NCPA - National Center for Policy Analysis

Appearing Poor Through "Medicaid Annuities"

June 6, 2001

Since Medicaid won't pay for people's nursing home care if they have assets of more than about $2,000 -- not counting a house and car -- some insurance companies have come up with a gimmick to allow elderly people to appear poorer than they are. The vehicle is called a "Medicaid Annuity."

Here's how it works:

  • The elderly person desiring to go into a nursing home hands over almost all of his or her assets to an insurance company -- which agrees to send it all back, with interest, in monthly payments over a few years.
  • The person no longer has significant assets -- only a revenue stream -- and thus is made eligible for Medicaid.
  • This works so long as the annuity appears to be set up for retirement income and is irrevocable and nontransferable -- even though federal officials say they didn't intend for the Medicaid-eligibility guidelines they wrote to make this kind of maneuver possible.
  • Critics such as state regulators estimate that the annuities have drained $1 billion from Medicaid so far.

Owners of some nursing homes are opposed to the annuities, since Medicaid pays less than the private rate. Insurance companies which sell a rival product -- policies which cover long-term care -- also oppose the annuities.

Some states are restricting the annuities by seizing the funds remaining in them when the elderly person dies. Other states, such as Ohio and Pennsylvania, are starting to refuse Medicaid to some assetless applicants on the grounds that they are using an annuity to game the system.

Source: Ann Davis, "Insurers Help Elderly Get Medicaid to Pay for Nursing Homes," Wall Street Journal, June 6, 2001.

For text (WSJ subscribers)


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