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Medicaid Compliant Annuity Planning for a Married Couple

In 2005 the Deficit Reduction Act of 2005 ("DRA") legislation was passed in most states. With the passage of this legislation it is clear that a Medicaid Compliant Annuity is still a viable planning tool for a married couple who wants to qualify the institutionalized spouse for Medicaid benefits.

When planning for a married couple the goal of a Medicaid Compliant Annuity plan is to qualify the institutionalized spouse for immediate Medicaid eligibility while providing the community spouse with sufficient income and resources to maintain his or her lifestyle within the community. Below we will show an example of a Medicaid planning opportunity for married couples in a post-DRA crisis Medicaid situation.

Case Facts

Let's assume that Mr. and Mrs. Smith are both 76 years of age. On January 1, 2012, Mr. Smith entered a Ohio nursing home, wherein he is receiving custodial nursing home care. Now in Ohio Medicaid will only allow the community spouse living at home to have . The Smiths have a home, one automobile, and standard household furnishings of $300,000. They also have $75,000 in a savings account, $50,000 in a checking account, and $250,000 in an investment account. Mrs. Smith is entitled to retain a community spouse resource allowance of $113,640, while Mr. Smith may only retain an individual resource allowance of $1,500, leaving a net spend-down amount of $261,360.

After meeting with an Ohio elder law attorney on January, Mrs. Smith realized that with the nursing home currently charging $6000 per month, without a Medicaid plan, their spend-down amount of $261,360 would be exhausted in approximately 43 months. This leaves Mrs. Smith will nothing left but the $113,640.

Medicaid Compliant Annuity

In order to eliminate the net spend-down amount, and to immediately qualify Mr. Smith for Ohio Medicaid benefits, Mrs. Smith's elder law attorney recommended that she purchase a Medicaid Compliant Annuity. As such, in February of 2012, Mrs. Johnson invested $261,360 into a Medicaid Compliant Annuity, which provided the following guaranteed monthly payments:

Months 1 - 96: $ 2,722.50

Total Payout: $ 261,360

With Mrs. Smith having a 8 year/96.0 month Medicaid life expectancy, and with her Medicaid Compliant Annuity returning more than $261,360 to her within her Medicaid life expectancy, the Medicaid Compliant Annuity is deemed "actuarially sound," and is a viable Medicaid planning tool.

Monthly Co-Pay Amount

Along with the Medicaid annuity payments, Mrs. Smith is allowed to keep all of her Income. On the assumption that Mrs. Smith has $1,100 of monthly social security income and with the monthly payment from her Medicaid Compliant Annuity taken into consideration, her total monthly income equals $3,822.50 for 8 years. With her total monthly income exceeding her maximum Ohio monthly maintenance needs allowance of $3,822.50, Mrs. Smith is not entitled to receive any monthly income from Mr. Smith.

On the assumption that Mr. Smith has $1,500 of monthly social security income, his Medicaid monthly co-pay to the nursing home equals $1,465. Then Medicaid will pay the reaming $4,500 of Mr. Smith's nursing home care.

Monthly Savings

With Mr. Smith paying approximately $6,000 per month for his nursing home care, by qualifying for Ohio Medicaid benefits, and with Mr. Smith's Medicaid monthly co-pay being only $1,465, the Smiths will save $4,535 per month.

Noteworthy facts

  • Should Mr. and Mrs. Smith not proceed with the aforementioned Medicaid Compliant Annuity plan, and instead continue to privately pay, their spend-down amount of $261,360 would have been exhausted in approximately 43 months.
  • By opting to proceed with the aforementioned Medicaid Compliant Annuity plan, Mr. Smith obtained immediate Ohio Medicaid eligibility, and potentially saved $261,360.
  • In a community spouse case, where the community spouse purchases a Medicaid Compliant Annuity in order to eliminate the spend-down amount, the concern following DRA is that upon the death of the community spouse any residual benefits remaining in the Medicaid Compliant Annuity will revert to the state Medicaid program. Likewise, in the above example, if Mrs. Smith does not survive the 96-month term of her Medicaid Compliant Annuity, the Ohio Medicaid program would be entitled to collect the residual benefits remaining in her Medicaid Compliant Annuity, to the extent that medical assistance benefits were provided to the institutionalized individual.

To reduce the exposure of a Medicaid reimbursement claim, Mrs. Johnson could reduce the 96-month term of her Medicaid Compliant Annuity to something less. It is recommended that above all else that the Medicaid Compliant Annuity's period certain should not be so short as to create an unreasonable amount of monthly income. Essentially, the total monthly income to be received by Mrs. Smith should be reasonable in light of her current and future monthly needs.


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