ARE ANNUITIES A VIABLE PLANNING OPTION FOR MEDICAID?

In the past, a common Medicaid planning technique for a married couple seeking Medicaid assistance for one spouse’s long-term care needs was to purchase an annuity in the name of the spouse who did not require long-term care. Purchasing an annuity would preserve additional assets for the benefit of the “community spouse.”

For example, assume that a married couple had $200,000 in assets and that the husband needed nursing home care. Medicaid will allow the wife, the “community spouse,” to retain $87,000 of the couple’s assets, called the “protected share.” The husband can retain $2,000. So, in my example, the couple has $111,000 too much to qualify for Medicaid ($200,000 – $89,000 = $111,000).

Elder law attorneys might have advised this couple to purchase an annuity that is “actuarially sound” in the name of the wife. If the couple used $100,000 to purchase an annuity then the $100,000 would be sheltered. In order to be “actuarially sound,” the annuity would have to pay back principal and interest to the wife over a period of time that is either equal to or less than her life expectancy. If her life expectancy were 10 years, the annuity would have to pay her the $100,000 of principal and interest over 10 years or less.

You can also see how the use of annuities would help shelter significant amounts of assets for the benefit of the community spouse. Our wife in my example is not just retaining $87,000; she’s retaining $187,000. And there was no limit to the amount of money that could be placed in an annuity. The result would be the same with $1,000,000.

As I explained in a previous article, the State doesn’t like this planning technique, so they passed a new regulation. The regulation says: If you purchase an annuity in the name of the wife that part of the annuity’s value that exceeds the “protected share” will be treated as available to the couple, disqualifying the husband from Medicaid.

Well, the Centers for Medicare and Medicaid Services (CMS) – the federal department responsible for administering the Medicaid program – has issued two opinion letters. One of the letters addresses a Nevada State statute that is very similar to New Jersey’s regulations regarding the treatment of annuities.

The letters uniformly sanction the use of annuities as a viable planning technique. The Nevada Letter, which is in reply to two letters from the Nevada State Attorney General, ends with the following: “Nevada’s policy regarding its treatment of annuities is in violation of [federal law]. We request that the State modify its annuity policy to comport with CMS’s policy regarding this matter.” The other letter states: “To summarize, if the annuity [is irrevocable and actuarially sound], it would not be counted as an available resource in determining the institutionalized spouse’s eligibility, nor would it be treated as a transfer of assets for less than fair market value.”

This issue is important for two reasons. One, because an annuity is a great planning technique for married couples. Two, because the issue demonstrates something about the State’s position with regard to Medicaid planning.

Medicaid is a federal and state law, but federal law is entitled to supremacy. States cannot impose a law more restrictive than federal law. But they do.

Time and time again, States attempt to impose laws that are more restrictive than the federal law allows. And, when you point this fact out to the workers at the Medicaid office, they reply “that’s Medicaid” – as if Medicaid weren’t a law at all but a figment of their imagination, subject to change at a whim. Now, more than ever, the elderly need advocates to stand up for them.