The Medicaid Compliant Annuity (MCA) is an essential crisis planning tool designed to protect assets and accelerate eligibility for Medicaid. However, in order to be Medicaid compliant, an MCA must be irrevocable, non-assignable, and actuarially sound. It must make equal monthly payments and name the state as the primary beneficiary in most cases. Let’s take a deeper look at the actuarially sound requirement for MCAs.
What Does “Actuarially Sound” Mean?
In order to be actuarially sound, the term of the annuity must be structured so the full investment amount is paid out within the contract owner’s Medicaid life expectancy as determined by the life expectancy table published by the Chief Actuary of the Social Security Administration or by a state-specific table. In other words, the MCA term must be less than or equal to the contract owner’s Medicaid life expectancy.
What About a Minimum MCA Term Requirement?
Although Medicaid stipulates a maximum term for MCAs, there is no minimum term in most states. In fact, we offer terms as short as two months in 49 states. However, when you have flexibility in choosing a term, we always recommend structuring the annuity with a reasonable term. If you aren’t sure what term to use for a specific case, our office can help determine an appropriate term based on your client’s unique situation. Simply contact us to learn more.
Exceptions to the Rule: Oregon and Washington
Two states have distinct specifications for how short an MCA can be. In Oregon, the annuity term must be within 12 months of the owner’s Medicaid life expectancy. In Washington, if the contract owner’s life expectancy is five years or longer, the term cannot be less than five years. If their life expectancy is shorter than five years, the MCA term must be equal to their life expectancy.
Do Provider Fees Affect an MCA’s Actuarial Soundness?
In Zahner v. Secretary of Pennsylvania Department of Human Services, Pennsylvania DHS classified Medicaid Compliant Annuities as a countable resource when determining Medicaid eligibility and claimed the fees paid to set up the annuities counted toward the investment amount. Pennsylvania DHS argued that since the owner did not receive their full investment amount back (including the fees), the MCAs were not actuarially sound.
In the end, the District Court reversed this part of the decision. The District Court reasoned there was no requirement for the fees incurred in purchasing an annuity to be considered when determining whether or not the owner would receive their investment back within their Medicaid life expectancy. In other words, the Court determined these MCAs do, in fact, meet the actuarially sound requirement.
READ MORE: How Long Should My Client’s MCA Term Be?
If you have questions about the actuarially sound requirement or structuring the MCA term for a specific case, contact our office at (800) 255-1932.