Medicaid Friendly(er)!

By now most of you have heard of using annuities for Medicaid planning. Some of you may have avoided this because of a lack of information/knowledge and/or the belief that this didn’t work in your state. This article is only intended to provide you with a brief background on this subject, and to further entice you about the possibilities you have been missing.

The primary requirement for any annuity to be used for Medicaid planning is to be compliant with OBRA ’93 and HCFA Transmittal No. 64 (this is the part you may have heard about being “actuarially sound”). Don’t be fooled, however, because most annuities do not meet these requirements. Further, this by itself is not enough. Each state has the ability to put its own twist on Medicaid. You see, Medicaid is a joint federal/state program.

In the simplest of terms, let’s suppose a person enters a nursing home. Upon applying for Medicaid assistance, Medicaid performs 2 tests – an asset test and an income test. If a person or couple has “countable” assets that exceed a set amount, they are not eligible. They must “spenddown” (private pay). Secondly, if his/hers/their assets do meet the required amount, then an income test is done to see if income of the nursing home applicant exceeds the nursing home monthly cost.

Most people never get past the first test. That’s where “Medicaid Friendly” annuities come into play. A “Medicaid Friendly” annuity allows one to reposition “countable” assets by turning them into an income stream. Now it is a matter of keeping the income below the nursing home cost and within the applicant’s life expectancy.

There are some states that currently allow for the income to be paid out as a small monthly payment of interest and principal with the bulk of the principal paid in a final lump sum (balloon) payment. For the majority of the states, however, payments must be calculated to be equal payments paid within the life expectancy of the individual.

By now you are probably asking, “So how can this benefit my client for those of us in the majority of other states?” I’m glad you asked. Let me give you an example.

Let’s say your client is a 82 year old female with $100,000 of “countable” assets. The nursing home she is about to enter costs $4,000 per month. Without your help she is certain to be broke in 25 months ($100,000 divided by $4,000).

With help from you and Standard, we know that we can extend the life of this $100,000 for 96 months (Medicaid’s life expectancy for female, age 82). By stretching payments over her life expectancy we have stacked the deck in her favor (25 months vs. 96 months).

But wait, don’t stop there. As the leader in “Medicaid Friendly” annuities, Standard Life of Indiana has provided an annuitization payout option that begins with lower payments and increases each year – to remain “substantially equal” and “Medicaid Friendly.”

Compared to a level payout for the same period, these payments start approximately 5 to 25% lower in the first year and increase each year by a percentage determined by each state. The result is that not only have you lengthened the life our your clients money, but you have further stacked the deck in their favor by structuring the larger portion of the assets to be paid out in the later years (probably after the client’s death, thus to their beneficiary).

If you thought that Medicaid planning with annuities didn’t work or wasn’t advantageous in your state, you probably need to talk to us. No other company has as many provisions in their policies and an entire portfolio of annuities that are “Medicaid Friendly” and now “Medicaid Friendlier!”

Call Me Simple…

We, in the annuity business, are truly in a unique position. We offer security, peace of mind and a “square” deal. But we are only human. We sometimes make things more difficult than they should be.

We often confuse the issues with our clients/prospects. We come prepared with fancy illustrations, complex tax ideas and sophisticated concepts for our clients. When, in most cases, the sale would be made more quickly if we gave them what they want.

How do we know what they want? Well, we must of course ask them! This “Greatest Generation” has been through it all - wars, depressions, recessions, rising pharmaceutical costs, world terror and much more. These are the same people that are patriotic and proud of our country and their accomplishments.

These are people that want simplicity, peace of mind and comfort. They are conditioned to spot the “too good to be true” deal. They buy from you if they trust you. Chances are, you are going to make the sale. So how do we break the ice in the initial conversation? How about some GOOD NEWS? There has been enough bad news in the press.

What about the fact that all nine (9) miners in Pennsylvania were brought out alive and well? What a testament to the human spirit. How about the fact that many feel as though the stock market has bottomed out and we are on our way up? How about reminding your clients that most businesses are honest and straightforward organizations?

In short, everything is going to be okay. This country has been through the wringer and we are doing pretty good and it’s going to get better.

I then suggest a simple explanation of the benefits of an annuity. It’s a pretty simple product that produces world-class results. These people worry a lot. It’s their job to worry. They worry about kids, grandkids, the world and their way of life. Cheer them up!! Be their friend; give them a fair deal and everyone walks away feeling good about the meeting and good about life in general.