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At the end of this past March, we had the pleasure of attending the Ohio Elder Law Institute in Columbus, OH. During our time there, we learned of a pressing issue out of Cuyahoga County regarding the definition of “actuarially sound” for Medicaid Compliant Annuities (“MCA”). In addition to this popular concern at the Ohio Elder Law Institute, KF has also received word of two recent cases out of that same county which has caused us to step back and take a closer look at just what is going on in Ohio. Attorneys and agents, Ohioans or otherwise, here’s the issue: there have been Medicaid denials coming out of Cuyahoga County on the grounds that MCAs purchased were not actuarially sound because the terms of the MCAs were shorter than the owners’ respective life expectancies.
Two Cases Causing Concern In Cuyahoga County
A married couple, Mr. and Mrs. “Smith,” utilized a traditional spousal annuity plan. The community spouse, Mrs. Smith, purchased a MCA to eliminate the couple’s excess spend-down and immediately qualify the institutionalized spouse, Mr. Smith, for Ohio Medicaid benefits. The Ohio Medicaid life expectancy of Mrs. Smith was 92 months at the time of purchase, however, the annuity was structured for a term of 18 months. As this is below Mrs. Smith’s full life expectancy, the MCA should have been deemed acceptable. Instead, a penalty period was imposed upon Mr. Smith on the basis that the MCA purchased by Mrs. Smith was not actuarially sound as it was not structured over her entire life expectancy, and therefore was an improper transfer of assets. The attorney on this case intends to appeal.
Another case out of Cuyahoga County that raised concern was that of a single individual, Ms. “Johnson.” In summer of 2010, Ms. Johnson purchased a MCA. This annuity was set to pay out over a period of 72 months. At the time of purchase, her Ohio Medicaid life expectancy was 100 months. Because the annuity was not structured over her exact life expectancy at the time of purchase, when Ms. Johnson applied for Medicaid in fall of 2015, the remaining balance of the annuity was deemed a countable resource, thereby putting Ms. Johnson’s total assets over the Ohio limit of $1,500.
Ms. Johnson’s attorney appealed the decision and the denial was overturned, stating that Ms. Johnson’s eligibility must be reevaluated. Unfortunately, this decision was based upon lack of proof of Ms. Johnson’s other resources. The Hearing Officer upheld the caseworker’s original analysis of the MCA, stating that it did not meet the actuarially sound requirement.
What About the Rest of Ohio?
From what we know, Cuyahoga county is the only county in Ohio implementing this restrictive definition of “actuarially sound,” and we have had many recent successful cases out of Ohio in which the MCAs were structured for a term less than the owner’s life expectancy to substantiate this. However, if the rest of Ohio were to adopt Cuyahoga county’s interpretation, this could spell trouble for Medicaid planners and applicants alike. Short-term annuities – the annuities facing the potential threat – are necessary for Individual Gifting/MCA plans. The only other option for a single individual is a Stand-Alone MCA plan, which is structured over the individual’s full life expectancy, but may not provide the same economic benefit for the client’s family depending on the client’s circumstances. Traditional spousal annuity planning would still be a viable option, however, Medicaid planners would have to be very strict on the term of the annuity, ensuring it coincides with the owner’s Ohio Medicaid life expectancy.
Though this would place restrictions on the types of annuities one would be able to work with, and though it would have an effect on the economic outcome for the clients and their families, we want to make it clear that Cuyahoga County has not ruled out annuities all together. Rather, Cuyahoga County has implemented a strict interpretation of “actuarially sound,” and this interpretation limits the MCA planning strategies attorneys and agents can successfully utilize for their clients, and this is what we want to bring to the attention of Ohio Medicaid planners.
What We Learned from Zahner – And How it Could Help in Ohio
The landmark case of Zahner v. Secretary Pennsylvania Department of Human Services (DHS), we learned that short-term annuities are indeed viable. Among a multitude of other reasons short-term annuities were deemed acceptable, the one that Ohio Medicaid planners should be most aware of is the determination that “actuarially sound” does not mean equal to the owner’s life expectancy – it means less than the owner’s life expectancy.
The three cases analyzed in Zahner all held the same properties – short-term annuities structured less than the full Medicaid life expectancy of the owners were all deemed improper, one of the major points of contest being the definition of “actuarially sound.” The final ruling affirmed that annuities structured longer than the owner’s life expectancy are improper, however, anything equal to or less than the owner’s life expectancy is acceptable. The DRA put forth an explicit ceiling on the length of MCAs, but no floor, and it is not the place of Pennsylvania – or even Cuyahoga County – to implement such a restriction on its Medicaid applicants.
KF is committed to keeping our colleagues informed on any potential issues that may affect their clients – and to assisting Cuyahoga County Medicaid planners in whatever they may need to get this restriction lifted and ensure it does not spread through the rest of Ohio. In light of the decision in Zahner, we are confident that litigators in Ohio will achieve the same result for short-term annuities, protecting these Medicaid planning strategies and putting an end to the “actuarially sound” debate. Check back soon for any updates we receive regarding this situation in Cuyahoga County.