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CATEGORIES:  Elder law, medicaid planning, spend down, asset protection, Winston Salem, North Carolina, NC.

Medicaid Compliant Annuities (MCAs) provide the Medicaid planning attorney with a way to convert countable Medicaid assets into exempt Medicaid assets, creating an income stream for the applicant or his/her spouse.  The MCA may be used to quickly “spend down” the Medicaid applicant’s (or the community spouse’s) assets, in order to preserve the family’s funds while qualifying the applicant for Medicaid.

Congress Created a “Safe Harbor” With Respect to Medicaid for Medicaid Compliant Annuities (MCAs)

Congress, in passing the Omnibus Reconciliation Act of 1993 (OBRA), and the federal Deficit Reduction Act (DRA) of 2005, provided legislative permission for Medicaid applicants to utilize Medicaid Compliant Annuities (MCAs).  As long as a MCA meets the following requirements, it will be viewed to be exempt as a Medicaid asset.  As stated within OBRA and the DRA, Medicaid Complaint Annuities must be:

  • Irrevocable, and non-assignable
  • Have no cash value
  • Be payable within the life expectancy of the annuitant
  • Have equal monthly payments, with no delay in payments, and no balloon payments
  • Must name the state as the irrevocable beneficiary after the death of the annuitant


How Medicaid Countable Asset Limits are Calculated

When one member of a couple must apply to Medicaid to finance nursing home or long term care expenses in North Carolina, both members of the couple must meet certain asset restrictions.  In general, the long term care applicant must not have more than $2,000 in individual countable assets when applying for Medicaid.

The spouse remaining at home is allowed to keep more assets.  In North Carolina, the stay-at-home, or “community” spouse may keep a maximum of $120,900 and a minimum of $24,180 in countable assets (2017 figures) when his or her spouse is applying for Medicaid.  The amount of countable assets that the community spouse may hold is called the “Community Spouse Resource Allowance,” or CSRA.

In order to calculate the exact CSRA for a particular community spouse, Medicaid performs an assessment of the applicant couple’s combined joint countable assets as of the “snapshot date.”  Medicaid determines the snapshot date based on when the Medicaid applicant spends 30 consecutive days in a hospital or nursing home (“continuous period of institutionalization” or CPI.)  The “snapshot date” is the last day of the month prior to the month when the applicant was first hospitalized, and/or transferred to a nursing home, for 30 consecutive days.

The snapshot date stays fixed in time based on events only, and remains the same date no matter when the actual Medicaid application is filed (i.e. the Medicaid application may be filed years after the snapshot date.)

After the snapshot date is determined, the applicant couple’s total combined countable assets on the snapshot date are divided by two.  I’ll use an example to explain how the at-home spouse’s final CSRA (again the amount of countable assets Medicaid will allow the at-home spouse to keep) is calculated:

Suppose a married North Carolina Medicaid applicant couple has $280,000 in combined countable assets as of the snapshot date.  Total combined countable assets are divided by two as the first step in determining the CSRA, i.e. $280,000/2 = $140,000.  Because the CSRA is capped at $120,900 in North Carolina, and $140,000 is greater than $120,900, the actual CSRA (again the amount of countable assets Medicaid will allow the at-home spouse to keep) equals the maximum CSRA cap of $120,900.

How a Medicaid Annuity Can Shield and Protect Assets

In the above example, because Medicaid will only allow the ill applicant spouse to keep $2,000, and the at-home spouse to keep $120,900, with the couple’s actual combined countable assets at $280,000, Medicaid will require the couple to “spend down” $280,000 – $2,000 – $120,900 = $157,100 before the ill spouse will qualify for Medicaid.

If the couple does not do any Medicaid planning with a qualified attorney, the couple (and their extended family) may effectively lose the benefit of all or part of their $157,100 in assets, because the Medicaid 5-year lookback penalty will prevent the $157,100 from being gifted to children or other family members (thus the $157,100 may have to be unnecessarily spent by the couple on “private pay” facility costs.)  Since the couple will remain on a tight budget, losing the $157,100 may jeopardize the at-home spouse’s future standard of living.

A Medicaid planning attorney works with the couple to preserve as many assets as possible.  Fortunately in the above case, instead of spending down and losing the benefit of the $157,100, the Medicaid planning attorney may help the applicant couple to protect and keep the $157,100 by converting it into a non-countable exempt asset (or assets.)

A “Medicaid Compliant Annuity,” or MCA, pays interest like a normal annuity, but is a non-countable, exempt Medicaid asset.  As long as the above couple’s $157,100 is liquid enough to be converted to a Medicaid annuity, instead of spending down and losing the $157,100, the couple can instead keep all of that money by investing it in the MCA, making those formerly countable assets now essentially invisible to Medicaid.

The Medicaid Compliant Annuity is owned by the couple just like any other typical investment security, but it does have transfer on death (TOD) beneficiary restrictions.  The State of North Carolina’s Medicaid program must be named primary TOD beneficiary, unless  the following persons are named primary TOD beneficiary, in which case Medicaid is named contingent TOD beneficiary:

  • The community spouse (at-home spouse);
  • A child of the couple under age 21; or
  • A disabled child of any age.

To get around these TOD beneficiary restrictions, elder law attorneys frequently choose an annuity with a very short term (for example, six months, or one year.)  

MCAs may be particularly useful in converting countable IRA, 401K, or other retirement account assets into Medicaid exempt assets.  It is normally difficult to convert retirement account assets to other types of Medicaid exempt assets because of the need to liquidate (and incur tax penalties) the retirement account to purchase other non-security Medicaid exempt assets (such as home improvements, for example.)  But because a MCA is an investment security, the assets held in a Medicaid countable retirement account may be converted to a exempt Medicaid asset within the tax-deferred retirement account (with the individual annuity payments payable out of the account to the individual Medicaid applicant or the community spouse).


Krause Financial Services; David Zumpano, Esq., CPA, Lawyers With Purpose