What Makes an Annuity Medicaid Compliant? (Part 2)
In last week’s post I explained what makes an annuity a Medicaid compliant annuity (MCA). This week I’ll explain how MCAs are helpful in qualifying for Medicaid. If you are a frequent reader of this blog you know that Medicaid is a needs based benefit with an asset limitation and also income restrictions.
What makes the MCA work is that it converts an asset to income. A Medicaid applicant can have no more than $2000 in countable assets to his/her name. In the case of a married couple the combined countable assets of both spouses is totaled and then divided in half. The healthy spouse can keep one half of the assets but only up to a maximum, which currently is $130,260.
Income on the other hand is treated under what is called the “name on the check” rule. The healthy spouse’s income is not considered in determining Medicaid eligibility for the ill spouse. It doesn’t matter how much income the healthy spouse has.
That’s why the MCA works. It converts the excess countable assets that are over the asset limit to income for the healthy spouse. The key though is that the annuity can’t be converted back to a lump sum. Otherwise it will still be counted as an asset. That’s why it must be noncancellable and nonassignable.
Of course, there are details that are beyond the scope of this post and I wouldn’t suggest trying it unless you fully understand the Medicaid rules and system. If done correctly, however, and at the right time, the Medicaid compliant annuity is very helpful in crisis planning situations.
But what about in the case of a single applicant? The MCA can also be helpful there but it is a bit more complicated. We’ll discuss that strategy next week.