How to Use an Annuity to Qualify for Medicaid

By Jason R. Johns, Esq.

Applying for long-term care can be a difficult benefit to qualify for if you have failed to properly plan.  Oftentimes, long-term care applicants fail to be eligible due to excess resources or assets. Maybe you know someone or have a loved one who has applied for long-term care such as Home and Community Based Services (HCBS) or Long-Term Care (LTC) Facility Services who has been in this exact position. There are various techniques for planning; however, in certain circumstances, a Medicaid Compliant Annuity is the best method.  

A Medicaid Compliant Annuity (MCA) can be utilized by married couples when just one spouse is applying for Medicaid benefits.  When one spouse is applying, assets owned by either spouse are considered jointly owned but only the applicant’s (also known as the institutionalized spouse) income is counted towards the income limit. In this scenario, the MCA is a way for married couples to spend down their excess countable assets by purchasing a single premium immediate annuity while also allowing the non-applicant spouse (also known as the community spouse) to continue receiving income from the MCA and for the institutionalized spouse to become eligible for Medicaid.

 

Medicaid Income & Asset Limits

In regard to the asset and income limits which can restrict an applicant’s eligibility, the limits for Medicaid coverage vary by state. Pennsylvania allows the institutionalized spouse up to $2,829.00 a month in income to qualify for Medicaid in 2024.⁽¹⁾ All of the institutionalized spouse’s monthly income, except for a Personal Needs Allowance of $45.00 per month, and Medicare premiums must go towards long-term care costs.⁽²⁾ The institutionalized spouse can also transfer monthly income to the community spouse to bring the community spouse’s income up to the Minimum Monthly Maintenance Needs Allowance of $2,555.00 and in some cases up to the Maximum Monthly Maintenance Needs Allowance of $3,853.50 (based on one’s shelter and utility costs).⁽³⁾ The income of the community spouse is disregarded and does not impact the income eligibility of the institutionalized spouse.

If the institutionalized spouse has more than $2,829.00 of gross monthly income, then the resource or asset limit for countable (non-exempt) assets for the institutionalized spouse is $2,400.00. ⁽⁴⁾ Examples of “countable assets” include checking and savings accounts, stocks, bonds, brokerage accounts, and non-resident real estate. If the institutionalized spouse has gross income which is $2,829.00 or less, then the institutionalized spouse’s asset limit is $8,000.00. ⁽⁵⁾ In addition to the institutionalized spouse’s asset limit, a community spouse can keep half of the married couple’s countable assets, up to the maximum resource standard of $154,140.00 or $77,070.00. ⁽⁶⁾ Therefore, the maximum amount of countable assets is $85,070.00 and any excess assets would need to be spent down to become eligible for Medicaid. 

It is important to note that not all assets are “countable.” One motor vehicle, household goods and personal effects, burial spaces for immediate family, a properly funded irrevocable burial reserve, and certain business property are examples of property that can be considered non-countable (exempt). The residence of a single applicant is protected in 2024 to the extent its fair market value is under $713,000.00. ⁽⁷⁾ Married applicants can keep their residence regardless of value.

An applicant can spend down excess assets to meet Medicaid’s asset limit but they cannot gift their assets or sell them for less than fair market value. Any assets gifted or sold for less than fair market value will violate the Look-Back Rule. ⁽⁸⁾ However, the MCA is a way to spend down excess assets without violating the Look-Back Rule by converting non-exempt assets into an income stream and ultimately achieve that goal of qualifying for the desired long-term care.

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⁽¹⁾Annual Update of the HHS Poverty Guidelines, 89 Fed. Reg. 2961 (January 17, 2024).
⁽²⁾ 62 P.S. § 443.8
⁽³⁾ Center for Medicaid and CHIP Services Informational Bulletin, May 22, 2024; Updated 2024 SSI and Spousal Impoverishment Standards.
⁽⁴⁾ See id.
⁽⁵⁾ See id.
⁽⁶⁾ See id.
⁽⁷⁾ See id.
⁽⁸⁾ 42 U.S.C.A. § 1396p(c)(1)(B)(i)

Medicaid-Compliant Rules for Annuities

The MCA must be irrevocable which means that the payment amount, term, and parties cannot be canceled or modified once the MCA has been set up. The monthly payments must be of equal value and must be received every month starting immediately after the MCA contract has been signed. The MCA contract cannot be sold or assigned to another party. The term must be fixed and equal to or shorter than the life expectancy of whoever is receiving the monthly annuity payments, which would be the community spouse if the MCA is being used for the institutionalized spouse to become eligible for Medicaid. The beneficiary of the annuity must be the Pennsylvania Department of Human Services in the event of the annuitant’s death. ⁽⁹⁾

The MCA is initiated by transferring a lump sum of money to an annuity provider in exchange for equal amounts of monthly payments to the community spouse. After the transfer of the excess assets, the institutionalized spouse is eligible for Medicaid care coverage and the community spouse will receive a continuous stream of monthly income.

Estate planning is one of the most important things for individuals and families to do.  Planning early is vital to ensure generational wealth and that your desires are met.  If you or a loved one are considering long-term care, the most important thing is to act now. 

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⁽⁹⁾ 55 Pa. Code § 181.452(d)(2)

For more information about Elder Law and Medicaid Eligibility call us at (412) 209-3200 or email us at jjohns@PaLawFirm.com to schedule a free, no-obligation consultation.