The Role of Medicaid Compliant Annuities in Preventing Spousal Impoverishment

For married couples facing a long-term care crisis, one of the most common and pressing concerns is how to secure Medicaid eligibility for the institutionalized spouse without leaving the healthy spouse destitute. While federal Medicaid rules provide certain protections for the community spouse, the cost of nursing home care, which often exceeds $100,000 annually, can quickly erode available assets and leave the healthy spouse financially vulnerable. For attorneys advising clients through this transition, Medicaid Compliant Annuities (MCAs) can be a powerful planning tool to preserve resources, accelerate eligibility, and support the financial security of the community spouse.

The Challenge: Balancing Eligibility and Financial Security

When a married applicant seeks Medicaid long-term care benefits, federal spousal impoverishment rules allow the community spouse to retain certain assets and income. However, in many cases, the couple’s combined assets exceed the allowable Community Spouse Resource Allowance (CSRA). Without planning, those excess resources must be spent down before benefits can begin, potentially jeopardizing the financial well-being of the community spouse.

This is especially problematic when the couple’s assets are largely liquid and intended for retirement, or when the community spouse has insufficient independent income to maintain the home, pay for health insurance, and meet ongoing living expenses.

Read More: What Is the Asset Limit for Long-Term Care Medicaid?

The Strategy: Converting Excess Assets into Income

A Medicaid Compliant Annuity offers a legal way for couples in this scenario to convert otherwise countable assets into an income stream for the community spouse. Structured in accordance with Medicaid rules, an MCA:

• Is irrevocable and non-assignable
• Is actuarially sound and pays out over a period less than or equal to the owner’s life expectancy
• Pays in equal monthly installments
• Names the state Medicaid agency as primary beneficiary up to the amount of benefits paid

By purchasing an MCA with excess countable assets, the couple can reduce their resources to within program limits while generating predictable income for the community spouse.

Read More: What’s the Risk of Estate Recovery on Medicaid Compliant Annuities?

Why This Helps Prevent Spousal Impoverishment

Because income received by the community spouse is exempt from Medicaid eligibility calculations, the annuity payments can be used to maintain housing, cover medical expenses, and support ongoing quality of life without delaying the institutionalized spouse’s eligibility for benefits. Essentially, an MCA allows the community spouse to:

• Preserve assets that would otherwise be spent down
• Receive a reliable, stable income source
• Reduce the risk of rapid asset depletion
• Maintain financial independence and dignity

Legal Considerations for Attorneys

MCAs are not a one-size-fits-all solution. Attorneys advising clients should carefully evaluate each specific case and develop a plan based on the client’s state of residence, health, financial situation, and other important factors. If you need help determining the best MCA strategy for your case, reach out to our team!

Read More: Medicaid Compliant Annuity Strategies for Married Clients

When to Consider an MCA

An MCA may be particularly advantageous when:

• A married applicant urgently needs nursing home care
• The couple has assets above the CSRA
• The community spouse requires a reliable income stream
• The family wants to avoid selling or depleting key retirement assets

For crisis-planning cases where the client is already in a nursing home or is expected to pursue Medicaid eligibility in the near future, MCAs provide one of the most effective pathways to eligibility without impoverishing the healthy spouse.

A Valuable Tool for Crisis Planning

Medicaid Compliant Annuities allow attorneys to support both sides of the planning equation: securing benefits for the institutionalized spouse while preserving financial security for the community spouse. When applied correctly, the MCA transforms a spend-down requirement into a lawful income strategy that protects the standard of living of the spouse at home.

As demographic and economic pressures continue to rise, attorneys who understand how to leverage MCAs within an asset-preservation strategy will be better positioned to provide meaningful solutions to aging couples facing the financial realities of long-term care.