A Medicaid annuity can be an excellent tool for a couple or individual to use in protecting against the high cost of long-term care. An annuity is a contract between an individual and a third party (usually an insurance company) in which the individual invests money in exchange for a guaranteed set of payments for life or a specified number of years. Under Nevada’s Medicaid rules, an individual or couple can purchase a particular type of annuity with assets in excess of the amounts allowed under Medicaid’s eligibility rules (see our article entitled “Long Term Care Through Medicare and Medicaid in Nevada” for more on Medicaid’s eligibility rules) and avoid any Medicaid eligibility disqualification period (see our article entitled “Transfers and Medicaid Eligibility” for more on the disqualification period).

However, the annuity must meet specific requirements, which includes the following:

• The annuity must be purchased from a life insurance company or other commercial company that sells annuities as part of its normal course of business.
• The annuity must be irrevocable (you cannot retain the right to retrieve the funds back from the insurance company except through the regular payments received).
• You must receive back the amount you provided to the insurance company during the actuarial life expectancy of you or your spouse in substantially equal installments.
• The annuity must begin making payments to you right away (this type of annuity is known as an “immediate annuity”).
• The State of Nevada must be named as a remainder beneficiary up to the amount Medicaid paid on the annuitant’s behalf.

An Example:

After caring for her husband, who was diagnosed with Dementia several years ago, Mrs. Smith can no longer manage to take care of Mr. Smith on her own and decides to have Mr. Smith placed into a nursing home. Mr. and Mrs. Smith currently have $250,000 in assets, which is well above the $109,560 that Mrs. Smith will be allowed to keep and have Mr. Smith qualify for Medicaid benefits. Mrs. Smith can take the excess assets ($140,440) and purchase a Medicaid-compliant immediate annuity. This makes Mr. Smith immediately eligible for Medicaid benefits and Mrs. Smith will receive an annuity check for the rest of her life.

Although a Medicaid annuity is a powerful and effective tools in helping an individual qualify for Medicaid benefits, it is not for everyone. Furthermore, very few people understand the specific rules that an annuity must meet so that Medicaid benefits are received. If you are considering purchasing an annuity in an attempt to qualify for Medicaid benefits, it is important that you consult with an elder law attorney first.