Annuities may cause problems with Medicaid

momsquad · May 8, 2012, 7:21am

Many of us are dealing with elderly parents, so I thought I would share this information. I recently learned from my mother’s attorney that she will never be eligible for Medicaid (Medi-Cal here in California) because of her stream of revenue from charitable annuities. She is proud of this, but if she ultimately requires full time care she will likely deplete her savings within her lifetime and be limited in residential choices to what she can afford with her annuity income and whatever her children can contribute. With the average cost of nursing homes exceeding $70,000 per year, it is something to consider in making plans for retirement.
From a 2005 article:
[Annuities</a> May Cause Problems With Medicaid](<a href=“http://www.fa-mag.com/component/content/article/1257.html?issue=62&magazineID=1&Itemid=27]Annuities”>http://www.fa-mag.com/component/content/article/1257.html?issue=62&magazineID=1&Itemid=27)

Medicaid, the state and federally funded public assistance program, might be off the radar screen for financial advisors selling annuities to senior clients for retirement planning.
It shouldnt be, attorneys say. Problems could arise if a client needs nursing home care and runs out of money. The wrong kind of annuity could prevent him or her from qualifying for the program that funds more than half of the nations long-term care.
On the other hand, a client may be able to keep certain types of annuities and still qualify for Medicaid. But the hodgepodge of state and federal rules governing Medicaid is changing faster than elder law attorneys can track. As states and Congress feverishly search for ways to cut the mounting budget deficit, many attorneys predict that the heavily promoted Medicaid annuity loophole might soon be cut further. Plus, even the right Medicaid-eligible annuity could be wrong for your clients circumstance.

dstark · May 8, 2012, 7:25am

Thanks for the heads up.

Montegut · May 8, 2012, 11:13am

I recently attended a seminar on veterans benefits that talked about long term care insurance disqualifying you in some cases for receiving veterans benefits. I know many people who have their fathers in nursing homes where most of the funding is provided by their veterans benefits.

I am still seeking veterans benefits for my mother, who went from assisted living to a nursing home, and many tried to dissuade me from applying for veterans benefits, that they would prevent her from getting Medicaid. As I am not sure she’ll even qualify for Medicaid when it comes that time, I’m trying to get any help I can. As a surviving spouse, she’ll get a quarter of what the veteran himself would get, but putting that with her Social Security will lessen the amount we her children have to contribute every month for her care.

So, in short, not only annuities, but veterans benefits, may disqualify you for Medicaid as well.

momsquad · May 8, 2012, 12:00pm

It’s frustrating, because many very wealthy people are taking advantage of the Medicaid benefit having followed the advice of savvy advisors to liquidate their assets in such a way that they are not factored into the eligibility formula. Yet a veteran’s family has to worry about affording a safe and comfortable old age because of the obscure and often confusing rules.

mnmomof2 · May 8, 2012, 12:15pm

It’s a tough subject. Very complicated and decisions made earlier in life have profound effects down the road. My mom paid full ride for my Dad’s care for years while people in the same place (with more money!) were full pay by Medicaid just because they were more informed about how to get Medicaid. Something is going to have to change with long term care; we middle agers are going to break the system!

parent1986 · May 8, 2012, 12:27pm

Veteran’s benefits can disqualify you for Medicaid to pay a nursing facility because the Veteran’s benefits will pay for it. There are special nursing facilities for Veterans. I know someone who spent several years in one, until he died. The big drawback was that he wasn’t near his family - his choice of facility was limited.

Medicaid rules re to eligibility aren’t that complicated to follow. There is a time frame for implementing the rules. One big way that this can be screwed up is if you have an elder who refuses to follow them, or one who doesn’t want to release control of their money.

latichever · May 8, 2012, 12:41pm

If there is a spouse, at least a portion of the annuity can be transferred. My understanding of veterans benefits is they you can become eligible for Medicaid, and there will be a reduction to your Vet benefits.

It’s very difficult to give uniform advice re Mediciad since it’s administered at the state level, so the rules can be very different in different localities.

Here’s a major irrationality in long term care. The gold standard for services is least restrictive environment. There are many people who do not need the heavy duty services of a nursing home and would do quite well in an assisted living facility. The typical nursing home costs over $70,000 a year. An assisted living facility around $35,000. Medicaid will pay for the more expensive nursing home–because it qualifies as a medical facility, but not for assisted living because it isn’t considered to be medical. So Medicaid could have a twofer for the same price. Fortunately, some states have received waivers to establish assisted living facilities accepting Medicaid.

Let’s hope that as the 65+ portion of the population becomes significantly larger, it will exert pressure to rationalize such inefficiencies in care delivery.

dadx · May 8, 2012, 1:00pm

What I think is happening is that people who have any savings are paying the highest “tax” rates imaginable as they pay the “private” pay rate which subsidizes the lower taxpayer-paid (government) rate. Some nursing homes won’t accept you unless you have assets available to pay as a private payer for at least a couple of years (think 120k per year). Not sure of the exact numbers, but I think its roughly 60K annual government payment for medicaid nursing patients, with private pay running double that for the same treatment. So the difference in billing means you are making a “matching gift” with your savings if you are a private payer.

Edit: As far as the medicaid rules being easy to follow, it is true for probably 95% of people. Its simply just be poor. If you enter a facility with half a million in savings, you’ll qualify in about four years.

latichever · May 8, 2012, 1:29pm

The average daily private pay cost of a nursing home is circa $225, a bit over $80,000 annually. This may be a bit more than what Medicaid will pay, $192/day in Pennsylvania, for example, but well short of double. You could think of Medicaid as getting a volume discount. Slightly more that a third of Medicaid, overall, goes for long-term care.

Long-term care planning is one of those areas–like paying for college–where the rich pay out of pocket, and the poor rely on subsidies. For those in between it’s complicated.

Montegut · May 8, 2012, 2:14pm

^^^So true. I went to a seminar on paying for college when son was in school, and it was almost identical to this veterans seminar put on by a financial advisor. Hide your money to qualify for aid, so you can stay in the best possible place, or go to the higher priced school.

Unfortunately, us in betweeners don’t have enough money to take advantage of those loopholes, so we just do what we can afford out of our own pocket.

When my mother was in the assisted living facility, she constantly complained about how she had to pay out of pocket when all the other residents were there on Medicaid, even though she only had Social Security. They had somehow learned how to work the system, I guess.

What confuses me, too, though, is when I visit a nursing home, and they tell me that my mother can come in and she will be qualified for Medicaid within a few months. At that point, we’ll be reimbursed for our initial outlay. On the other hand, I’ve had people tell me that Medicaid is not automatic based on income. The Medicaid people can rule my mother medically not qualified. That being obese and poor vision and on Social Security does not guarantee that my mother will qualify for Medicaid. So, I don’t feel comfortable putting my mother someplace that’s financially out of my reach and not pursuing veterans benefits with the “guarantee” that Medicaid will take care of her.

I do hope, as well, that things are resolved in the next 30 years, when it’s my turn to go in a home.

momsquad · May 8, 2012, 2:35pm

Another article that is a bit old (2007) but mentions the current 5 year “look back” provision regarding dissolution of assets to qualify for Medicaid. As mentioned above, the rules will undoubtedly tighten more as the tidal wave of baby boomers approach the Alzheimer’s years.

[The</a> Crackdown on Medicaid Planning](<a href=“http://www.kiplinger.com/magazine/archives/2007/11/medicaid.html]The”>The Crackdown on Medicaid Planning | Kiplinger)

For some individuals, long-term-care insurance may not be an option. And some people give away their money and property in order to qualify for Medicaid help sooner, a practice known as Medicaid planning. One way to deal with both situations is to earmark funds sufficient to pay for care, then establish an irrevocable trust to remove remaining assets from the estate, says Barbara Culver, president of Resonate, a wealth advisory service in Cincinnati. But Medicaid planning, always a touchy subject, has become even dicier since Congress enacted new rules to crack down on such tactics.

Tougher restrictions. The government doesn’t want to finance long-term care for people who are sheltering assets that could go toward paying their bills. So the new rules, which took effect in February 2006, extend the “look back” period from three years to five. If an individual gives away money or property during the five-year look-back, it triggers a penalty period during which he or she is ineligible for government aid.

latichever · May 8, 2012, 2:38pm

You don’t need to be in a nursing home to qualify for Medicaid. You can be perfectly healthy and qualify for Medicaid, which is primarily a financial calculation–income and assets below a certain level. Entry into a nursing home is based on “medical necessity,” a determination that is independent of how you will pay for it.

Incidentally, in other developed countries, as a rule, you don’t need to impoverish yourself to pay for long term care. Insurance for that is baked into their national health systems.

MJSMOM · May 9, 2012, 7:32am

Elder law and VA certified attorney here, chiming in. In everything each of you has written, there are kernels of truth … but also lots of misinformation. It is true that each state administers the Medicaid program according to its own rules/regulations, but all are ultimately governed by federal law and can’t be more restrictive than federal law. That said, here are some universal truths:

<ol>
<li>Annuities can be very useful in some instances. Or, they can be treated as a disqualifying transfer of assets, depending on the terms of the contract and the identity of the beneficiary. Whenever your parents are considering the purchase of an annuity, be VERY careful. Good time to have a consult with an elder law attorney. In most cases with seniors, the only people who make out well on an annuity purchase are the people who are selling them and getting the commissions. If you want to watch an elder law atty go ballistic, tell her how your 80 year old mom was just convinced by “someone at the bank” that she should take the $100K in her CDs and buy a 20 year deferred annuity. Or, as just happened in one of my cases, tell her how your 85 year old dad who is already in a nursing home bed was sold a disqualifying annuity that “would protect his assets.” Not. (I am not dissing annuities overall, but just for seniors who have a very real likelihood of needing long term care in not unforseeable future.)</li>
<li>It is possible to qualify for VA assistance even if the applicant has long term care insurance (ditto for nursing home Medicaid). Benefits under LTCI are treated same as any other kind of income, and factored into the math calculations.</li>
<li>It is also possible to have both VA and Medicaid benefits, especially if someone is receiving care at home or in assisted living. </li>
<li>Even tho on their face Medicaid rules sometimes may not look all that hard, in real life Medicaid rules and planning are crazy complicated because they change all the time, the state agencies’ interpretations of the rules often bear little resemblance to the black & white letters of the words, decisions are often caseworker-dependent (!), there is often little consistency even across one state let alone the 50, etc. With so much at stake (your parents’ health and wellbeing, and their life savings), this is not a place to try to do it yourself, or to work with anyone who does not concentrate their entire practices on knowing this stuff inside and out. It is our job to understand and to stay current on all of these rules.</li>
</ol>

So: you can find an elder law attorney by asking for referrals from your (parents’) local senior center, or through a search of our national elder law organization NAELA dot com. You can also find a list of VA certified attorneys by googling that phrase … it will take you to the VA’s constantly updated list, by state. Sadly, so much of what we do is cleaning up the planning mistakes that have been made before our clients have came to us. Be proactive instead!

DuckMom · May 9, 2012, 12:14pm

Well said, MJSMOM. The laws differ so much from state to state. In Oregon, qualifying for Medicaid to pay for long term care is NOT automatic if one meets the financial tests; one must also qualify according to levels of care/assistance needed – and the standards for what level of assistance is required are set by the state and they change as the state’s budget changes. One can be in a long term care facility private pay for years, and run out of money, but still not qualify under the assistance standard for Medicaid to pick up the payments.
Elder Law attorneys have the knowledge and expertise to help with this.

geezermom · May 9, 2012, 1:09pm

Thanks for the very clear advice on annuities, MJSMOM. My own parental caregiving period has ended, but now my H and I have our futures to think about!

Following on what DuckMom and MJSMOM said: An assisted living administrator once told me a surprising number of people don’t understand that you must meet medical or “level-of-care” criteria as well as financial criteria for long-term care Medicaid. Determining level-of-care eligibility usually is in the hands of a case manager. Simply living in a nursing home is not enough.

MJSMOM · May 9, 2012, 1:10pm

Duck is correct that in all states there are financial AND clinical eligibility requirements in order to access Medicaid. While we tend to focus more on the finances, it’s not all about the finances. We usually figure that if someone is in a nursing home long term, they are probably going to be clinically eligible, based on the theory that no one has ever (to my knowledge) voluntarily said “sign me up for a nursing home!” In other words, if someone had viable other options for care outside a nursing home, they would probably be there and not in a nursing home bed. That said, tho, there are some cases where a patient’s needs don’t meet the requisite clinical standard and then regardless of their finances, they won’t qualify. Again, another case for professional advocacy.

DuckMom · May 9, 2012, 3:02pm

Yep, because (at least in Oregon) Medicaid payment for long term care can be in settings other than nursing facilities, such as adult foster homes and assisted living facilities. I hate to see the cases where the resident has been private pay in assisted living and has done well there, but cannot afford it any longer, yet does not quite meet the level of care criteria.

SteveMA · May 9, 2012, 8:23pm

We have long term care insurance so we are good to go if need be. It’s a great way to elevate any worries about how you are going to pay for in-home care if needed and eventually nursing home costs.

latichever · May 9, 2012, 9:43pm

To clarify, Medicaid as a form of medical insurance has purely financial eligibility requirements. To use Medicaid to pay for long term care, the service must be “medically necessary.” This is no different from any medical insurance, which will pay only for medical necessity.

If for some odd reason you want to live in a nursing home, they will happily take your money, but unless there is a medical need, no insurance–including long term care insurance–will fund it.

Incidentally, Medicare, which has no other eligibility than being fortunate to live to 65, will pay for up to 100 days, per incident, of rehabilitation in a nursing home, but, typically, a three day hospitalization must precede the rehab.

I’d be very careful about purchasing long term care insurance, not that it can’t be a good thing. There are many exclusions and limitations. Here the rich-poor rubric applies. If you are certifiably rich, why fork over the big premium when you may never wind up in a nursing home, and you can afford to pay out of pocket if you do? If your net worth is somewhere south of $1 million, again you may never need it, and the premium for insurance may deplete your net worth as much as spending down and/or paying out of pocket.

If you are 65, the odds are one in two that you may spend some time in a nursing home, and that would probably be for a rehab stay paid for by Medicare. For long term care, the typical nursing home resident is over 80 and lasts about 2.5 years before expiration–so if you have around $150K lying around–less than a college education–you should be good to go. I’ve occasionally met residents who have been in nursing homes for over a decade, but that’s exceedingly rare.

One alternative to long-term care insurance is the continuing care facility–sometimes called life care. This is an aging in place option in facilities that have independent living apartments, assisted living, and a nursing home, all at the same location. You “buy in” with a 6 figure payment–typically from the equity of your home. Then you make a monthly payment that is roughly equivalent to what you would pay for an assisted living facility–say, $2,500. This payment will cover you whether you are independent or in need of skilled nursing care. Your estate can also usually recapture some of the buy in after you die.

This is all complicated terrain, and I agree that an attorney can be helpful in certain circumstances. I love lawyers. I’m married to one, and she would urge caution. Not everyone who claims to be an elder law attorney has extensive experience or training. There are private certifying organizations, but the bar can be low. One such organization, The National Academy of Elderlaw Attorneys, requires an annual 15 hours of continuing education and passing a test. You may find one attorney who is a whiz in trusts and estates, but is clueless about Medicaid In my state, anyone can hold themselves out to be an eldercare attorney. Consider whether you want to pay $3,000, or $300 an hour, not untypical, to help you get on Medicaid. if you have a large estate the money may be well woth it, but it’s not a good idea for everyone.

Don’t ignore government agencies or nonprofits as sources of good advice. There is probably no one more knowledgeable about Medicaid than a state Department of Social Services caseworker. Your Area Agency on Aging can be an invaluable source of advice and advocacy ([n4a</a> | National Association of Area Agencies on Aging](<a href=“http://www.n4a.org/]n4a”>http://www.n4a.org/)), and Medicare.gov is a great resource too.

(BTW, shameless self promotion, I’m a psychologist who works in nursing homes. I’ve been a speaker at Elder Law conferences. And I wrote a book about my professional life and personal caregiving to my own frail, elderly parents–somewhat like James Herriot but with people.)

momsquad · May 10, 2012, 1:36am

Great information here, thank you to everyone who’s commented. My mom has worked so hard to ensure that her estate will pass efficiently to heirs on her passing, but hasn’t given a moment’s thought to the phase between her relative good health at age 86 and the final days. It has been very unpleasant business trying to get her to express her wishes for assisted care. We did line up a “senior care manager” who will be able to help us find qualified home health aids when it becomes necessary.

I like the idea of the continuing care facilities for myself and DH, especially after watching a great uncle get shuffled from one facility to the next as his health declined. The buy-in will be worth it for the peace of mind knowing we won’t be a burden on our only child. I also think the social aspects of a ‘senior’ community are very appealing. The worst effect of aging I have seen in my mom and her friends is their increasing isolation and consequent depression as it gets harder for them to get around on their own. They are terribly lonely but don’t want to leave their homes for a new environment that might provide more social interactions.

Annuities may cause problems with Medicaid

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