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What Is a Medicaid Annuity?

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  • Written By: K.C. Bruning
  • Edited By: John Allen
  • Last Modified Date: 02 September 2016
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A Medicaid annuity is a process where a person can become eligible for Medicaid payments, but protect personal assets from government seizure. It consists of transferring liquid assets to a third party, which will typically make regular disbursements for the rest of the individual’s life. Once the person has passed, the assets are given to the beneficiary. This process is most frequently used when a person needs funds for immediate care, such as extensive healthcare or moving to a nursing home, but wishes to retain his or her assets.

The most common ways to arrange for a Medicaid annuity are via a lawyer or a financial professional who specializes in Medicaid. Most lawyers who handle Medicaid issues specialize in elder law. Professionals who offer Medicaid annuity planning tend to focus primarily, if not exclusively, on this area of law.

For many, the Medicaid annuity is necessary, because without government aid they would not be able to afford adequate healthcare. While the process is looked down upon by some as a way of manipulating the system, it is often the only means by which a family can retain its modest assets. There are some cases where wealthier individuals will give their families an early inheritance so that they can take advantage of Medicaid payments, but this is not common. Due to concerns about the system being abused, there are some places which do not permit Medicaid annuities.

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An effective Medicaid annuity contract is irrevocable, distributes equal payments, and is actuarially sound. Good contracts also do not have balloon payments upon the death of the individual. In some places these terms are enforced as regulations for Medicaid annuities. Insurance companies typically manage the process.

Individuals who do not use a Medicaid annuity may be forced to impoverish themselves in order to receive the money they need for immediate healthcare. This act enables a person to qualify for welfare. It is a less desirable option, because it strips the individual of the added security of a back-up income, however modest.

When determining whether or not to use a Medicaid annuity, it is wise to consider other money that the individual may receive from the government such as pension payments and social security. These payments must also fall under a certain level in order for the person to be eligible for Medicaid. It is also wise to keep in mind that once it has been signed, the annuity can be canceled neither by the person purchasing it nor by the issuing party.

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