Morsa Images / Getty Images A Medicaid annuity is structured as a single premium immediate annuity (SPIA). For an SPIA, you pay a single lump sum upfront (the premium, in bulk). In return, your insurer promises to give you monthly payouts of a certain amount for the rest of your life.
Alternate name: Single premium immediate annuityAcronym: SPIA
Medicaid’s use of the SPIA is a way to help people preserve their financial assets for the future, while they qualify for the program. If structured in the right way and approved by a CPA or elder care legal expert, an SPIA may allow you or your spouse to receive extended care Medicaid payouts, within the bounds of the law. It also ensures that the spouse who does not receive care still has money left to fund their own costs of living. It’s wise to plan ahead if you expect to use an SPIA to help you or your spouse qualify for Medicaid.
How a Medicaid Annuity Works
Medicaid helps to pay for nursing homes and other forms of long-term care for those in need. A Medicaid annuity is a particular way to fund this type of care, particularly for the healthy spouse who is not applying for long-term care. Your wealth and assets will be used to figure out whether you are eligible for this type of aid. Medicaid is designed to help people who are below a certain income threshold, but there are many rules that affect whether you are eligible. Not all who apply are approved. Some assets are “countable” toward the threshold. Medicaid takes a complete survey of your assets, including those that are held jointly, as well as those that are only in your or your spouse’s name. The Community Spouse Resource Allowance (CSRA) allows you to reserve a certain amount of assets for a healthy spouse (the spouse not applying for long-term care). Each state sets its own CSRA amount. The figure takes into account the living costs in that state, to ensure that the healthy spouse won’t go broke due to caring for and paying for their ailing spouse’s needs. The total household assets (both joint and held by only one spouse) must be spent down before the spouse in need can receive funds from Medicaid. The assets that remain are saved under the CSRA for use by the healthy spouse. The purchase of an SPIA can be helpful to those who are trying to qualify for Medicaid, because it may be counted as income and not as an asset. With an SPIA, the fund you purchase is immediately annuitized, which means that it starts paying out right away, per an installment plan based on the life expectancy of the annuitant. In that case, the healthy spouse would be the annuitant. There are some strict rules around the timing of the SPIA purchase. (In fact, they can be quite tricky, so if you’re in doubt, seek expert advice.) For example, you can’t purchase an SPIA after a spouse starts using extended care and expect that asset to be protected under CSRA rules. All of this needs to be done sooner rather than later. SPIAs that comply with Medicaid rules often need to be planned far ahead of the time they start paying out.
How to Get a Medicaid Annuity
Unless you are an expert or have done this work before, jumping right into Medicaid planning is not advised. You should never take a DIY approach when it comes to Medicaid planning or carrying out an SPIA strategy that works with the program. A CPA or elder planning legal expert should always approve and sign off on your plan before you move forward with any product purchase, because the Medicaid system is complex. There are many details to take into account if you want to avoid triggering legal issues with the Internal Revenue Service (IRS) or Medicaid. For example, the CSRA-specific rules and asset levels must be followed exactly for the spouse who needs Medicaid funds to get approved without issue. Many other steps must be followed with extreme care as well, and the process can be very hard to navigate if you try to go it alone. If you fail to structure or carry out your SPIA plan the right way, you may incur tax penalties. The look-back rule may also apply, which means your actions of the past five years are also under review. This look-back period is 60 months prior to the date you apply, except in California, where it is 30 months. Any assets you give away or transfer during that time can become part of your countable assets and could postpone your Medicaid eligibility. An SPIA is a simple and lawful risk-transfer tool. It can be the best way to solve for income needs now as well as in the future. SPIAs can add great value to your plan if used as part of your long-term care and estate planning. When done correctly, a Medicaid annuity plan that is put in place for one spouse can help ensure the financial well-being of the other spouse.
