When recommending a Medicaid Compliant Annuity (MCA) to a client, one question that often arises is: “Why does the state Medicaid agency have to be named as a beneficiary?”
In some cases, this concern may even cause hesitation from clients to pursue using an MCA. However, as an advisor, it’s your job to help them see the bigger picture: that the benefits of using an MCA far outweigh the risk of estate recovery.
Read More: How Does Estate Recovery Work for Medicaid Compliant Annuities?
Why the State Medicaid Agency Must Be a Beneficiary
To meet federal Medicaid guidelines, an MCA must name the state Medicaid agency as a beneficiary in the appropriate spot, typically the primary beneficiary. The state can recover funds only if the MCA owner dies before the annuity term ends, and only up to the amount Medicaid paid on behalf of the institutionalized individual.
There are two main scenarios where the state must be the primary beneficiary:
- An MCA owned by a community spouse without a minor or disabled child (in most states)
- An MCA owned by a single individual without a minor or disabled child
This may feel like a drawback to some clients, but with proper planning, we can work to mitigate this risk and reduce the likelihood of any estate recovery at all.
Exceptions to the Primary Beneficiary MCA Requirement
There are exceptions to this MCA requirement that work in your client’s favor. You can list someone else ahead of the state in these scenarios:
- If the MCA is owned by the institutionalized spouse, the community spouse can be the primary beneficiary.
- If the MCA owner has a minor or disabled child, that child can be named primary beneficiary.
In these cases, the state would be named secondary beneficiary.
Certain states, such as Michigan, have additional exceptions that allow more flexibility. For questions on your state’s specific rules, contact our office.
Helping Clients Understand the Big Picture
The benefit of using an MCA far outweighs the risk of estate recovery.
While naming the state as a beneficiary may feel like a red flag to some clients, it shouldn’t. Here’s what you can help clients understand:
- An MCA helps the client achieve eligibility faster than if they did nothing, preserving their assets in the process.
- Estate recovery isn’t guaranteed to happen. It only happens if the owner dies before the end of the annuity term, and there is a claim owed to the state.
- When using the Gift/MCA plan for single clients, the MCA is used to cover care during the penalty period before they begin receiving benefits, so if the owner passes away before the term ends, there is no claim from the state.
Need help with a case? We’re here to help you navigate every detail, including state-specific MCA beneficiary rules. Book a call with us to discuss a specific case or with questions about MCA beneficiary requirements.