Medicaid Compliant Annuity Strategies for Married Couples
Disclaimer: Since Medicaid rules and insurance regulations are updated regularly, past blog posts may not present the most accurate or relevant data. Please contact our office for up-to-date information, strategies, and guidance.
When purchasing a Medicaid Compliant Annuity (MCA) for a married couple, the couple has a lot of flexibility in choosing the right spend-down plan and annuity strategy for their specific situation. Here’s an overview of the strategies and considerations to keep in mind for your married couple MCA cases.
First, you must determine who will own the annuity—the community spouse or the institutionalized spouse. The recommended MCA owner and corresponding planning strategy may vary depending on several unique factors, such as the couple’s income, health, anticipated longevity, and their preference.
Community Spouse MCA
The first option for married couples is purchasing an MCA in the name of the community spouse. Any assets exceeding the Community Spouse Resource Allowance (CSRA) and Individual Resource Allowance can be used to purchase an MCA for the community spouse. They are the owner, annuitant, and payee of the contract. After purchasing the annuity, the couple’s excess assets are eliminated, and the institutionalized spouse is immediately eligible for Medicaid benefits.
Once the community spouse purchases the annuity, they will begin receiving monthly income from the MCA. If the community spouse outlives the annuity term, the contract will automatically terminate upon its final payment and no beneficiary will collect against it. If the community spouse predeceases the annuity term, the primary beneficiary is eligible to recover the remaining annuity funds. In almost all cases, the primary beneficiary must be the state Medicaid agency, which can collect up to the amount of funds expended on behalf of the institutionalized spouse.
Using a Community Spouse MCA offers more flexibility in choosing an MCA term and a greater likelihood the community spouse will outlive the contract.
Choosing an Annuity Term
With a Community Spouse MCA, your client has flexibility in choosing the annuity term. The only requirement is the term must be actuarially sound. In almost all states, this means the annuity term must be equal to or shorter than the owner’s Medicaid life expectancy, which is determined using a state-specific table or the life expectancy table published by the Chief Actuary of the Social Security Administration.
Other than the actuarially sound requirement, the annuity term can be structured to meet the community spouse’s needs or circumstances. If the community spouse requires significant monthly income, the term can be shorter (as short as two months, in most states) in order to increase the monthly payout. On the other hand, if the community spouse may be eligible for an income shift under the MMNA rules, they can use a longer term to minimize the monthly payout. It all depends on the client’s goals.
Click here to view a case study of a Community Spouse MCA.
Institutionalized Spouse MCA
The second option for married couples is to name the institutionalized spouse as the MCA owner. The main benefit of this strategy is to take advantage of the favorable beneficiary designation rules. Specifically, the community spouse can be named the primary beneficiary ahead of the state Medicaid agency. Therefore, the community spouse takes control of the MCA funds in the event the institutionalized spouse predeceases the annuity term.
Beyond the benefit of naming the community spouse as the primary beneficiary, this strategy can also be used to shift the MCA payments to the community spouse under the Monthly Maintenance Needs Allowance (MMNA) rules. The annuity term should generally be structured using the institutionalized spouse’s full Medicaid life expectancy in order to minimize the income produced by the MCA.
An Institutionalized Spouse MCA offers favorable beneficiary rules and is ideal when the community spouse has a low enough monthly income to qualify for an income shift under the MMNA rules.
When is this Strategy Appropriate?
Like any MCA strategy, this option has some caveats. The Institutionalized Spouse MCA strategy is dependent upon the anticipated longevity of the institutionalized spouse in relation to the community spouse. If the community spouse passes away first, the state Medicaid agency will move into the primary beneficiary position on the contract. Plus, if the community spouse has income exceeding the MMNA, they won’t experience the economic benefit of the MCA payments shifting to the community spouse.
The Institutionalized Spouse MCA strategy is most appropriate when:
- The community spouse is in good health.
- The community spouse is expected to outlive the institutionalized spouse.
- The community spouse’s monthly income is below the MMNA.
Click here to view a case study of an Institutionalized Spouse MCA.
What if the institutionalized spouse owns a countable IRA?
Explore the “Name on the Check Rule” MCA strategy.
If you’re not sure which MCA strategy is right for your client, contact our office to discuss your case with us!