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Federal Court Considers Annuities in Context of Medicaid Eligibility

Posted by Andrew Byers | Oct 31, 2015 | 0 Comments

I purchased an annuity several years ago. Does this asset impact future Medicaid eligibility?

When it comes to planning for long-term care, many Americans are beginning to consider the option of applying for Medicaid benefits – which, unlike Medicare, provide coverage for the staggering costs of full-time skilled nursing care. Also unlike Medicare, in order to qualify for Medicaid, certain asset and income criteria must be met. 

Medicaid planning involves restructuring one's financial affairs in order to qualify for Medicaid without totally depleting one's estate.  In many instances, an applicant is permitted to keep his or her home and one vehicle, particularly if the applicant's spouse is not yet in need of long-term care. Otherwise, most investments and accounts must be transferred or depleted prior to applying for coverage.

In one recent case decided by the U.S. Court of Appeals for the First Circuit, the court was confronted with whether an annuity was considered a “countable” asset for purposes of eligibility. In that case, the Pennsylvania Department of Human Services determined that the applicant's recent annuity purchase was a “sham,” and transacted solely for securing eligibility to Medicaid benefits. Accordingly, the DHS office implemented a penalty period against the applicant congruent with the value of the annuity, and the applicant appealed the decision.  This was a strange argument for the state to make as Medicaid law has allowed for the use of Medicaid-compliant annuities for over 30 years.

In considering whether the annuity “counted” as an asset for purposes of assessing a penalty period, the court reviewed the “safe harbor” provisions implemented by Congress in the Medicaid law that, when applicable, excludes annuities from being considered as a “resource.” Accordingly, the court reviewed the four requirements for an exempt annuity, including:

  • The annuity must name the State as the remainder beneficiary
  • The annuity must be irrevocable and non-assignable
  • The annuity must be actuarially sound
  • The annuity must provide for payments in equal amounts during its term ,having no deferral or balloon payments

After a lengthy analysis, and careful consideration of the state's arguments against exempting the annuity, the court ultimately determined that – since Congress had not implemented a length requirement on the term of the annuity (this applicant's annuity lasted just 10 months) -- there was no inherent presumption that the transaction was a “sham” and concluded that the applicant's Medicaid application should have been approved.

In my opinion, Medicaid-compliant annuities are an important tool in the elder law attorney's toolbox, but should be reserved for use in the right circumstances.  The important things to remember from this case is that the federal Medicaid law controls the state Medicaid agencies and elder law attorneys can help seniors to prevent the devastating financial effects of long term care.

About the Author

Andrew Byers

Andrew Byers' elder law practice focuses on the legal needs of older clients and their families, and works with a variety of legal tools and techniques to meet the goals and objectives of the older client. Under this holistic approach, I handle estate and longevity planning issues and counsel cli...

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