Whether a MassHealth applicant is single, or married, immediate annuities are among the tools elder law attorneys use to help a MassHealth applicant qualify for Medicaid coverage. If the applicant is married, an immediate annuity might help married nursing home residents qualify for Medicaid coverage while protecting the standard of living of the healthy spouse. If the applicant is unmarried, an immediate annuity might help preserve assets for the families of unmarried or widowed nursing home residents.

Immediate annuities can help Medicaid applicants in three basic ways:

• First, when one spouse enters a nursing home most couples must spend down their savings to approximately $120,000 before the nursing home spouse will qualify for Medicaid. Purchasing an immediate annuity can convert assets into an income stream for the healthy spouse while avoiding a penalty for transferring assets;
• Second, an institutionalized individual can buy an annuity that will provide income to pay the nursing home while waiting out a Medicaid penalty period caused by a gift made within the previous five years; or,
• Third, it might be possible for an individual needing nursing home care to purchase an annuity, become eligible for Medicaid benefits, and have loved ones receive some benefit from the annuity after the state Medicaid agency has been reimbursed to the extent the it is entitled to reimbursement.

Some states, including Pennsylvania, have maintained that short-term annuities are subject to a transfer penalty.  However, Third Circuit Court of Appeals has ruled that Medicaid officials must accept applicants’ short-term annuities, and that these types of annuities cannot be counted as resources and be made subject to penalty.  Zahner v. Secretary Pennsylvania Dept. of Human Services (3rd Cir., Nos. 14-1328, 14-1406, Sept. 2, 2015).

The Third Circuit Court of Appeals found nothing in federal Medicaid law to suggest that an annuity cannot be shorter than a person’s actuarial life expectancy.  The only requirement, the court said, is that the annuity not be longer than the beneficiary’s life expectancy, to prevent people from purchasing overly long annuities as a way to leave money to heirs. The court further held that an annuitant’s motive in purchasing an annuity should not determine whether it is viewed as a resource.  Although the Third Circuit is only one of 13 federal appeals courts, the court noted that its opinion is “precedential” federal law for Medicaid-compliant annuities. While the decision provides more certainty, immediate annuities must still meet a number of stringent requirements to be accepted as legitimate by Medicaid authorities.  Families considering them should get help from a qualified elder law attorney.   To read the court’s decision, click here.