Medicaid Picture Changing Rapidly for Senior
Citizens Holding Annuities
In many instances, annuities are considered an
‘available asset’ and are counted as part of an applicant’s financial
resources
By John Zepeda, J.G. Wentworth
Nov.
5, 2008 - If you recall hearing something about the Deficit Reduction
Act, you might have cheered, thinking that the government finally got
serious about trying to get the federal budget in shape. But the thing
about government belt-tightening, is that ultimately, somebody feels it.
And in this case, that somebody may be you, especially if it looks like
you or your spouse may need Medicaid benefits.
The reason is that the Deficit Reduction Act
provides states with the tools to tighten eligibility requirements,
especially as these requirements relate to annuities.
Understanding annuities is important because many
financial planners and elder law attorneys have counseled seniors that
they can qualify for Medicaid and hold onto their assets simply by
purchasing annuities.
Why? Because historically, annuities could not be
bought and sold easily, and as a result, they were not considered
available assets. Therefore, when Medicaid eligibility personnel were
tallying up an applicant’s resources, annuities weren’t counted.
That’s all changing with the Deficit Reduction
Act.
Now, in many instances, annuities are considered an
“available asset” and are counted as part of an applicant’s financial
resources.
In some states this is even true for irrevocable
and non-assignable annuities. This means for applicants with annuities,
states can deny care benefits outright, or seek to become the
beneficiary of the annuity which you own.
Buyer Beware
States are going after the annuities of applicants
with varying degrees of intensity. In fact, some states are almost
strident in their approach. For instance on Connecticut’s Website in
the health and human services section the following items can be found:
“Contrary to what you may have heard in a recent seminar or read in
advertisements or articles, in Connecticut there is no such thing as an
annuity that will guarantee avoidance of Medicaid spend-down rules!
According to the Connecticut Department of Social Services’ Medicaid
Office, those selling these financial planning tools, often referred to
as ‘Medicaid Annuities’ are misleading residents into believing that
these annuities will allow individuals to protect (keep) assets and/or
income and still be eligible for Medicaid.”
In discussions with Medicaid personnel across the
country, in general, we’ve found that states are using new, tighter
requirements to preserve increasingly scarcer financial resources for
those truly in need.
“We are trying to conserve a resource,” said one
Medicaid policy planner in a western state. “We need to cover the most
people with the least resources. It is just getting less and less and
less.”
And as Medicaid resources diminish, there’s also a
sense of disbelief that applicants try to game the system.
“The part I don’t get is the thinking ‘How do I
hide the money so I can become eligible for Medicaid?’” the same
administrator said.
“If you have $500,000 in the bank, need care and
can afford to pay for it, why not pay for it?”
Critics of this point of view often point out that
Medicaid is the only government program that seeks to recover funds from
those it’s designed to aid.
Proponents of reform suggest that the orders of
magnitude make recovery a necessity. “There is no comparison between
$40 a month in food stamps versus $5,000 a month for nursing home care.
For some people we are paying $22,000 a month for specialized nursing
home services.”
Here to Stay
Regardless, Medicaid reform looks like it’s here to
stay, and this could have an impact on you whether you are married or
single.
If you are single, your countable assets must be
$2,000 or less in order to qualify for Medicaid benefits.
If you are married the figures are different due to
Spousal Impoverishment Programs. For a married couple where one party
is institutionalized, the non institutionalized party can have assets up
to a federally-mandated figure of approximately $104,000, plus home
equity up to certain limits, a pre paid burial plan, and other
specialized assets.
The institutionalized spouse can transfer assets to
the non institutionalized spouse via an outright gift, or via an
annuity, and in this scenario, the annuity would not be considered a
countable asset.
But in many other instances, an annuity would be
considered a countable asset, and as a result, state Medicaid
eligibility might deny benefits which in turn would likely require a
spend down of annuity assets before the applicant could qualify for
Medicaid. In this scenario, when care is needed on a timely basis, the
outright sale of the annuity might make sense.
If You Must Sell
While this is potentially an undesirable outcome,
Medicaid applicants who find themselves in this position, will also find
that the secondary market that gave rise to the state’s position in the
first place is indeed functioning and ready to provide liquidity for
their annuity.
While the secondary market presents significant
potential flexibility and value to annuity owners, getting the best deal
still requires some research.
What follows are some tips and strategies to help
annuity owners make the most of the opportunity to sell their annuity to
qualify for Medicaid benefits:
1. Call the insurance company to verify the cash
surrender value, if there is one.
Medicaid applicants should determine what options,
if any, are available to cash out the annuity with the issuing insurance
company directly.
If it’s an immediate annuity, it’s important to
learn if the annuity has any cash value from the insurance company – in
most cases, the insurance company won’t provide a lump-sum from an
annuity once the periodic payments have started.
If it’s a deferred annuity, it’s important to learn
if the annuity has “surrender charges” which lower the current cash
value or if the annuity requires that payments be taken over a minimum
of five or 10 years to get the full value.
2. Determine if the annuity can be sold in the
secondary market.
There are plenty of misconceptions about which
types of annuities can be sold in the secondary market, so it’s
important for an individual to contact a reputable buyer of annuities in
this market to verify whether their annuity has any cash value.
The language in annuity contracts can be
confusing. Specifically, some annuities that appear to have no cash
value may in fact be salable in the secondary market for a cash
lump-sum.
So, while it’s important to get information from
the issuing insurance company, it’s even more important to talk to
experts in the secondary market when considering the salability and
value of a policy in this marketplace.
The main criteria underlying the entire market is
that annuities must have a non-qualified tax status. In other words,
annuities with a retirement tax status as defined by the IRS (e.g.
401k/403b/IRA Rollovers) cannot be sold in the secondary market. Beyond
that, most other annuities can be sold in this marketplace and it’s just
a matter of determining how much a given policy is worth.
3. Contact reputable buyers of annuities to
determine the value.
While determining whether or not an annuity can be
sold produces an exact answer, the ultimate value of an annuity may be
subject to variance from buyer to buyer.
This process should cost nothing and should come
with no obligations to sell the annuity. When it comes time to sell the
annuity, it’s advantageous to work with a company that has a solid track
record of providing service and value to annuity owners in this
marketplace.
4. For annuities in payout, consider how much of
the current payment must be sold in order to qualify for Medicaid
benefits.
One of the real advantages of the secondary market
is how much flexibility it offers annuity owners. They don’t have to
sell their entire payment or the full term. They can sell just a
portion. At the same time, if they wanted to maximize their current cash
value to pay for immediate care, they could sell the entire annuity, and
that full value could be put to use in maintaining their health.
5. Understand the tax impact.
There may be a tax impact as a result of selling
your annuity. The advice of a qualified tax or legal advisor should be
sought, since the tax impact, if any, may affect Medicaid eligibility.
In addition, counsel should be sought
regarding Medicaid guidelines for your state, because it can differ
greatly between the states. But regardless of the many differences,
once commonality remains: Medicaid reform is here to stay.
Background Information
John
Zepeda is a senior account representative for J.G. Wentworth in Bryn
Mawr, PA. For further information call 866-386-3102 or visit
www.jgwentworth.com
J.G. Wentworth says it is the nation's largest
purchaser of future payments, offering a lump sum of cash to individuals
who hold assets in the form of structured settlements and annuities.
Through a dedicated subsidiary the company also purchases life insurance
policies from consumers.
Nov.
5, 2008 - If you recall hearing something about the Deficit Reduction
Act, you might have cheered, thinking that the government finally got
serious about trying to get the federal budget in shape. But the thing
about government belt-tightening, is that ultimately, somebody feels it.
And in this case, that somebody may be you, especially if it looks like
you or your spouse may need Medicaid benefits. 
John
Zepeda is a senior account representative for J.G. Wentworth in Bryn
Mawr, PA. For further information call 866-386-3102 or visit
