What is a Medicaid Compliant Annuity?
Updated: Aug 22, 2019
The Deficit Reduction Act of 2005 (DRA) was signed into law on February 8, 2006. The DRA was the most recent federal legislation weighing in on the requirements of an annuity in order for the annuity to be "Medicaid Compliant". According to the DRA, an annuity must:
Be Irrevocable: the annuity owner cannot change any aspect of the contract after it’s purchased – i.e. the owner cannot make changes to the payment amount, term of the annuity, beneficiaries, etc.
Be Non-Assignable: the annuity owner cannot assign the payments or contract to another individual or entity
Be Actuarially Sound: the period certain/term of the annuity may be structured so that it is equal to the annuity owner’s Medicaid life expectancy or a shorter period of time; however, the annuity period certain/term cannot be structured longer than the owner’s life expectancy.
Provide Equal Payments: When purchasing the annuity with after-tax/post-tax dollars, the annuity cannot have a balloon payment or payments that are not equal. Exceptions apply to this requirement if the annuity is being purchased with pre-tax/IRA funds.
Name the State Medicaid Agency as Beneficiary only to the Extent Medicaid Benefits are provided: There are exceptions to having to name the state as a beneficiary in the first position (primary beneficiary) – i.e. if there is a minor or disabled child involved. Generally, in the case of an individual client (no spouse), the State must be named as the primary beneficiary. In the case of a married couple, there are a few different beneficiary orders that may apply depending on which spouse is purchasing the annuity.