Research Rules Before Purchasing an Immediate Annuity to Access Medicaid

There are many ways people attempt to shield their savings so they can be eligible for Medicaid without depleting their assets. The phrase "Medicaid estate planning" describes various methods that attorneys, financial planners and insurance agents use to manage, shield, transfer, or dispose of clients' assets so that they will be able to qualify for long-term health care under the federal program known as Medicaid. While purchasing an immediate annuity can be an effective Medicaid estate planning tool, proper care must be exercised as this approach also carries the risk of creating serious problems. The theory behind using an immediate annuity is this: By using assets to purchase an immediate income annuity for either the individual or the remaining spouse, assets leave the estate in such a manner that current OBRA rules are satisfactorily navigated and the patient will qualify for Medicaid. However, without proper planning, there is a real danger that the income stream from the annuity could put the annuitant over the income limit that allows them to qualify for benefits. If this happens, the individual could be putting himself in a serious bind.

Consider the following example. Say you want to reside in a nursing home that costs $2,500 per month. In order to pass Medicaid qualification tests, you use a significant portion of your assets to purchase an immediate fixed annuity that pays $800 per month for life. Your only other income, from Social Security, is $525, making the monthly income total $1,325. However, in order to qualify for Medicaid, your monthly income must be less than the federal limit of $1,302.

According to the Medicaid eligibility rules, you now have too much money coming in. In the process of "ridding" yourself of much of your assets, you have established a guaranteed income that is too high and that you have no way of reducing. Even worse, this amount of income very likely won't be sufficient to cover the cost of your current medical expenses. In short, not only have you failed to qualify for Medicaid coverage, you have also locked yourself into a situation in which your current income is not enough to meet the medical expenses that you alone are obligated to pay.

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(not intended for the General Public)