SOME ANNUITIES DO NOT RENDER APPLICANT INELIGIBLE FOR MEDICAID
As this blog wrote about several months ago, certain financial products purchased by a Medicaid applicant do not render them ineligible for Medicaid benefits. While the previous post discussed why a short term annuity did not render a Medicaid applicant ineligible, this blog will discuss why such a choice may be a good fit. For sure, the short term Medicaid annuity must satisfy certain criteria to qualify for the federal “safe harbor” provisions that would otherwise render the purchaser of the short term annuity ineligible for Medicaid.
The recent Third Circuit case of Zahner v. Pennsylvania Department of Human Services dealt with a Medicaid applicant who purchased an annuity that paid itself off over a relatively short period of time. Zahner helps to clarify for the elder law client what financial products will not disqualify a Medicaid applicant from applying for benefits. The Court held that the purchase of short term Medicaid annuities did not render the Medicaid applicant temporarily ineligible for Medicaid benefits. Nursing home costs is high enough that unless a person has private long term care insurance or already receiving Medicaid, it is financially out of reach. At the same time, most people do not want to deplete their personal financial resources to pay for nursing home care, especially when it is medically necessary. Congress addressed these competing interests when it created the “safe harbor” provisions which permitted certain annuities and excluded others.
WHY SHORT TERM ANNUITIES MAY BE A GOOD FINANCIAL CHOICE
If a Medicaid applicant has a sizable amount of money on hand which he/she must spend down before being eligible for Medicaid, the purchase of a medicaid annuity may be a good idea, as it would perhaps make the applicant instantly eligible. Medicaid compliance and qualifications are complicated means based tests that are extraordinarily fact sensitive, so it is difficult to talk about qualification in the abstract. What can be said, however, is that one of the major issues and stumbling blocks to Medicaid qualifications are financial considerations. Medicaid will look back for the past five years and consider all money spent. The purchase of a short term medicaid annuity is an allowable expenditure.
Medicaid does not look at just financial expenditures, it also considers current financial assets. Short term Medicaid annuities are allowed as an asset, so if someone wanted to gift money to a Medicaid applicant or recipient, the money would be best spent on investing in such an annuity, so as to insure that the applicant can at least benefit from it.
To give an example of how something like this could work in real life, say a parent needs to go into a nursing home and has $250,000 on hand between different retirement assets, real estate and so on. While it is true that many assets are untouchable or excluded up to a certain value for Medicaid purposes, to make this example simple, let us just assume that the parent decided to liquidate all assets upon going into the nursing home. The parent then sinks all of his/her money into purchasing a short term annuity that allows him to get a stream of income for a period of time. One of the requirements of a short term annuity is that it is not likely to pay out beyond the life of the recipient and that the balance of any money will be paid to Medicaid. As such, it is important that the purchase does not pay too much monthly, as any excess can be attached by Medicaid and that it not last too long as this money will go to Medicaid. As such, the purchaser must find a sweet spot for amount and length of pay out on the annuity.
The best way to insure that all of your financial decisions will not interfere with your Medicaid eligibility is to consult with an experienced elder law attorney.