Medicaid
and Annuities: A Really Bad
Mix!
Bob Mason
Originally
published in Coastal Senior
(February 2008)
First, let me caution: This column reflects MY
opinions as a practicing
elder law attorney . . . so
don’t blame my editors.
They’re nice people. So if I
tick off someone with this
blame me!
Second, let me explain: I do NOT hate annuities. I DO take great
exception to financial
advisors and, especially,
sales people who take a "one
size fits all" approach to
their clients and customers.
I get particularly exercised
by those who must believe
that EVERYONE needs an
annuity. They must believe
that because they attempt to
sell an annuity to anyone
they meet.
Annuities are a tool. There
are times when the tool is
great. There are other times
when the tool is terrible.
One of those terrible times
is if the buyer believes
Medicaid and a nursing home
might be anywhere on the
horizon.
Recently I have been working
with a number of older
clients who invested
substantial amounts (by
substantial, I mean more
than 50%) of their nest eggs
in annuities. In more than
one case, a spouse was in,
or near to being in, a
nursing home.
Once Upon A Time . . .
There was a time once,
before February 8, 2006,
when Georgia Medicaid rules
were such that annuities
made sense for an older
person. In fact, often an
annuity made great sense.
First, understand the basic
concept of an annuity.
Someone pays money to a
company. The company
promises that the money will
be returned either in a lump
sum in the future, or over
time in regular
installments. The payments
from the company will
include a return of what was
paid, plus some interest.
Meanwhile, the company is
taking the money and (it
hopes) making more with it
than it will have to pay
back to the buyer.
There are many and complex
reasons that such an
arrangement might make sense
with respect to a realistic
portion of one's nest egg (I
said a portion - remember
the old adage "don't put all
your eggs in one basket").
Many seniors have a problem
of too much cash on hand
when a spouse has to go into
the nursing home. Most
people entering their senior
years understandably panic
when a spouse goes into a
nursing home to the tune of
$5,500 or so a month.
In the "old" days before
February 6, 2006, one trick
was to take the "excess"
cash (which was an excess
asset for Medicaid purposes)
and put it into an annuity
(the shorter time frame the
better) to immediately begin
paying the stay-at-home
spouse income.
Voila! The excess asset was
converted into income that
was not counted for Medicaid
purposes (the state would
count the income of the
spouse in the nursing home
only).
Even then the annuity had to
meet a number of stringent
requirements.
The Brave New World After
February 8, 2006
New Georgia Medicaid rules
say that almost all
annuities will be "counted"
assets for Medicaid
purposes.
I believe that is NOT what
Congress meant. Other states
have tried that and have
lost in federal court. Until
someone sues the State of
Georgia and wins, however,
we will have to live with
the new rule.
The Damage
Here is what happens: Mrs.
Homebody buys an $80,000
annuity (out of the $120,000
she and her husband have on
hand) two months before her
ailing husband goes into a
nursing home. Her daughter
lives in California and
isn't available to scream
"Mom! Stop!"
The annuity provides that
payments won't begin for
five years and that there is
large (HUGE, in fact)
surrender penalty if she
attempts to cash it in
early.
With $40,000 left she comes
to me to ask about how to
pay for the nursing home.
The annuity salesman is not
happy to talk to me. He told
me he didn't know about the
new rules. I told him he
shouldn't be selling
annuities if he doesn't know
what he is doing. I also
explain about financial
exploitation and a number of
other concepts he isn't too
happy to hear me discuss.
Meanwhile, Mrs. Homebody has
a choice. She can try to
figure out how to pay for
Mr. Homebody's nursing home
bill because she cannot
qualify him for Medicaid, or
she can cash in the annuity
and take a tremendous
penalty she can ill afford.
Finally, there are plenty of
great financial advisors out
there who will not let Mrs.
Homebody make that mistake.
Before buying an annuity,
however, stop and ask
whether it is a suitable
investment for you.
Medicaid and annuities do
not mix.
