How Medicaid Compliant Annuities Can Help Single Medicaid Applicants Preserve Assets
Although married couples have more flexibility when it comes to structuring a Medicaid Compliant Annuity (MCA) and can often preserve the majority of their assets, single people can also use an MCA to protect some of what they have left. The two strategies we recommend for single clients are the Gift/MCA Plan and the Standalone MCA Plan.
Gift and Medicaid Compliant Annuity Strategy
The Gift/MCA Plan is our most widely used planning strategy for single individuals. Its purpose is to transfer about half of the client’s assets to the client’s chosen heir(s) through a divestment, which in turn triggers a Medicaid penalty period. The client then uses their remaining assets to purchase an MCA, which provides the funds needed to privately pay for care throughout the penalty period. The MCA term is aligned to match the length of the penalty period, ensuring the annuity concludes precisely when Medicaid eligibility is restored. During this time, the divested funds remain protected from Medicaid estate recovery.
As with all MCA strategies, there are important considerations to keep in mind. If the client passes away before the penalty period and annuity term conclude, they may realize no economic benefit, as they would have been privately paying for care during that time. Additionally, some states impose income limitations that make the Gift/MCA Plan unworkable. In those situations, a single individual may instead utilize the Standalone Plan.
View a case study of the Gift/MCA Plan in action.
Standalone MCA Plan for a Single Person
If a single individual has limited life expectancy or if the Gift/MCA Plan is not permitted in your state, the Standalone Plan may be a more suitable option. Instead of making a divestment and purchasing an annuity with the remaining assets, the individual places their full spend-down amount directly into an MCA. This immediately reduces their countable assets below Medicaid’s eligibility threshold. However, because the annuity payments count as income, they will be applied toward the individual’s monthly Medicaid co-pay. To help minimize these payments, the MCA term should be structured to match their full Medicaid life expectancy.
Once the individual is approved for benefits, the state Medicaid agency pays the nursing facility its Medicaid Reimbursement Rate—an amount that varies by state and is typically much lower than the private pay rate. Upon the individual’s passing, the state Medicaid agency, as the primary beneficiary of the MCA, may recover up to the amount it has spent on the individual’s care. Any remaining funds after the state’s claim will pass to the contingent beneficiary—the client’s intended heir(s).
The economic value of the Standalone MCA Plan depends heavily on the Medicaid recipient’s longevity. The longer the individual lives, the smaller the remaining benefit for the contingent beneficiary. Because the ultimate outcome cannot be predicted, the Gift/MCA Plan is generally preferred when available, as the wealth transfer occurs at the outset.
See a real-life example of the Standalone MCA Plan.
Comparing the Gift/MCA Plan vs. the Standalone MCA Plan
| Gift/MCA Plan | Standalone MCA Plan | |
|---|---|---|
| Timing of Wealth Transfer | Immediately | Upon the individual’s death |
| MCA Term | The length of the penalty period incurred by the wealth transfer | The individual’s full Medicaid life expectancy |
| Monthly Savings | The difference between the private pay rate of the facility and the individual’s Medicaid co-pay (their income minus monthly allowance and medical deductions) | The difference between the private pay rate of the facility and the Medicaid Reimbursement Rate |
| Total Savings | The initial wealth transfer to the individual’s intended heir(s), which is typically around half of their total spend-down | The MCA premium amount minus total payments made and total due to the state upon the individual’s, depends on their longevity |
If you have a single client seeking Medicaid benefits and looking to preserve what they have left, consider one of these effective MCA strategies. We’ll be happy to advise on your case, determine which strategy makes the most sense, and do any calculations necessary. Schedule a call with our team to learn more!
As Senior Content Specialist, Katie drafts and edits content across multiple platforms, including blogs, guides, emails, white papers, videos, brochures, website pages, and more. She conducts research and gathers up-to-date information to keep our clients well-informed.
