LTC Bullet: Help Wanted--How are Medicaid Friendly Annuities Negotiable?

Monday, December 27, 2004


LTC Comment: So-called Medicaid friendly annuities are used all across the country to shelter hundreds of thousands of dollars per case from Medicaid eligibility rules. The practice undermines Medicaid's ability to be a safety net for the poor, devastates state and federal budgets, and chills the market for private financing alternatives. We received the following inquiry from a state attorney general's office today. Please click "reply" to this email and pass on any answer or suggestion you may have. We'll forward your comments to the inquirer who prefers to remain anonymous. Happy New Year!

EXTRA: To read a report titled "The Role of Annuities in Medicaid Financial Planning: A Survey of State Medicaid Agencies" compiled by the Annuities Work Group of The Eligibility Technical Advisory Group of The National Association of State Medicaid Directors and published October 2003, go to .


Edited inquiry from a lawyer who specializes in Medicaid with a state attorney general's office:

We are having a difficult time persuading the LTC state agency's hearing officer that an applicant for spousal Medicaid LTC can and should be required to sell the annuity (or rather the income stream) they purchased through a Medicaid planner in order to spend down excess resources, usually within the $100,000 to $300,000 range. There apparently is a growing secondary market of buyers of these annuities or incomes streams, albeit at a loss to the Medicaid applicant. The attorneys representing these applicants point to the nonassignment, irrevocable, "Medicaid friendly" terms of the annuity contract to support their point that any amount of excess resources can be spent down by purchase of a single premium immediate annuity, turning the resources into income for the community spouse. As you know the community spouse income is not countable for eligibility purposes. The purchase of the annuity is done at the time of the Medicaid application. It is the biggest loophole we are dealing with in our state.

North Dakota and so far New Jersey have successfully used the principle that if one can sell an annuity or the stream of income then the proceeds amount to a resource that should be used to care for the annuitant's spouse. It would only take one case like that in this state and there would be no more sale of annuities to shelter assets. The Feds Transmittal #64, supposedly explaining OBRA '93's law of trusts and annuities, is the real culprit when it comes to a common sense understanding of how annuities should be treated.

My problem is mechanical or technical as in "how to." The hearing officer believes that if the annuity contract states it is irrevocable and nonassignable, then neither the contract nor the stream of income can be sold or surrendered, etc. It must be counted as community spouse's income which does not count at all. This is a beautiful ploy, because the applicant can wait until the last possible moment before application (or even during the process) to shelter the excess assets. I know these annuities are then being turned into more flexible products or even cash. I just cannot prove how the annuitant can sell the thing and turn it back into a resource. In the last hearing, the officer did not accept the explanation given in North Dakota's recent GROSS case about the market for such sales, etc. This case is the first and best and possibly the only case from a state supreme court. However, I need better proof.

Do you or your organization know of an annuity expert who could either testify or at least give me some pointers on how annuitants can get around these contract terms? I have a case in which I believe the spouse actually exchanged the "irrevocable" annuity for cash and another revocable insurance product before the briefing on the appeal to Superior Court was complete. Any suggestion would be much appreciated.