What is a Medicaid Compliant Annuity?
A Medicaid-Compliant Annuity (MCA) is a financial product that converts a person's excess countable assets into a stream of income, thereby helping them qualify for Medicaid long-term care benefits. To be compliant, the annuity must be a single-premium immediate annuity, be irrevocable, non-assignable, actuarially sound (meaning the premium is returned within the purchaser's life expectancy), and name the state Medicaid agency as the primary beneficiary for any remaining funds after the annuitant's death.
How a Medicaid-Compliant Annuity Works
An individual whose assets exceed the Medicaid limit for their state can purchase a Medicaid-Compliant Annuity (MCA) using those excess funds. The annuity provides a regular and guaranteed income stream to the individual. This income reduces the individual's countable assets, helping them meet Medicaid's strict asset limits and become eligible for benefits.
If the individual passes away before the annuity has paid out its full value, the remaining funds will be paid to the state Medicaid agency to reimburse the state for the benefits provided. If there are excess funds remaining after the reimbursement, these funds will go to the secondary beneficiary or the individual's estate.
Key Requirements for a Medicaid-Compliant Annuity
The annuity must be purchased with a single lump sum payment. Once established, the annuity cannot be changed or canceled. It is also not permitted to sell the annuity on the secondary market. The term of the annuity must be limited to the purchaser's life expectancy, ensuring that the entire premium is returned either to them or their estate. Additionally, a state agency must be designated as the primary beneficiary for any remaining funds after the purchaser's death.
Why Use a Medicaid-Compliant Annuity?
This strategy is designed to help individuals reduce their assets in order to meet Medicaid's strict asset and income requirements for long-term care. It enables individuals to protect some of their assets for their spouse or family members while still being able to access essential Medicaid benefits.
It's important to use a genuine Medicaid-compliant annuity instead of a "Medicaid-friendly" annuity that is marketed by some financial professionals, as the latter may not fulfill state requirements.