LTC Bullet:  LTC Annuities:  To Get or Avoid Medicaid?

Friday, June 19, 2015

Nashua, New Hampshire—

LTC Comment:  Annuities have a powerful role to play in funding long-term care.  But for good or ill?  That’s the question we’ll tackle after the ***news.*** [omitted]



LTC Comment:  The LTC insurance world is abuzz with news on “hybrid” products that combine long-term care protection with life insurance or annuities.  Great, bring it on; that’s a fine way to employ equity-based insurance products.  The market can use all the ways it can find to attract consumers and provide coverage for the LTC risk.  Except one!

LTC Bullets readers are no strangers to that one kind of annuity for LTC that does more harm than good.  We’ve published about Medicaid-compliant or Medicaid-friendly annuities several times.  For example:  LTC Bullet:  Annuity Blues, 11/15/13 and LTC Bullet:  How to End Medicaid Annuity Abuse, 2/28/14.  Most recently we wrote about North Dakota’s ambitious, but unsuccessful fight to curb Medicaid-annuity abuse in court:  LTC Bullet:  Medicaid Annuity Abuse:  A Case Study, June 5, 2015.

Medicaid Annuities vs. Medically-Underwritten Annuities

In a nutshell, Medicaid annuities are single-premium immediate annuities (SPIAs) so designed as to comply with federal and state rules.  They can easily be configured to protect hundreds of thousands, even a million, dollars or more from the welfare program’s “spend down” rules.  We’ve explained in the Bullets listed above how that’s done.  Today, our objective is to compare and contrast Medicaid-compliant annuities (MCAs) with medically underwritten annuities (MUAs) for long term care expenses

MUAs enable people with assets, shortened lifespans and a need to pay for long-term care to purchase annuities with higher payouts than regular annuities because of the annuitant’s reduced life expectancy.  OneAmerica’s* “ImmediateCare” product is an example the company describes thus:

ImmediateCare is a medically underwritten single premium immediate annuity designed to help fund the cost of an existing long-term care need with monthly payments guaranteed for life. No matter how long care lasts, ImmediateCare can help maintain the level of quality care desired, while at the same time protecting assets from the costs associated with an extended care stay.

ImmediateCare’s issue ages are 75-99 and its primary market is for ages 80-95.  For more on MUAs, including how they’re used in the UK, see actuary Vince Bodnar’s guest column LTC Bullet:  Medically Underwritten Annuities for LTC, May 15, 2015

Comparing MCAs and MUAs

MCAs and MUAs have some similarities.  They both utilize SPIAs.  They are both usually employed after expensive long-term care becomes necessary.  They can both involve large sums of money.  But these superficial similarities mask the two products’ huge differences in purpose and outcome.

MCAs are often purchased for huge sums of money, $400,000 in the example we highlighted in LTC Bullet:  Medicaid Annuity Abuse:  A Case Study, June 5, 2015.  MUAs usually involve smaller amounts, $100,000 or less.

MCAs are bought to protect assets from Medicaid spend down.  MUAs are purchased to empower families to pay privately for long-term care.

MCAs result in affluent individuals becoming dependent on Medicaid, a means-tested public assistance program, i.e. welfare.  MUAs enable annuitants to purchase red-carpet access to top-quality long-term care across the spectrum of care venues.

MCAs are a path to Medicaid-financed nursing homes.  MUAs help to pay for the most appropriate level of care in the home, assisted living, or a nursing home when necessary.

MCAs shift Medicaid expenditures from the genuinely needy to the legally savvy affluent.  MUAs benefit the poor and taxpayers by helping people with assets to avoid Medicaid dependency.

MCAs are often hawked by lawyers and insurance representatives who likely know better solutions exist, but instead select these dubious manipulations of the Medicaid system.  MUAs are quality products offered by honorable carriers and producers.

So there you have it.  Is the best use of LTC annuities to get or avoid Medicaid?  You be the judge.

*Full disclosure:  OneAmerica is a long-time corporate supporter of the Center for Long-Term Care Reform.