Mastering the Beneficiary Requirements of the Medicaid Compliant Annuity

Alisa Lamal

As an elder law attorney, you play a vital role in helping your senior clients navigate the complexities of Medicaid planning. A crucial tool in that process is the Medicaid Compliant Annuity (MCA). However, to effectively leverage MCAs for your clients, it’s important to have a comprehensive understanding of the beneficiary requirements associated with these policies and how those requirements can impact your client.


The Requirements of the Medicaid Compliant Annuity (MCA)

The Medicaid Compliant Annuity was specifically designed to help individuals accelerate their eligibility for Medicaid benefits while preserving their assets. These policies must adhere to strict guidelines set by the Deficit Reduction Act of 2005 to ensure compliance with eligibility requirements. According to this regulation, annuities that meet these five requirements will not be considered a countable resource nor a divestment to the Medicaid applicant for eligibility purposes. These regulations require that the annuity be:

  • Irrevocable;
  • Non-assignable;
  • Actuarially sound;
  • Provide equal monthly payments; and
  • Designate the state Medicaid agency as the appropriate beneficiary.

Read More: The Rules of a Medicaid Compliant Annuity


Beneficiary Designation and Medicaid Eligibility

When structuring these policies, it’s important to understand the impact that these beneficiary designations can have on Medicaid eligibility as well as estate recovery. Ensuring that the beneficiary designation complies with Medicaid regulations is essential to securing your senior client’s eligibility. This begins with understanding when the state Medicaid agency is required to be named as a beneficiary.

In most cases, when an MCA is being purchased by either a single individual or the community spouse in a married couple’s case, the state Medicaid agency is required to be named the primary beneficiary of the policy. However, there are a few exceptions to this rule.


Naming the Institutionalized Spouse as Primary Beneficiary

In some states, it is permissible for a community spouse purchasing an MCA to list the institutionalized spouse as the primary beneficiary ahead of the state Medicaid agency. Should the community spouse predecease the annuity term and be survived by the institutionalized spouse, the institutionalized spouse will receive the remaining proceeds of the annuity. While this will likely cause the institutionalized spouse to become over-resourced, impacting their Medicaid eligibility, they can spend down these proceeds by utilizing a Gift/MCA plan.


Naming a Minor or Disabled Child as Primary Beneficiary

The final exception to naming the state Medicaid agency as the primary beneficiary is if the applicant has a minor or disabled child. Medicaid applicants can name their minor or disabled child as primary beneficiary ahead of the state Medicaid agency in every state.


Not Naming the State Medicaid Agency as a Beneficiary

In just a few states, on an MCA purchased by the community spouse, the state Medicaid agency is not required to be listed as a beneficiary at all. While this is not the standard used in a majority of states, there has been recent legal proceedings to try and encourage more states to adopt this protocol.

Learn More: Fundamentals of Medicaid Crisis Planning


Beneficiary Designation and Planning Strategies

If the annuitant does not meet any of the exceptions referenced above, they will likely be required to name the state Medicaid agency as the primary beneficiary of their MCA policy. This means that should the annuitant predecease the term, the remaining funds in the annuity will be recoverable by the Medicaid agency for benefits expended on the institutionalized individual’s behalf. However, there are a few key points to remember with each planning strategy that can help you safeguard your client’s assets from possible estate recovery.

MCAs that are purchased by a single individual as part of a Gift/MCA plan, require that the term of the annuity be structured to match the period of ineligibility. As such, the client does not receive any Medicaid benefits during this period of ineligibility while the annuity is paying out to them. As a result, should the Medicaid applicant predecease the annuity term, Medicaid will not have any expenses to recover from it because they have not been paying any benefits on the individual’s behalf yet.

On the other hand, MCAs purchased by the community spouse allow for greater flexibility in choosing the annuity term. As long as the term does not exceed the individual’s maximum life expectancy, the policy can be structured with a term as short as necessary to meet the annuitant’s life expectancy and income needs.


Understanding the Beneficiary Requirement

Explaining the beneficiary requirements of a Medicaid Compliant Annuity and their implications is essential for helping your senior clients assess the possible risk and help them determine if this is the right solution for them. In situations where the annuitant does predecease the policy and the state Medicaid agency has a claim for reimbursement, it is very likely that the amount of assets that the family was able to protect by utilizing these planning strategies far outweighs the reimbursement claim.

If you have questions about how to prioritize your client’s beneficiary designations on the MCA or want to learn more about your state’s MCA beneficiary requirements, contact our office today!


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