My Annuity Will Qualify
Me for Medicaid
This particularly antiquated suggestion was used
in the past by agents as an inducement to purchase an
annuity and primarily presented as a "gold card"
for complimentary access to a Medicaid funded
long term care facility... IF you ever needed one, that is.
...or even wanted one !
This old sales idea that an annuity could potentially
qualify an individual to obtain "carte - blanche" Medicaid
funding had to do with the federal rules for the maximum
net worth that an individual could have and still be
eligible to qualify for the Medicaid program.
For example, in 2014, an individual can qualify for Medicaid
only if he or she has no more than $2,000 in liquid assets.
That person may own a primary residence still, some
jewelry, a vehicle, life insurance under $1,500, a burial
policy and some personal property.
These limits have actually not changed too significantly in the last few decades, however, in the 80's and 90's many well-to-do Program applicants to the Medicaid Program actually discovered a way in which to qualify for the program and hide their numerous assets through various forms of self impoverishment.
Some of these techniques involved re-titling assets and properties into the names of heirs, gifting assets to friends and relatives, spending liquid assets and most importantly for the purpose of this discussion:
Buying annuities that could be annuitized into lifetime guaranteed income streams thereby making lump sums disappear instantaneously !
In other words, the lump sum in an annuity policy would cease to exist once it was annuitized. Only what remained was a contract that paid a monthly check - much like an accounts receivable. Since there was no longer a lump sum, there was correspondingly no longer a countable asset to make invalid
a Medicaid application.
Thus Mom and Dad could "work the system", stash the cash in
a policy that would pay out on their deaths to their heirs someday
and in the meantime, they could get a free ride on Uncle Sam's
dime at (hopefully) a nice Long Term Care facility somewhere.
There are philosophical opinions on whether this practice is corrupt,
or whether it is actually honorable.
The corrupt argument says that it is wrong for anyone not to pay their
own way through this world, especially if they have the means to do so.
The honorable argument says that one should have the right to give
away ones own assets to anyone they choose, especially loved ones.
It also says that one who has served this country well and paid
taxes deserves a government funded LTC ticket.
This argument rages to this day, however, in the current era of budget deficits, there simply will not be federal funds for most seniors needing LTC help.
As such, the argument may be a moot point sooner rather than later.
Alas, this practice (as it has been just discussed) has changed significantly, and can be highly difficult. There are serious "look-back" provisions where the federal government will count family assets (thereby disqualifying an applicant for Medicaid) that have been transferred over the past several years.
Secondly, it is no secret now that superior Long Term Care can generally be found in "private pay" facilities than in public (government) ones. (Although private pay programs can also me more expensive).
As such, qualifying for "free Medicaid funding for LTC" may be less attractive than it used to be.
Much of the planning for these types of "spend - down" strategies (as they were called) were solicited and brought forth by financial planners and insurance agents themselves. In fact, it was (and still is in some places) serious business.
But just as important, insurance agents are now forbidden from espousing
Medicaid qualification through the purchase of an annuity; In fact, it is just
one of the many disclosures that an applicant must sign when applying for
an annuity. The perception that an annuity so simplistically qualified one
for Medicaid had so muddied the waters of the truth that this disclosure was
created to inform all applicants on some of the Medicaid rules in writing.
So there you have it. Having said all this, an annuity actually may help your
planning for long term care needs in some form or fashion. My
recommendation is that if you are buying an annuity and you are serious
about getting some form of long term care protection, go find an annuity that actually pays for long term care specifically. That way you do not have to rely on funding from a source that may or may not have it (the Feds). These annuity plans do exist and you can find them right here, for example.