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 in exchange for th promise of the money being returned either in a lump sum in the future, or over time in regular installments. The return, maybe the installments, 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 $5,000 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

Congress narrowly passed stringent new Medicaid rules effective February 8, 2006. Among those rules were new requirements for annuities. The annuity has to be actuarially sound (meaning it has to pay out a complete return of the investment during the investor's actuarial life expectancy). It must have level and immediate payments. And perhaps most controversially, it must provide that the State Medicaid program will be the remainder beneficiary (if there is a spouse or a disabled child or minor child, the state may be bumped to second place) up to the amount of benefits paid.

The meaning of the law is that a spouse of a nursing home resident could buy an annuity if all of the requirements have been met. Georgia, unfortunately, has shown a tendency to go overboard and be more aggressive. In this case, I believe, illegally so.

The new Georgia Medicaid rules in effect say that the purchase of a qualified annuity won't be treated as a penalized transfer (that's fine, that's what Congress meant), but then the rules go on to say that the qualified annuity will nevertheless be a "counted" asset for Medicaid purposes (that is NOT fine, 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.

We're discussing her options.

Medicaid and annuities do not mix.

Bob Mason

Social Security Disability Benefits are available to an individual who has either a medical or mental condition that is expected to remain at a severe level for at least 12 full months, or end in death.  There are two work requirements for Social Security Disability. To be fully insured, an individual must have a minimum of 10 years work (40 quarters), and 5 of those years of work must be recent (within the last 10 years immediately prior to becoming disabled).  Fewer credits are required for younger workers.

Basic information required includes history of medical conditions, treatment sources, job history and education.  Additionally, biographical information (place of birth, marital history, etc.) are also required.

The initial application process takes between 3-5 months on average. Being prepared before filing is key to helping speed up your claim.  Providing copies your actual medical files, and having complete information together are important steps. 

The local Social Security office is a paper  processing center only.  An employee of the State in the Disability Determination Section makes the actual medical decision.  If approved medically, Social Security processes the claim and issues the benefit.

In the next couple of months we will address additional issues in disability benefits, including onset date, waiting period, worker's compensation offset, appeals, and Medicare.