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Medicaid laws impact not just the health-care delivery system and the patients it serves, those laws also have a significant impact on all of society.  The number of persons who must rely on Medicaid to pay their basic health and long-term care bills has grown, as has the cost of those medical services.

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VA & Medicaid Assistance Lawyers

More News You Can Use on Annuities Under the Deficit Reduction Act

More News You Can Use on Annuities Under the Deficit Reduction Act

 

 

            Congress, the Federal bureaucracy, and the attorneys who work for them need to take a course on how to write plain English.  Reading federal statutes is never easy. But when the bureaucrats take over and adopt rules to implement the laws passed by Congress, the result can be an inscrutable morass.

 

            Medicaid laws impact not just the health-care delivery system and the patients it serves, those laws also have a significant impact on all of society.  The number of persons who must rely on Medicaid to pay their basic health and long-term care bills has grown, as has the cost of those medical services.  The resulting financial strains put on state and federal budgets led Congress to pass a law (the so-called "Deficit Reduction Act") that was signed by President Bush effective February 8, 2006.  The DRA certainly will not do anything to reduce the deficit and it is questionable how much savings will actually be realized. But I will reserve my comments on that subject for another time.

 

            On the other hand, once DRA is fully implemented, it is clear that the DRA will have a significant impact, not just on those who must rely on Medicaid to pay their health-care bills, but also on many other segments of society; for example, doctors, hospitals, nursing homes and other segments of the health-care and long-term care industries.

 

            In this column last month, we alerted you to breaking news on the DRA.  The Federal bureaucracy charged with implementing the DRA, the Center for Medicare & Medicaid Services (CMS), had just sent out a letter, with a number of "enclosures", to the state Medicaid Directors.

 

            The following is the essential portions of what one of the "enclosures" had to say about the evaluation and treatment of the purchase of annuities.  It applies to annuities purchased on or after February 8, 2006, by either the applicant for Medicaid benefits or their spouse:

 

  • ‘ In addition to the purchase of an annuity, other transactions subject an annuity to the DRA. Thus, an annuity that was in effect prior to February 8, 2006, can become subject to the DRA in a variety of ways, e.g., any action taken to change the course of payments made by an annuity, additions of principal to an annuity, withdrawals from an annuity, requests to change the distribution, annuitization of the contract, and similar actions. However, routine changes such as a change of address or death or divorce of a remainder beneficiary does not subject the annuity to the DRA. "Changes which occur based on the terms of the annuity which existed prior to February 8, 2006, and which do not require a decision, election or action to take effect are ... not subject to the DRA."
  • ‘ The state must be named as a remainder beneficiary of an annuity purchased on or after February 8, 2006, by either the applicant for Medicaid benefits or his/her spouse. Otherwise, the purchase of the annuity will be treated as a disposal of assets for less than fair market value and the applicant will be disqualified from receiving Medicaid benefits.
  • ‘ The state must be named as the remainder beneficiary in the first position for the total amount of medical assistance paid on behalf of the annuitant, unless there is a spouse and/or a minor or disabled child living at home. If there is a community spouse (the one at home) and/or minor or disabled child, the state may be named in the next position after those individuals. However, if any of those individuals dispose of any of the remainder of the annuity for less than fair market value, then the State may require that it be named in the first position.
  • ‘ The State must notify the issuer of the annuity of the State's right as the preferred remainder beneficiary and ought to require verification from the issuer that the State has been named as a remainder beneficiary in the correct position. In addition, the State should require the issuer to notify the State if there is any change in the amount of income or principal withdrawn from the annuity.

 

            The foregoing obviously will cause some consternation. Nonetheless, the "enclosure" contains some good news regarding a second section of the DRA that deals with annuities.  An annuity purchased by or on behalf of an annuitant who has applied for Medicaid will not be treated as a transfer of assets for less than fair market value if the annuity meets any of the following conditions:

 

  • ‘ The annuity is considered either an individual retirement annuity or is deemed an IRA under a qualified employer plan.
  • ‘ Or, the annuity is purchased with proceeds from a traditional IRA, an account that is treated as a traditional IRA, a simplified retirement account, a simplified employee pension, or a Roth IRA.
  • ‘ Or the annuity meets all of the following: (1) the annuity is irrevocable and non-assignable, (2) the annuity is actuarially sound, and (3) the annuity provides payments in approximately equal amounts, with no deferred or balloon payments.
  • ‘ However, the burden is on the applicant to obtain written verification that the annuity meets the foregoing criteria, and absent such documentation, the purchase of the annuity will be considered a disqualifying transfer for less than fair market value.

 

            With this information, we now have a somewhat clearer picture of what the federal and state Medicaid agencies will permit. However, the practical ramifications for those who purchase annuities for either themselves or their spouses, as well as the insurance industry itself, are yet to be determined.  Stay with us as we wade deeper into the morass in the coming months.

 

            Richard Habiger is an Elder Law Attorney. He may be contacted at 618-549-4529 or Richard@HabigerElderLaw.com.