How to Use Community

Spouse Annuities

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An Example of a Community

Spouse Annuity

Community spouse annuities are used when one spouse is entering the nursing home and the other spouse is healthy enough to remain in the community.    They have always been the most attractive form of a Medicaid Qualifying Annuity. 

In this example, Jack and Kate are a married couple.  Kate is currently 77 years old.  Jack is nursing facility clinically eligible.  That is, he meets the medical criteria for Medicaid eligibility.   If Jack does not meet this medical standard, it would be premature to purchase a Medicaid Qualifying Annuity.

Let’s presume Jack and Kate have available resources of $350,000.   Under the Medicaid rules, these available resources would be those that Medicaid considers available to pay for one’s care.   There are other exempt resources such as a house, car and personal effects that are not considered available to pay for an applicant’s care.    As of this writing, the Medicaid rules in Pennsylvania allow Kate to keep some of the available resources as an allowance.   Given the amount of available resources, she is entitled to the current maximum allowance of $109,560.   For purposes of this example, we’ll ignore Jack’s resource disregard of $2400.   Therefore, Jack and Kate have excess resources of $240,400 that render Jack ineligible for Medicaid.  Jack has monthly gross income totaling $3191, while Kate has much lower monthly gross income of $581.  

To determine if a community spouse annuity is a viable option, first determine if they have excess resources.   If so, are the traditional spend-down planning options a realistic choice (i.e., creating burial accounts, purchasing a new car or improving the home)? 

And then inquire as to whether the community spouse’s age and health is such that he or she would benefit from an annuity.  

The Pennsylvania Federal Third Circuit Court ruled in the case of Weatherbee v. Richman,   that the Pennsylvania Department of Public Welfare cannot limit the size of the community spouse annuity.   The Department had attempted to create a policy that limited the size of the annuity payments to the Monthly Maintenance Needs Allowance (MMNA).  See the Operations Memorandum in the Resources section of this website for a detailed discussion of the Department’s policy.  

This policy was challenged in the Weatherbee case where the community spouse purchased an immediate annuity whose payments far exceeded her MMNA.   The Third Circuit ruled that the Department’s attempt to limit the size of the annuity violated various Federal Medicaid provisions, including the well established rule that income of the community spouse (including payments from an immediate annuity) shall not be considered available to the institutionalized spouse in the Medicaid application. 

Given the current state of the law in Pennsylvania, an attorney should feel confident that a community spouse annuity can be purchased in excess of the community spouse MMNA.  To purchase the annuity, you will need to provide the basic information on the Annuity Quote Form.    Provide Kate’s age, date of birth and the annuity premium of $240,440.   The term of the annuity cannot exceed Kate’s life expectancy.  As of the writing of these materials, the Social Security Life Expectancy Tables anticipate that she will live 11.14 years  or 11 years and 1 month.    There is nothing to prohibit you from asking for a term that is less than the life expectancy.  You just cannot exceed that term.  The quote for $240,440 over the full term of 11 years and 1 month provides a stream of payments equal to $2133 per month.   In accordance with the Weatherbee case, Jack will be immediately eligible for Medicaid upon purchase of the annuity. 

Medicaid Qualifying Annuities will have explicit terms that provide they are irrevocable and non-assignable.  Typically, the terms provide that the premium may not be returned under any circumstances.   The payments under the immediate annuity will be equal over the term of the contract with no balloon payments.  In Pennsylvania, the Department of Public Welfare will be named as the primary beneficiary in the contract for the total amount of Medicaid paid to the institutionalized spouse.   The children can be named as contingent beneficiaries of the contract.  

Some practitioners still prefer to abide by the Department of Public Welfare’s policy on annuities.   If you intend to do so, you will want to first determine the shortfall from the MMNA.   In this case, the current minimum MMNA is $1822.   Less Kate’s current gross income of $581 and the imputed income from her resource allowance of $136.95, she has a shortfall of $1104 per month.   When you submit the request for a quote, you again supply the age and date of birth, but you will ask for the amount necessary to produce a payment of $1104 per month over the term of her life expectancy of 11 years and 1 month.   In this case, that figure will be $124,437.   

When asking for quotes, keep in mind that they are good for 7-14 days.  Thereafter, they will need to be refreshed.  Quotes can be obtained quickly – within 24 hours.   If you decide to proceed with the purchase of an annuity, the agent can send you the application immediately.  The annuity will usually be considered purchased on the date the check is cut (a cashier’s check is recommended) and application signed.  The turn around time from quote to signing of application could be a matter of days. 

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