LTC Bullet:  HCFA OKs Estate Recovery of Annuity Proceeds

Monday April 3, 2000


The Health Care Financing Administration (HCFA) recently ruled that annuity proceeds may be included in the definition of "estate" for purposes of Medicaid estate recovery. The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) requires states to recoup the cost of care from the estates of deceased Medicaid recipients. This extra non-tax revenue helps the program provide better care to more people. The HCFA ruling allowing for recovery of annuity proceeds was described in a January 24, 2000 letter from the HCFA Region IX office to the California Department of Health Services. A fax copy of the letter can be requested from Talia Clever, the Center for LTC Financing's Research Coordinator [omitted].

Medicaid planners use annuities to convert a client's "countable" cash into an "exempt" asset to help qualify the client for Medicaid's long-term care benefits. The annuity itself is an exempt asset, while annuity payments are includable in the Medicaid recipient's income (which generally must be contributed to the cost of care). Upon the death of the Medicaid recipient, the balance of payments has been allowed to go to a designated beneficiary instead of to the state to repay Medicaid.

Now, states have HCFA's approval to recover this money. Specifically, the HCFA ruling allows states to recover annuity proceeds under a broad definition of "estate" which includes any property or arrangement in which the Medicaid recipient has any "legal title or interest at time of death" (42 U.S.C. 1396p(b)(4)). A state cannot collect until 90 days after HCFA amends the Medicaid rules in its State Medicaid Manual and no recovery can be made until after the death of any surviving spouse or dependent child.

Hooray for HCFA! This ruling makes it more difficult for Medicaid planning clients to rely on welfare while preserving assets for heirs--a perverse consequence of current public policy that must be corrected if Americans are serious about saving our scarce public resources for the truly needy. HCFA's ruling also sends a clear message to seniors and boomers alike that you're better off avoiding Medicaid altogether by planning ahead to pay privately for your long-term care.