A

Annuity

An insurance contract that provides regular income to the owner in exchange for a lump sum investment. Payments from the contract begin upon annuitization. Annuitization may either occur immediately (see Single Premium Immediate Annuity) or at later date (see Tax-Deferred Annuity).

Annuity Term

The period during which an annuity provides regular payments. The annuity term may also be referred to as the “period certain” or “term certain.”

B

Balloon-Style Annuity 

 An annuity that provides very small payments over a specified period of time, with the exception of the final payment, which is very large. The final payment represents the “balloon” payment.

C

Community Spouse

The spouse who remains at home or in an assisted living facility and does not receive Medicaid benefits.

Community Spouse Resource Allowance (CSRA)

The amount of countable assets that the community spouse is entitled to retain when qualifying the institutionalized spouse for Medicaid benefits. Excess assets beyond the CSRA must be spent down before eligibility is achieved. This figure varies by state.

• Minimum/Maximum States – Most states have a minimum and maximum CSRA. The community spouse is entitled to one-half of the couple’s countable assets as of the snapshot date, not to exceed the maximum and not to fall below the minimum. (See Snapshot Date for additional information.)
• Other States – In states with a singular CSRA, the community spouse is entitled to a standardized amount regardless of the couple’s assets as of the snapshot date.

Countable Assets 

Assets owned by the Medicaid applicant and/or spouse that the state Medicaid agency uses to determine financial eligibility for benefits. In order to qualify, the applicant and/or spouse are limited to a certain amount of countable assets. Some examples include bank accounts, cash, stocks, bonds, tax-deferred annuities, and additional real estate beyond the primary residence.

Crisis Medicaid Planning

Financial and legal planning done to accelerate one’s eligibility for Medicaid benefits. It occurs when an individual needs immediate financial relief from high long-term care costs, and they have not conducted any pre-planning (the purchase of long-term care insurance, prior funding of an asset protection trust, etc.).

Custodial Care

See Long-Term Care.

D

Deficit Reduction Act of 2005 (DRA)

The federal law that changed multiple regulations relating to Medicaid benefits, such as the calculation of transfer penalties, the lookback period, and the treatment of annuities.

Divestment

Gift of assets for less than fair market value. See Gift or Uncompensated Transfer of Assets.

Divestment Penalty Divisor

The figure used to determine the length of a penalty period if a divestment has been made during the lookback period. The divisor varies by state and represents a state’s average private-pay rate at a skilled nursing facility. Some states may use multiple divisors.

Durable Power of Attorney

A legal document that designates an attorney-in-fact/agent to handle an individual’s legal and financial responsibilities. The transfer of responsibilities can either occur immediately or when an individual becomes incapacitated. A person must be of sound mind when they make their attorney-in-fact/agent designation(s).

E

Estate Recovery

A state Medicaid agency may recover funds from a deceased Medicaid recipient’s estate to cover the cost of benefits provided on his or her behalf. If the deceased individual is survived by a spouse, minor child, or blind or disabled child, the state may not recover from the estate. Specific rules vary by state.

Exempt Assets

Assets that are exempt from Medicaid requirements when determining an applicant’s financial eligibility. Some examples include a primary residence, personal property, one motor vehicle, prepaid burial plans, and life insurance policies with a face value of less than $1,500 (amount varies by state).

F

Fair Hearing

The process of appealing a decision by the state Medicaid agency regarding an applicant’s Medicaid eligibility. The applicant may seek a fair hearing if they believe benefits were incorrectly denied, reduced, or terminated.

G

Gift

The result of giving away money, property, items, or other assets for less than their worth. See Uncompensated Transfer of Assets.

I

Individual Resource Allowance

The amount of assets a Medicaid applicant can retain and still qualify for benefits. The allowance provides a small amount to the institutionalized individual for discretionary spending.

Income Cap State

A state that requires an applicant’s gross monthly income (if above the state’s income cap) flow through a Qualified Income Trust (QIT)/Miller Trust in order to qualify for Medicaid benefits. In 2020, the cap is currently $2,349. These states include Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware ($1,957.50), Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Mississippi, Nevada, New Jersey, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, and Wyoming. See Qualified Income Trust for additional information.

Institutionalized Spouse (IS)

The spouse who is in a nursing home (or other Medicaid-approved facility) and is seeking Medicaid benefits.

L

Life Expectancy Table

An actuarial table based on the mortality experience of a population. The table is used in annuity calculations. For Medicaid purposes, some states use their own life expectancy tables, while others use the Social Security Administration’s table.

Long-Term Care

Care for an individual that requires daily assistance with basic functions of life, including eating, bathing, dressing, transferring, toileting, medication management, and assistance with prosthetic devices. This is also known as custodial care. 70% of individuals over the age of 65 will require some type of long-term care during their lifetime.

Lookback Period

The five-year period in which a state’s Medicaid agency will “look back” to determine if a Medicaid applicant has made a divestment. If the individual and/or their spouse has made any divestments that are not cured/returned, the applicant will be subject to a penalty period of ineligibility.

M

Medicaid

A program funded on both the state and federal levels that is intended for people with low incomes and limited resources. Medicaid pays for the majority (over 60%) of long-term care services in the United States. The federal government dictates the rules, and states administer their programs locally through applications and eligibility requirements. Individuals must meet specific criteria to qualify for Medicaid services.

Medicaid Compliant Annuity (MCA)

A Single Premium Immediate Annuity (SPIA) with added restrictions to meet the requirements of the Deficit Reduction Act of 2005. An MCA must be irrevocable and non-assignable, provide equal monthly payments, and contain zero cash value. Additionally, the MCA must be structured to be “actuarially sound” in accordance with each state’s Medicaid manual and must name the state Medicaid agency as primary beneficiary (in most cases).

Medicaid Reimbursement Rate

The rate at which the state Medicaid agency will pay a facility for a Medicaid recipient’s care. This rate tends to be substantially lower than the private-pay rate.

Medicare

A program directed by the federal government that functions primarily as a health insurance program for people over age 65. Medicare benefits are intended for short-term services when the medical condition is expected to improve, and acute care. In most cases, Medicare does not pay for custodial care (non-medical assistance with daily life activities).

Miller Trust

See Qualified Income Trust.

Monthly Maintenance Needs Allowance (MMNA)

The amount of monthly income to which a community spouse is entitled. If the community spouse’s income does not meet their state’s MMNA, they are entitled to a shift in income from the institutionalized spouse. This figure varies by state.

• Minimum/Maximum States – Most states have a minimum and maximum MMNA, and the community spouse is entitled to at least the minimum. The MMNA may be increased depending upon the community spouse’s monthly shelter expenses, not to exceed the maximum.
• Other States – In states with a singular MMNA, the community spouse is entitled to the standardized figure regardless of shelter expenses.

N

“Name on the Check Rule”

A guideline used by Medicaid agencies to determine income ownership. If the income is specifically payable to one spouse, either the institutionalized spouse or the community spouse, it is considered available to only that respective spouse. When planning with MCAs, an institutionalized spouse may annuitize their IRA and make the income payable only to the community spouse. Success or failure of this strategy varies by state.

O

“Otherwise Eligible”

The condition for the penalty period to begin after a divestment has been made. To be considered “otherwise eligible” aside from the ineligible transfer, an applicant must qualify physically and financially for Medicaid benefits, including being spent down to the appropriate asset limit.

P

Penalty Period

The period of ineligibility imposed by a state Medicaid agency if divestments have occurred within the lookback period. An applicant must be considered “otherwise eligible” aside from the transfer. The length of the penalty period is based on the amount transferred and the state’s specific Divestment Penalty Divisor.

Private-Pay Rate

The rate at which a long-term care facility charges an individual who is paying out of pocket for care or not receiving Medicaid benefits.

Promissory Notes

A legal instrument that involves a promise by one party to pay a specific amount of money to another party, either by a predetermined date or on demand. Promissory notes can be used in crisis situations to convert excess countable resources into an income stream and are typically made between family members. Many states consider promissory notes to be either a countable resource or a divestment.

Q

Qualified Income Trust (“QIT”) or “Miller Trust”

An irrevocable, income-only trust which holds the income of a Medicaid applicant/recipient. Any income received by the individual beyond the state’s income cap must be funded through the trust. Also known as a Miller Trust, it may only consist of pension, social security, and other income, plus any accumulated interest. The state Medicaid agency is entitled to recover the balance remaining in the trust upon the death of the individual, up to the amount expended on their behalf. A Qualified Income Trust is only required in certain states.

R

Refusal Letters

Letters from secondary market buyers that support an annuity’s inability to be bought or sold due to its restrictive provisions.

S

Shelter Standard

The amount of monthly shelter expenses for which the community spouse is responsible. If the community spouse has monthly shelter expenses in excess of the Shelter Standard, they may be entitled to an increased Monthly Maintenance Needs Allowance (MMNA). This figure varies by state.

Snapshot Date

The date used by the state Medicaid agency to take a “snapshot” of a couple’s finances to determine eligibility. In states that impose a minimum and maximum Community Spouse Resource Allowance (CSRA), the snapshot date determines the amount that is protected for the couple. Under federal law, the snapshot date is the first day of continuous institutionalization.

Single Premium Immediate Annuity (SPIA)

An annuity funded with a one-time investment amount that is annuitized upon purchase of the contract. It begins providing regular payments as soon as it is funded and has no growth or deferral period.

Society of Financial Services Professionals

A national membership organization that provides educational opportunities, professional resources, and ethical standards to financial services professionals.

Standard Utility Allowance

The standardized figure used by the state Medicaid agency in place of a community spouse’s actual utility costs (heat, electricity, etc.). This figure varies by state and is used to calculate a community spouse’s total shelter expenses.

T

Tax-Deferred Annuity

An annuity that has not been annuitized (is not providing regular payments). A tax-deferred annuity may continue to accumulate growth and has cash value that is accessible to the owner of the contract.

U

Uncompensated Transfer of Assets

A transfer of assets for less than fair market value (also known as a divestment or a gift). If a transfer of assets occurred within the lookback period, the State Medicaid agency will impose a penalty period of ineligibility based on the amount transferred.