PA Annuity - PA Care Management, Inc.

Medicaid Annuity Report

May 2007

Pennsylvania Care Management, Inc.

The Pennsylvania lawyer’s trusted source for Medicaid Annuities

www.paannuity.com

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James v. Richman Decision                                     Amended Annuity Provisions

Annuity Planning for Unmarried Persons: An Illustration^{^[1]}

In this edition of Medicaid Annuity Issues, Jeff Marshall illustrates a conservative use of a DRA compliant annuity to obtain immediate eligibility for an unmarried nursing facility resident. The lawyer and client may want to engage in more aggressive planning. But many clients are “gun shy” and want to avoid any confrontation with DPW. The technique set out by Jeff in his article is unlikely to disturb any feathers at DPW.

The Pennsylvania Care Management website is full of helpful information about Medicaid Planning in the DRA era. You can visit us at www.paannuity.com. We are fully prepared to help you meet your client’s need for DRA-compliant annuities.

Pennsylvania Care Management is the Pennsylvania lawyer’s trusted source for Medicaid annuities. You can contact us at webmail@paannuity.com or 570-326-1890. Our experts can help you provide your clients with annuities that conform to Pennsylvania’s unique Medicaid laws and regulations.

Matthew J. Parker, CELA*

President

Pennsylvania Care Management, Inc.

www.paannuity.com

570-326-1890

*Certified as an Elder Law Attorney by the National Elder Law Foundation under authority of the Pennsylvania Supreme Court. Attorney Parker is a licensed insurance agent and President of Pennsylvania Care Management, Inc. which specializes in assisting Pennsylvania lawyers in the purchase of DRA compliant annuities for their clients.

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Annuity Planning for Unmarried Persons: An Illustration^{^[1]}

Written By: Jeffrey A. Marshall, CELA*

With the demise of “half-a-loaf,” Medicaid planning has become much more difficult for unmarried individuals. However, under DPW’s Annuity Ops Memo, unmarried applicants for Medicaid/LTC benefits may be able to obtain immediate eligibility through the purchase of a DRA compliant annuity. The purpose of this article is to illustrate this planning technique. ^{^[2]}

An Annuity for an Unmarried Person

Individuals who fail to meet the resource requirements for Medicaid payment of long-term care costs may “spend down” to the applicable resource limit through the purchase of a DRA compliant annuity.

Illustration:

John, age 85, is an unmarried resident of a nursing facility who would be qualified for Medicaid/LTC benefits but for his ownership of excess resources, as follows:

John's Available Resources                     John's Monthly Income

$ 1,565 in a checking account                           $1,041 Social Security

$ 86,500 in other savings                                     $ 900 Pension

1. John purchases a DRA compliant annuity with the $86,500 in savings. The annuity is:

            (1)       irrevocable and non-assignable;

            (2)       actuarially sound;

(3)       provides for payments in equal amounts, with no deferral and no balloon payments; and

(4)       names DPW as the beneficiary in the first position for at least the total amount of Medicaid/LTC paid on behalf of the applicant/recipient.

2. John names DPW as beneficiary in first position to the extent of Medicaid benefits paid on his behalf. He names his daughter Joan, his adult non-disabled child, as contingent beneficiary. The annuity will pay $1,471 per month for 5 years.

3. John applies for Medicaid/LTC. At the time of application, his financial situation has changed to the following:

John's Available Resources                   John's Monthly Income

$1,565 in a checking account                 $1,941 Social Security & Pension

                                                               $1,471 DRA compliant annuity

4. John is approved for Medicaid/LTC in the “medically needy” category.

There are a number of potential advantages of John’s purchase of a DRA compliant annuity:

(A)     Qualification for Medicaid/LTC will reduce John’s monthly cost of nursing care and may preserve extra assets for his daughter, Joan.

Assume that the private payment rate at John's nursing facility is $6,800 per month and the Medicaid payment rate to the facility is $5,400 per month. Once John qualifies for Medicaid/LTC, the facility will only be able to charge him the $5,400 Medicaid monthly rate, thereby reducing John’s monthly cost of care by $1,400. This will slow the dissipation of his assets by $1,400 every month. Consider the following somewhat oversimplified illustrations:

Here is John’s situation if he does not purchase an annuity. Assume John dies in 18 months without purchasing the annuity:

John's Available Resources                   John's Monthly Income

$   1,565 in a checking account               $1,941 Social Security & Pension

$ 86,500 in savings

-----------------------------------------------------------------------------------------

$88,065 Total Resources

$6,800            Monthly NH cost

$1,941            Monthly amount paid from John's income

$4,859            Monthly amount paid from John's resources

After 18 months John will have dissipated $87,462 of his resources ($4,859*18=$87,462). At his death, nothing is owed to DPW since John never qualified for Medicaid/LTC. John has $603 remaining at death ($88,065 - $87,462 = $603) to pass to his daughter Joan.

Now, here is John’s situation if he purchases an annuity - again assume John dies in 18 months but after purchasing the DRA compliant annuity:

John's Available Resources                   John's Monthly Income

$1,565 in a checking account                      $1,941 Social Security & Pension

                                                                  $1,471 DRA compliant annuity

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$1,565 Total Resources

$5,400            Monthly NH cost (Medicaid rate)

$3,412            Monthly amount paid from John's income ($1,941+$1,471)

$0                    Monthly amount paid from John's resources

$1,988            Monthly amount paid by Medicaid ($5,400-$3,412)

At his death after 18 months John will have 3 ½ years (42 months) or $61,782 of annuity payments remaining (42*$1471=$61,782). From those payments, Medicaid (DPW) will be owed $35,784 ($1,988 x 18 = $35,784). After Medicaid is paid, there will be $25,998 in annuity payments plus $1,565 in other resources to pass to Joan). Joan will receive $27,563.

The use of the annuity will have preserved an extra $26,960 for Joan ($27,563- $603).

The savings arise from a combination of immediate Medicaid eligibility and the disparity between Medicaid and private payment rates. Actual savings, if any, will vary depending on the particular circumstances.

The purchase of the Medicaid compliant annuity also provides the following additional benefits for John:

            (B)   John qualifies for regular Medicaid. This makes him a "dual eligible" which can substantially lower his other health care costs (e.g. prescription drugs). This also slows down of the dissipation of his assets.

            (C) An income stream is established that can facilitate John's eventual discharge from the nursing facility and provide a source of funding for private pay home or assisted living care. The use of an annuity is particularly advantageous if the annuitant does not remain on Medicaid permanently.

The potential advantages of DRA annuities as discussed above are also available when the annuity is purchased with qualified retirement plan assets.

The use of DRA compliant annuities by the unmarried Medicaid applicant is unlikely to offer the dramatic savings that were previously available through half a loaf planning. But, significant savings are possible and the purchase of a DRA compliant annuity may be the best option available.

In the next Medicaid Annuity Issues newsletter, I will illustrate the use of DRA compliant annuities for married couples.

*Attorney Marshall is Certified as an Elder Law Attorney by the National Elder Law Foundation under authority of the Pennsylvania Supreme Court. He is Managing Attorney of the Law Firm of Marshall, Parker and Associates with offices in Williamsport, Jersey Shore, Wilkes-Barre, and Clarks Summit, PA. He can be contacted at webmail@paelderlaw.com.

_____________________________________________________________________

PCM

Pennsylvania’s trusted source for Medicaid Annuities

49 East Fourth Street, Williamsport, PA 17701

570-326-1890

www.paannuity.com

webmail@paannuity.com

______________________________________________________________________

If you would like to be added or removed from our mailing list, please e-mail PCM at webmail@paannuity.com.

_____________________________________________________________________

^{^[1]} The illustrations in this article are presented for discussion purposes only and do not constitute legal advice. Nor is this article meant to imply that any planning is viable or appropriate for any particular individual. The illustrations are presented solely by the author and not by Pennsylvania Care Management. Medicaid planning under the DRA is a quickly evolving area of the law. The lawyer who counsels a client regarding Medicaid payment for long-term care costs must stay current on developments in legislation, case law, and regulation, and update the content of this article accordingly. Discussion of a planning technique in this article does not imply approval by DPW, the courts, Pennsylvania Care Management or any annuity issuer.

^{^[2]} Commentators have suggested many potential planning strategies using DRA compliant annuities by married and unmarried Medicaid applicants. Some are more aggressive that the approach suggested in this article. For example, it has been suggested that it may be possible to combine the purchase of an annuity or note with a divestment of assets, and thereby protect the divested assets. The purpose of this article is to illustrate a conservative technique that appears to be fully authorized under DPW’s Ops Memo.

_____________________________________________________________________

PCM

Pennsylvania’s trusted source for Medicaid Annuities

49 East Fourth Street, Williamsport, PA 17701

570-326-1890

www.paannuity.com

webmail@paannuity.com

______________________________________________________________________

If you would like to be added or removed from our mailing list, please e-mail PCM at webmail@paannuity.com.

_____________________________________________________________

For further information, please contact:

Matthew J. Parker, Esq., CELA*    mparker@paannuity.com

Patti Jo Turner, BSEd          pturner@paannuity.com

Pennsylvania Care Management

49 East Fourth Street
Williamsport, PA 17701
570-326-1890

webmail@paannuity.com

* Certified as an Elder Law Attorney by the National Elder Law Foundation.