Can You Get Medicaid Easier by Owning Annuities?

A reader asked me recently if it’s easier to get Medicaid if you own an annuity.

My dad is 84 and we had to put him in a skilled nursing facility. He resides in FL where he owns a home and has a tax deferred annuity. We are trying to get him on Medicaid because he can no longer be on his own he has Parkinsons and Dementia. He needs 24hr care. In Fl the house is exempt from Medicaid. We were advised to turn the tax deferred annuity into an immediate annuity and to set up a personal care account to pay the bills on the residence because we can’t sell it because it’s included in a family trust. Any advice would be greatly appreciated.

By this way of thinking, you might even ask if it’s smart to refinance your mortgage and invest the money in annuities in order to qualify for Medicaid benefits. Are these maneuvers smart? Let’s look at this issue.

First, what is Medicaid?

If you are a low-income person or family, you might qualify for this program. If so, Medicaid pays your health care providers directly for services they render to you. Each state administers the program as it sees fit and has its own rules.

Usually, there are other elements that the state considers. They include your age, income, resources, assets and any disabilities you may have. The rules also change depending on whether or not you live at home or in a nursing home.

I went to California’s Medi-Cal website and found the below information. First, remember that you really have to be very broke in order to qualify for public benefits. Here are the income allowances:

As you can see, if you are above the poverty level, the chances are low that you’ll qualify for Medi-cal.

You are allowed to have very limited income (including Social Security benefits) and a few assets, but not much. Basically, you can have your home, one car, household goods, a tiny life insurance policy with a face value of $1,500 per person and a prepaid burial plan.

So the nature of this person’s question is, should he convert the annuity – which is an asset that disqualifies him for Medicare – into an income stream. Let’s try to answer this question even though it’s tricky.

First, there is an element which is very straightforward. If the annuity income stream is still under the income limit, this would seem to be a good move. But it’s not that clear-cut.

And there are some downsides to annuitizing as well. You may know that once you annuitize an annuity, you say goodbye to the principle. So, if this gentleman dies after he’s annuitized the account, the money is lost unless he annuitizes with a “term certain.”

(That means if he dies, the annuity company must continue making the payments for at least some period of time. But if this man selects a term certain, the state may either attach those assets if he dies or may count the annuity as an asset and disqualify him from receiving payments.)

The issue of annuitizing an annuity in order to qualify for Medicare benefits is complicated. It also depends on the state you live in.

Bottom line, if this person knows that the income that the annuity would generate would put him above the income limits of his state, the entire exercise is futile. Even if the income would be under the limits, the very act of annuitizing may disqualify him from receiving Medicare benefits. It’s best to check with the state and with a legal expert.