that the the money that they used to purchase the annuity is not considered an attachable asset by Medicaid and yet is still able to be used by the beneficiary.

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