Medicaid Annuities - They Work, But Do They Help
Certain annuities are permitted by Illinois Policy Manual Section 07-02-17. The rule to keep in mind is that if any principal in the annuity is accessible to the applicant, then it will be treated as an available resource. Likewise, if any income is available, then it will be treated as income and will reduce the amount that Medicaid will pay to the facility. Unless handled properly, the purchase itself will be treated as a transfer of assets unless the applicant received fair market value, and this is done in terms of a Medicaid Life Expectancy Table.
This table is published by the Health Care Financing Administration of the Federal Government. The figures in this table have been adopted by the State of Illinois Department of Public Aid. For example, if the applicant is male and 80 years old, according to the table he has a life expectancy of 7.40 years. Previously, this meant that the applicant could “balloon” the payments so that small payments could be made during the early part of the annuity, and a large balloon payment is made at the end. Now, the annuity payments must be made in equal payments over the 7.40 years of the annuity. Otherwise, the Illinois Department of Human Services will treat part of the transfer as a non-allowable transfer. The use of so-called balloon annuities was rejected by the Illinois Supreme Court in the case of Gillmore v. Dept. of Human Services, 218 Ill. 2d 302 (2006)
Public Aid should approve the application at this point if everything else is in order. The local office should treat the purchase of the annuity (assuming the applicant’s remaining nonexempt resources fall below $2,000.00) as an allowable transfer. In other words, even though the annuity purchase happened within the 36-month lookback period, it will be allowable since it is viewed as a fair market value purchase pursuant to the policy of the Illinois Department of Public Aid.
Some observers have said that this even payment requirement was the death knell of the use of Medicaid annuities in Illinois. Our office continues to advise applicants and their families about the availability of Medicaid annuities. However, a key part of the advice is the point that the applicant may not really benefit from the annuity at all. If our 80 year old nursing home resident is single and living in a nursing home, the net amount of our client’s income goes to the nursing home. What’s worse, the money is locked into the annuity so that once our client has been approved for Medicaid, he is at the mercy of the Medicaid program for what care and services can be provided.
This is not just a minor concern. Only private funds (either those remaining in the nursing home resident’s hands or being contributed by family members) will pay for a private duty caregiver, companion, nurse, or geriatric care manager. One of these persons might make all the difference in dealing with what happens on the graveyard shift, or just when client hits the call button and nobody comes. Similarly, Medicaid does not pay for a private room, so it will take private money to pay for privacy. A more detailed listing of what Medicaid covers and by implication, what the program doesn’t cover, can be found in Chapter 20 of the Illinois Department of Human Services Policy Manual. This information can be accessed on the Internet at http://www.dhs.state.il.us/ts/cfsmm/OneNet.aspx?Item=13473.
In short, the Medicaid annuity is a legal option in spending down to the amount of exempt resources to qualify for Medicaid. However, where there are options, legally speaking, it needs to be scrutinized very carefully before being adopted as the strategy of choice.