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What is a Medicaid Annuity?

A Medicaid-compliant annuity can be especially beneficial for couples, where one person needs a nursing home and the other doesn’t.

A common situation happens to many elderly people—needing long-term nursing home or assisted living care—without having the money to pay for it. These people may think about applying for Medicaid, the joint federal-state program that offers health coverage to eligible low-income seniors, but because they have a little too much money to qualify, they try to do a Medicaid “spend down.”

U.S. News and World Report’s recent article asks “What Is a Medicaid Annuity?”.  While many people have heard “spend down” as a strategy for qualifying, Medicaid spend downs are often as bad as they sound. If you have a situation where your father needs Medicaid to pay for a nursing home but your mother’s health is OK, you can drain their savings to make your father poorer and eligible, but then your mom will have even less on which to live.

That’s why some people use a Medicaid-compliant annuity.

A regular annuity is a fixed sum of money that’s usually paid every year indefinitely for the rest of a person’s life. When people purchase a typical annuity, it’s frequently deferred. That means the payout doesn’t happen for some time.

However, Medicaid-compliant annuities are immediate annuities—paid out immediately. A Medicaid-compliant annuity gives you a lump sum of cash, in exchange for a guaranteed income stream that will help your spouse who isn’t moving into a nursing home maintain his or her quality of life.

Medicaid-compliant annuities aren’t a do-it-yourself project or an investment strategy. Talk to an elder law attorney. He or she will educate you on how it works for Medicaid planning. There are tax issues and life expectancies to consider.

Also, you should be careful: don’t confuse a Medicaid-compliant annuity with what an insurance agent may call a “Medicaid-friendly” annuity.

A Medicaid-compliant annuity can be a good solution, especially for couples when one of them requires nursing home care, and the other doesn’t.

Reference: U.S. News and World Report (May 29, 2019) “What Is a Medicaid Annuity?”

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