How Medicaid Compliant Annuities (MCA) Help Persons Qualify for Long Term Care

Summary
To be eligible for Medicaid Long Term Care, you need to meet certain financial requirements, including an asset limit. If your assets are above the limit, you may be able to qualify by purchasing a Medicaid Compliant Annuity (MCA) that converts a lump sum of assets into income and complies with Medicaid rules (which most annuities do not).

What is a Medicaid Compliant Annuity?

Like all annuities, Medicaid Compliant Annuities (MCA) are financial products. Essentially, they are an agreement between the insurance company that sells the MCA and the person who buys it, who is called the “annuitant.” The agreement is that you, the purchaser/annuitant, will give the insurance company a lump sum of cash, and the company will return that cash to you in the form of monthly payments for a pre-determined length of time.

A Medicaid Compliant Annuity may also be called a Medicaid Friendly Annuity, a Medicaid Qualified Annuity or a Single Premium Immediate Annuity (SPIA).

Annuities & the 3 Types of Medicaid Long Term Care

Medicaid Long Term Care has three programs that are relevant to seniors – Nursing Home Medicaid, Home and Community Based Services (HCBS) Waivers and Aged, Blind and Disabled (ABD) Medicaid. ABD Medicaid can sometimes be referred to as regular Medicaid for seniors, but it should not be confused with the regular or state Medicaid that is available to financially-needy people of all ages.

Medicaid Compliant Annuities can be used with all three types of Medicaid Long Term Care. However, they are most commonly associated with Nursing Home Medicaid and HCBS Waivers. We will explain why they are not normally used with ABD Medicaid below.

Understanding Medicaid Financial Eligibility

To qualify for any of the three Medicaid Long Term Care programs, applicants have to meet financial criteria – an asset limit and an income limit. A Medicaid Compliant Annuity can help applicants get below asset limits, but it also affects income, so understanding both of these financial limits is important when it comes to understanding Medicaid Compliant Annuities.

Assets
In most states in 2024, the individual asset limit for all three Medicaid Long Term Care programs is $2,000, and it’s $3,000 or $4,000 for married couples with both spouses applying for Medicaid. For married couples with only one spouse applying, the 2024 asset limit in most states is $2,000, but when it comes to Nursing Home Medicaid and HCBS Waivers, the asset limit for the non-applicant spouse can be as much as $154,140, depending on the circumstances. That high asset limit for the non-applicant spouse is due to the Community Spouse Resource Allowance. But the Community Spouse Resource Allowance does not apply to ABD Medicaid, so the asset limit for married couples with only spouse applying for ABD Medicaid is still either $3,000 or $4,000 in most states in 2024.

Most assets are counted toward the income limit – bank accounts, retirement accounts, stocks, bonds, certificates of deposit, cash and anything that can be easily converted. However, some assets may not be counted. These non-counted assets, also known as “exempt,” can include the applicant’s primary home, primary vehicle and personal belongings like a wedding ring. More on how Medicaid counts the home.

There are, however, many exceptions to these asset limits. Like in California, where there are no asset limits. In New York, for example, the 2024 individual asset limit for all three types of Medicaid Long Term Care is $31,175, and for married couples with both spouses applying it’s $42,321. In California, there is no asset limit. And in Illinois the asset limit is $17,500 for all three types of Medicaid Long Term Care.

Income
In most states in 2024, the individual income limit for Nursing Home Medicaid and Home and Community Based Services (HCBS) Waivers is $2,829/month, and it’s $5,658/month for married couples with both spouses applying. The income limits for Aged, Blind and Disabled (ABD) Medicaid vary more widely, ranging from $943/month to $1,751/month for an individual, and between $1,415/month and $2,593/month for married couples with both spouses applying.

For married couples with only one spouse applying for either Nursing Home Medicaid or HCBS Waivers, the income of the non-applicant spouse is not counted. But the income of the non-applicant spouse is counted when it comes to ABD Medicaid, so the 2024 income limit is still between $1,415/month and $2,593/month for married couples with only one spouse applying for ABD Medicaid, just like it is when both spouses are applying. Almost all income is counted toward the income limit – Social Security benefits, pension payments, IRA payments, property income, alimony, stock dividends, salary, etc.

Again, these income limit figures are just generalities and there are some exceptions. For example, there is no income limit for Nursing Home Medicaid in California, but the California income limit for HCBS Waivers and ABD Medicaid is $1,732/month for an individual and $2,352/month for married couples with both spouses applying, effective April 2024 to March 2025. After that, they will probably change. In Maryland, the income of Nursing Home Medicaid applicants is not allowed to exceed the cost of care (nursing homes cost about $8,100/month in Maryland), while the income limit for both HCBS Waivers and ABD Medicaid is $350/month for an individual and $392/month for married couples with both spouses applying. But Maryland allows those applicants to keep their Supplemental Security Income (SSI), if they receive any, which can be as much as $943/month for an individual and $1,415/month for married couples.

It should also be noted that Nursing Home Medicaid beneficiaries must give most of their income to the state to help cover the nursing home costs. They are allowed to keep a small personal needs allowance (usually between $30/month and $200/month)

How Medicaid Compliant Annuities Affect Eligibility

Even if you or your loved one has assets over the asset limit, you can still become eligible for Medicaid Long Term Care. You can do this by “spending down” your assets until they are at or below the limit. There are rules about spending down, like what you can spend on and when you can spend it. Medicaid Compliant Annuities are one of the items you are allowed to spend on. More on spend down.

When you buy a Medicaid Compliant Annuity (MCA), the value of the annuity is no longer counted against the asset limit. For example, if you are single and live in a state with a $2,000 asset limit, but you have $52,000 in assets, you can buy an MCA for $50,000 and become Medicaid eligible because you would only have $2,000 in countable assets remaining.

To make sure Medicaid Long Term Care applicants don’t simply give away their money to become eligible, Medicaid uses the Look-Back Period. The Look-Back Period in most states is five years. This means Medicaid state officials will look back into your financial records for the five years before you applied for Medicaid Long Term Care to make sure you didn’t give away any assets, or sell them at less than fair market value. If you did violate the Look-Back Period, your application will be denied and you will likely be penalized with a period of Medicaid ineligibility that could last months or years. To learn more about the Look-Back Period, click here.

Medicaid Compliant Annuities do not violate the Look-Back Period. This means you can purchase them at any time before applying to help reduce, or spend down, your assets and become Medicaid eligible.

However, and this is very important, the income generated by your Medicaid Compliant Annuity will count toward your income limit. So, the example we used above where you had $52,000 in assets and bought a $50,000 annuity to meet the asset limit would only work if the income generated by that annuity did not put you over the income limit in your state. The monthly payouts depend on your age (as well as the total value of the MCA), so you would need to add that payout to all of your other income and see if you would meet your state’s income limit before purchasing the MCA to help with your eligibility.

As you can see, using MCAs to help you qualify for Medicaid Long Term Care is complicated. If you don’t use them correctly, your Medicaid application will be denied and you could be penalized with a period of Medicaid ineligibility for months or even years. That’s why we strongly recommend consulting with a Certified Medicaid Planner or Elder Law Attorney before attempting to use this strategy.

Best Situations for a Medicaid Compliant Annuity

As we mentioned above, Medicaid Compliant Annuities can be used with all three types of Medicaid. They can also be used by individuals, married couples with both spouses applying and married couples with only one spouse applying.

Medicaid Compliant Annuities can be helpful under any of those circumstances. But the best situation for Medicaid Compliant Annuities is when you’re married but only one spouse is applying for either Nursing Home Medicaid or Home and Community Based Services. This is because the income of the non-applicant spouse is not counted against the income limit. So, the couple could use their assets (which would be counted against the asset limit of the applicant spouse) to purchase an annuity where the income would go to the non-applicant spouse and not count against the income limit. The non-applicant spouse can then count on the MCA payments as a regular monthly income and use it to maintain their quality of life.

Since spousal income is counted when it comes to Aged, Blind and Disabled (ABD) Medicaid, married couples applying for ABD Medicaid are less likely to use a Medicaid Compliant Annuity.

Types of Annuities

There are many types of annuities and not all of them will help you qualify for Medicaid. The following are general categories describing annuities that can help you have a better understanding of annuities as a whole and Medicaid Compliant Annuities in particular.

Immediate Annuity
This type of annuity begins making payments immediately after it’s purchased, hence the name. Annuities must be immediate to be Medicaid compliant and help you reduce your assets. Immediate annuities are also irrevocable, which means they can not be altered, canceled or cashed in. Annuities must also be irrevocable to be Medicaid compliant.

Deferred Annuity
This kind of annuity defers payments as opposed to making them immediately. Deferred annuities are not Medicaid compliant. A deferred annuity can also be called a tax-deferred annuity or a longevity annuity. Deferred annuities are also revocable, which is another reason they are not Medicaid compliant. If you already have a deferred annuity, there are ways to convert it into an immediate annuity, but you should consult a Certified Medicaid Planner, Elder Law Attorney or financial advisor before attempting to make that conversion on your own.

Variable/Fixed Annuity
With a variable annuity, the monthly payments can vary depending on the investments of the annuity. Insurance companies will invest the money paid for these types of annuities and then use the payout from those investments to calculate and make the payments. The opposite of a variable annuity is a fixed annuity where the payments are guaranteed to be the same every time. In most cases, annuities must be fixed to be Medicaid compliant.

Lifetime Annuities
This type of annuity will make payments for the lifespan of the person who purchased the annuity, “the annuitant,” in technical terms. Lifetime annuities are not Medicaid compliant. Medicaid Compliant Annuities base their payment schedule on the estimated life expectancy of the annuitant rather than guarantee payments until their death.

Medicaid Compliant Annuity Rules

As you could see in the previous section, annuities must follow certain rules to be Medicaid compliant. States can make their own rules about Medicaid Compliant Annuities, so it’s important to check the rules in your state before purchasing an annuity to help you qualify for Medicaid. However, the following rules are fairly consistent across most states.

Medicaid Compliant Annuities must be:

• Fixed – payments must be the same amount every month
• Immediate – payments begin as soon as the annuity is purchased
• Irrevocable – the annuity can not be changed, canceled or altered once it is purchased
• Non-transferable – the annuity cannot be transferred or sold to another person.
• Actuarially sound – payments must be based on the life expectancy of the annuitant
• Pay back what it cost – the annuitant must be scheduled to receive, in monthly payments, the original price of the annuity
• Name the state as beneficiary – the annuitant’s state of residence is beneficiary, which means it will receive all remaining funds in the annuity upon the annuitant’s death to help cover the cost of their Medicaid Long Term Care costs

Again, these rules apply in most states with most annuities, but there are exceptions. And if you purchase an annuity that does not comply with Medicaid rules, your Medicaid application will be denied and you may be penalized with a period of Medicaid ineligibility that could last months or even years.

Since there are so many rules and the stakes are high, we recommend consulting with a Certified Medicaid Planner or an Elder Law Attorney before purchasing an annuity. We also want to warn you about insurance salesmen who may be giving you Medicaid planning advice while they are also trying to sell you an annuity. Their top priority is selling you the annuity, not making sure you qualify for Medicaid, so taking their advice without getting a second opinion, or listening to their advice at all, is not recommended.

Cost of a Medicaid Compliant Annuity

Most of the time, Medicaid Compliant Annuities don’t cost anything. The insurance company will earn its money by investing the lump sum of money you paid for the annuity. The exception to this rule is when the annuitant’s life expectancy is short (less than two years), which will make the time-frame for the monthly annuity payments short as well. In these cases, the fee to purchase a Medicaid Compliant Annuity is usually around $1,300.