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How Long Should My Client’s MCA Term Be?

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Amy Beacham, MBA
Amy Beacham, MBA September 2, 2020

As Marketing Director, Amy is responsible for all company communications and ensuring our clients have the most accurate and up-to-date information. In addition to her communication expertise, she has prior experience as a paralegal and a Krause Benefits Planner.

Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.

Choosing the right Medicaid Compliant Annuity (MCA) term is a common concern for our clients, especially since MCA planning is quite different from planning with other annuities. An MCA is a Single Premium Immediate Annuity (SPIA) that is designed to help qualify your senior clients for Medicaid benefits, so it includes several considerations that don’t apply to other insurance transactions. Therefore, we’ve developed some quick tips to help you choose a term that’s appropriate for your client’s MCA.

First and Foremost: Is It Compliant?

Medicaid Compliant Annuities have five main requirements, one of which is the annuity must be actuarially sound. The annuity premium amount must be paid back to the owner within their Medicaid life expectancy, which is determined by either a state-specific table or the Social Security Administration’s life expectancy table. In short, the MCA term must be fixed and equal to or shorter than the owner’s life expectancy.

Check out our State Resources page through your Agent Access account to see which life expectancy table your state uses.

Consider the Medicaid Compliant Annuity Strategy

After determining the maximum term length while remaining Medicaid compliant, the next step is to choose an MCA strategy for your clients. The most common strategies we encounter are the Gift/MCA plan and the Community Spouse MCA plan. The Gift/MCA plan requires a particular term based on the specific case facts and financial calculations associated with the strategy, so the term length will always be dictated by the numbers. When using the Community Spouse MCA plan, however, you may have more flexibility in choosing an MCA term.

Look at the Case Facts

The Community Spouse MCA plan involves a married couple where the community spouse purchases the MCA. With discussing this strategy with your client, you’ll have to consider some key case facts. First, what type of funds are they using to purchase the MCA? If they are using tax-qualified funds, a longer term will likely provide a more beneficial economic outcome. This gives your client the opportunity to stretch any tax consequences over a longer annuity term rather than incur taxation on funds being paid from the annuity in a short timeframe.

Next, how is the health of the MCA owner? If the community spouse is in poor health, you may recommend using a shorter annuity term in order to decrease the likelihood of estate recovery on the annuity. (Learn more about that here.) If they are in good health and expect to live for several more years, a longer term may be appropriate, especially if the couple would be eligible for an income shift from the institutionalized spouse under the Monthly Maintenance Needs Allowance rules.

What If I’m Still Not Sure?

In many cases, the final decision when choosing a term length ultimately rests with the client and their particular preferences. At The Krause Agency, we have the ability to use MCA terms as short as two months in most states, meaning you and your client can choose a term that makes sense for each unique situation.

To learn more about the strategies and considerations involved with structuring an MCA, be sure to grab your free copy of our Agent Guide – the all-encompassing guide to working in the elder care space!