An annuity is 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 may occur at later date (see Deferred Annuity).
The annuity term is the period of time during which an annuity provides regular payments. The annuity term may also be referred to as the “period certain” or “term certain.”
A balloon-style annuity is 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.
The community spouse is the spouse who remains at home or in an assisted living facility and will not receive Medicaid benefits.
Community Spouse Resource Allowance (CSRA)
The Community Spouse Resource Allowance (CSRA) is the amount of countable assets to which a 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 from state to state.
- Minimum/Maximum States – In most states, there is a minimum and maximum CSRA. The community spouse is entitled to one-half of the 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 that do not apply the minimum and maximum CSRA regulations, the community spouse is entitled to the standardized amount regardless of the couple’s assets as of the “snapshot date.”
Countable assets that are owned by the Medicaid applicant and/or spouse that the State Medicaid agency uses to determine financial eligibility for benefits. There is a limit to the number of countable assets the applicant and/or spouse may have in order to qualify for benefits. Some examples include: bank accounts, cash, stocks, bonds, tax-deferred annuities, and additional real estate beyond the primary residence.
Crisis Medicaid Planning
Crisis Medicaid Planning is financial and legal planning done to accelerate one’s eligibility for Medicaid benefits. It occurs when an individual is in need of immediate financial relief from high long-term care costs, and the individual has not conducted any “pre-planning” (the purchase of long-term care insurance, prior funding of an asset protection trust, etc.).
See Long-Term Care.
A deferred annuity is an annuity that has not been annuitized (not providing regular payments). A deferred annuity may continue to accumulate growth and has cash value that is accessible to the owner of the contract.
Deficit Reduction Act of 2005 (DRA)
The Deficit Reduction Act of 2005 (DRA) is the federal law that changed a number of regulations that relate to Medicaid benefits, such as the calculation of transfer penalties, the lookback period, and the treatment of annuities.
Divestment Penalty Divisor
The Divestment Penalty Divisor is the figure used to determine the length of a penalty period if an uncompensated transfer has been made within the lookback period. It is representative of a state’s average private-pay rate at a skilled nursing facility. This figure varies from state to state. 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. This can be written so that the transfer of responsibilities occurs immediately, or when an individual becomes incapacitated. A person must be of sound mind when they make their attorney-in-fact/agent designation(s).
Estate recovery is when 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 cannot recover from the estate. Specific rules vary from state to state.
A fair hearing is the process of appealing a decision by the State Medicaid agency in regard to an applicant’s Medicaid eligibility. The applicant may seek a fair hearing if he or she believes benefits were incorrectly denied, reduced, or terminated.
Individual Resource Allowance
The individual resource allowance is the amount of assets that a Medicaid applicant can retain and still qualify for benefits. It allows an institutionalized individual to still have access to a small amount of funds for discretionary spending.
Income Cap State
An income cap state is a state that requires an applicant’s gross monthly income flow through a Qualified Income Trust (QIT)/Miller Trust in order to qualify for Medicaid benefits, if the applicant’s income exceeds the current income cap. In 2019, the cap is $2,313.00. These states include Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware ($1,927.50), 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 institutionalized spouse is the spouse who is in a nursing home (or other Medicaid-approved facility) and is seeking Medicaid benefits.
Life Expectancy Table
The life expectancy table is an actuarial table based on the mortality experience of a population, used in annuity calculations. For Medicaid purposes, some states use their own life expectancy tables, and others use the Social Security Administration’s table.
Long-Term Care is care for an individual that is in need of daily assistance with basic functions of life. It includes 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.
The lookback period is the 5-year period in which a state’s Medicaid agency will “look back” to determine if a Medicaid applicant has made an uncompensated transfer of assets. If the individual and/or spouse has made any uncompensated transfers, and the transfers are not cured/returned, the applicant will be subject to a penalty period of ineligibility.
Medicaid is a program jointly funded by state and federal governments 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, which include custodial care.
Medicaid Compliant Annuity (MCA)
A Medicaid Compliant Annuity (MCA) is a Single Premium Immediate Annuity (SPIA) with added restrictions to meet the requirements of the Deficit Reduction Act of 2005. The SPIA is irrevocable, non-assignable, provides equal monthly payments, and contains zero cash value. Additionally, the SPIA must be structured to be “actuarially sound” in accordance with each state’s Medicaid manual and must name the State Medicaid agency as primary remainder beneficiary (in most cases).
Medicaid Reimbursement Rate
The Medicaid Reimbursement Rate is 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 is 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).
Monthly Maintenance Needs Allowance (MMNA)
Monthly Maintenance Needs Allowance (MMNA) is the amount of monthly income to which a community spouse is entitled. If the community spouse’s income does not meet his or her MMNA, he or she is entitled to a shifting of income from the institutionalized spouse. This figure varies from state to state.
- Minimum/Maximum States – In most states, there is a minimum and maximum MMNA. 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 that do not apply the minimum and maximum MMNA regulations, the community spouse is entitled to the standardized figure regardless of his or her shelter expenses.
“Name on the Check Rule”
The “Name on the Check Rule” is a rule used by Medicaid agencies to determine income ownership. If the income is payable to 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 his or her IRA and make the income payable only to the community spouse. Success or failure of this strategy varies from state to state.
Non-countable assets are assets that the State Medicaid agency does not count when determining an applicant’s financial eligibility. Some examples include 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).
“Otherwise Eligible” is the condition for the penalty period to begin after an uncompensated transfer has been made. To be considered “otherwise eligible” aside from the transfer, an applicant must qualify physically and financially for Medicaid benefits, including being spent-down to the appropriate asset limit.
The penalty period is the period of ineligibility imposed by the State Medicaid agency if uncompensated transfers 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.
The private-pay rate is the rate at which a long-term care facility charges an individual that is paying out-of-pocket for care or not receiving Medicaid benefits.
A Promissory Note is a legal instrument that involves a promise by one party to pay another party a specific amount of money, either by a predetermined date or on demand. Promissory notes are used in crisis Medicaid planning situations to convert excess countable resources into an income stream, and are typically made between family members. Many states consider promissory notes to either be a countable resource or a divestment.
Qualified Income Trust (“QIT”) or “Miller Trust”
A qualified income trust (QIT) or Miller Trust is an irrevocable, income-only trust which holds income of a Medicaid applicant/recipient. Any income received by the individual beyond the current income cap must be funded through the 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 his or her behalf. A Qualified Income Trust is only required in certain states. See Income Cap States for additional information.
Refusal letters are letters from secondary market buyers that support an annuity’s inability to be bought or sold due to its restrictive provisions.
The shelter standard is the amount of monthly shelter expenses for which the community spouse is responsible. If a community spouse has monthly shelter expenses in excess of the Shelter Standard, he or she may be entitled to an increased Monthly Maintenance Needs Allowance (MMNA). This figure varies from state to state.
The snapshot date is 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 couple’s protected amount. Under federal law, the snapshot date is the first day of continuous institutionalization.
Single Premium Immediate Annuity (SPIA)
A Single Premium Immediate Annuity (SPIA) is 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. There is 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 standard utility allowance is the standardized figure used by the State Medicaid agency in place of a community spouse’s actual utility costs (heat, electric, etc.). It is used to calculate a community spouse’s total shelter expenses. The figure varies from state to state.
Uncompensated Transfer of Assets
Uncompensated transfer of assets is 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.