Proposed change in the way Medicaid treats annuity income

If you're seeking Medicaid long-term care benefits and want to preserve assets, consult a certified elder law attorney. Medicaid law is extraordinarily complex and always in a state of flux, so relying on an expert is essential. The Medicaid office will not provide tips on how to secure benefits any more than the IRS will point you to the latest tax-saving strategies!

Among the proposed changes to Medicaid law currently on the table is HB 1771, introduced in Congress last spring. The experts seem to think passage is a long shot, but it still merits monitoring. If  passed, it would dramatically modify the way in which Medicaid treats annuity income for married couples. 

Here, from my website, is the current rule regarding annuity income and Medicaid eligibility: "Annuities will be considered an asset, unless they are annuitized and the applicant or applicant’s spouse is taking equal monthly installments in an actuarially sound fashion. Applicants and their spouses must disclose to the State of Florida any interest they have in annuities. If the annuity was purchased on or after November 1, 2007, or if other transactions that change the course of an annuity payment or treatment of income or principal have been made on or after November 1, 2007, the state must be named as the remainder beneficiary either at the time of Medicaid benefits approval, or upon recertification. Also, the state must be named as a remainder beneficiary in the first position for the total amount of Medicaid assistance paid by the state on the applicant’s behalf. If the applicant has a spouse, minor child or disabled child, the state must be named as the remainder beneficiary either in the first position, or the second position after the spouse, minor child or disabled child."

If the proposed law passes, a portion of the well spouse's annuity income would be available to the Medicaid applicant: 

• One half of the income the well spouse receives from an annuity that pays income only to the well spouse, would be considered the Medicaid applicant's available income.

• If the annuity pays income to both the well spouse and applicant, one-half of the well spouse's income would be considered available to the applicant. 

• If the annuity pays income to the well spouse and another person, then one-half of the well spouse’s portion would be considered available to the applicant.

These changes could conceivably push an applicant's income out of eligibility range ($2,199.00/month effective 1/1/15), requiring the use of a Qualified Income Trust for Medicaid planning purposes.

Generally speaking, I am wary about using annuities as Medicaid planning tools. There are serious downsides to doing so, and purchasing an annuity is no guarantee of Medicaid eligibility. However, if you already have one, the proposed change could make a big impact on you if you are married and apply for benefits. 

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Click here to read about current Medicaid eligibility rules in Florida. 

Read the text of HR 1771 here.