H.R. 1771: Spousal Annuities in Medicaid Planning

You might recall a letter the National Association of State Medicaid Directors (“NASMD”) wrote to the Centers for Medicare & Medicaid Services (“CMS”) back in March of 2010. The letter was regarding the use of short-term annuities in spousal planning, particularly on the technique where community spouses were using the annuities to return the entire spend-down amount in a matter of only several months – usually at the tune of $40,000+ of monthly income.

NASMD had requested that CMS take the position that these annuities be treated as trust-like devices and that the investment be considered a countable resource in determining the institutionalized spouse’s Medicaid eligibility.

If you are not familiar with this letter, you may find a copy of it here.  NAELA was swift to react with a letter of their own, and nothing ever really came of the ordeal since.  Until now.

On April 14, 2015, the Republican Representative for Oklahoma’s 2nd Congressional District, Rep. Markwayne Mullin, introduced a bill to amend Title XIX of the Social Security Act to count portions of the income from a community spouse’s annuity in determining eligibility for the institutionalized spouse. The text of the bill states that “if payment of income made solely in the name of the community spouse, one-half of the income shall be considered available to the institutionalized spouse and one-half to the community spouse.” This would apply to all “qualifying annuities,” defined as those purchased within the look-back period, with the exception of annuities consisting of tax-qualified investments, such as an IRA.

For many, depending on the MMNA calculations, the above bill may not be much of a concern if passed. However, for the technique the NASMD letter intended to strike down, the problem is obvious – Medicaid eligibility could never be obtained.

Situations exist where a short-term annuity is completely appropriate in Medicaid planning, such as to provide a community spouse with reasonable monthly income to maintain his or her standard of living. However, their use is most commonly seen in individual gifting plans that include a small spend-down amount. I am of the opinion that it is not appropriate to utilize a short-term annuity in a spousal case where the couple has a very high net worth, resulting in the community spouse receiving $80,000+ of monthly income.

Currently, the above-referenced bill has a poor prognosis.  It has an 11% chance of getting past the House Energy and Commerce Committee, and a 4% chance of being enacted. Track the bill’s status here: https://www.govtrack.us/congress/bills/114/hr1771