The Rules of a Medicaid Compliant Annuity

Alisa Lamal

Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.


A Medicaid Compliant Annuity (MCA) can be a helpful tool for clients who reside in a nursing home, but who are unable to afford their care without the help of Medicaid. These annuities, when included as part of a client’s Medicaid crisis plan, can effectively convert the applicant’s excess countable resources into an income stream with zero cash value allowing them to accelerate their eligibility for benefits.

For an annuity to be classified as ‘Medicaid compliant’ it must be structured according to the rules outlined in the Deficit Reduction Act of 2005. According to federal regulations, the annuity must be:



This means that once the contract is in effect, the policyholder cannot make any changes to the premium, term, beneficiaries, or monthly payout for the duration of the contract. This is important for Medicaid purposes because the policy cannot have accessible cash value. As such, the policyholder will only have access to the income stream received from the annuity and not be able to access any of the funds invested into the annuity.

Learn More: Fundamentals of Medicaid Crisis Planning



This requirement prevents the annuity contract from being assigned or transferred to another party or sold on the secondary market. Since the MCA has a zero cash value and ownership of the policy cannot be changed once the policy is in force, the MCA is non-assignable. Assignable annuity contracts are considered to have an accessible cash value to them that can be accessed by the policyholder. As such, annuity contracts that are assignable will often be considered non-compliant and their value may be included as an available resource to the Medicaid applicant.


Actuarially Sound

For an annuity to meet the actuarially sound requirement, the policy must return the full investment amount to the policyholder within their Medicaid life expectancy. As such, the term of the MCA, while it can be structured shorter than the owner’s full estimated life expectancy, cannot exceed that limit. To determine the maximum term length for your client, you will need to consult the appropriate actuarial table. While most states utilize the Social Security Administration Actuarial Table, some states have their own, so it’s important to know which table your state references.

Read More: What You Need to Know About the Actuarially Sound Requirement


Provide Equal Payments

Another requirement for an annuity to be considered ‘Medicaid compliant’ is that it must provide equal payments in regular intervals (often monthly) over the contract term. The policy must not permit balloon or deferral payments.  Since the MCA is a Single Premium Immediate Annuity (SPIA), payments begin immediately, often within 30 days of the contract’s issue date. Annuities that allow payments to be deferred may be considered by Medicaid to be non-compliant. This is because deferred annuities often contain a cash value while they are in a deferred status that can be accessed by the policyholder.


State as Beneficiary

Lastly, an annuity must name the state Medicaid agency as the appropriate beneficiary of the contract for the policy to be considered compliant. The state is often listed as the primary beneficiary of the contract, however, there are exceptions to this rule.

If the MCA is owned by an institutionalized individual who is married, the community spouse can be named as the primary beneficiary ahead of the state Medicaid agency. In a few select states, if the annuity is purchased in the name of the community spouse, the institutionalized spouse can be named ahead of the state Medicaid agency. However, if the MCA is purchased by the institutionalized individual or their spouse, if there is a minor or disabled child, they may be named as a primary beneficiary of the annuity ahead of the state Medicaid agency. Some states may have additional exceptions beyond those listed here.

Learn More: Breaking Down the MCA’s Beneficiary Requirements


Whether your clients are married or single, a Medicaid Compliant Annuity can help them accelerate their eligibility for Medicaid benefits. Since the rules for a Medicaid Compliant Annuity are strict and can be a bit complicated at times, it’s important to work with an insurance carrier that understands the requirements of these types of annuities and can provide you with the right product.

If you have a client that could benefit from the use of a Medicaid Compliant Annuity but aren’t sure whether your local financial advisor supplies such a product, contact our office to discuss your client’s annuity options today!


Attorney Access

Access More In-Depth Resources

Join Attorney Access to view our entire library of white papers, case studies, and state-specific planning information.