Busher Was Right On LTC Artificial Impoverishment

To The Editor:

Re: “Dont Use Joint Annuities for LTC Artificial Impoverishment,” by Carroll Busher in the August 19, 2002 issue of National Underwriter.

Carroll Busher is exactly right: Medicaid only pays for the one place our clients do not want to plan to go: a nursing home. And a semi-private room in a welfare-financed bed at that! Most of the ads and handouts for this immediate annuity scheme suggest this, but it is a sin of omission, failing to tell prospects what they cannot get under Medicaid: Home care, adult day care and assisted living.

But we have to separate those who are already in a long-term care crisis today, and those who are still healthy and want to make plans to protect their assets from the high cost of care in the future.

For people already in crisis, applying for Medicaid benefits right now, this immediate annuity technique does work in many states. These people have few options. I do not begrudge this currently legal strategy to these clients with the advice and input of a qualified elder law attorney. But I cannot recommend (and no attorney should either) a strategy that may not be legal or useful in the future.

The real problem with these seminars is that they are asking healthy people to put all their money in a deferred annuity with the promise that, “Snap, bang, when you need care in the future we throw the switch (to an immediate annuity) and youre on government nursing home benefits!”

What if one of the spouses has died by the time the other needs care? It still may work, no assets, but all the income (now higher because of older age) goes to the nursing home, and if the family wants any remainder money it is put on an unpleasant death wish watch. And some states are already going after these remainder payments in the Medicaid estate recovery process.

Of more concern to me is the fact that states are shutting this scheme down, and the Center for Medicare and Medicaid Services (formerly HCFA) is bound to soon at the federal level.

And what money is being moved into these so-called “protected” annuities? Properly diversified investments? Other annuity assets or money subject to surrender penalties? Qualified money? The capital gain and income taxes, penalties, lump sum distribution tax and increase in marginal tax rates incurred could very well pay for a lot of quality LTC insurance. It is certainly not “free.”

On the other hand, the income and principal in any of these assets, a little at a time, could be used to pay a LTC insurance premium to protect all the assets, provide a range of care choices, avoid welfare dependency, and protect the system for those in real need.

The hidden annuity-scheme “costs” and other planning options are not presented, as the annuity/Medicaid hucksters simply look to play on prospects fears of impoverishment and aversion to insurance premiums. It is simply a ruse to roll up assets into high-commission deferred products today with no guarantee of asset protection in the future when it will be too late to insure.

Using immediate annuities as a Medicaid qualification technique works today, in some states, maybe, for people already in a long-term care crisis, but it will likely not be available in the future. And thats the real problem with relying on these annuities to solve what should be an insurance solution.

Bill Comfort, CSA, CLTC
The LTCpro
St. Louis, Mo.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 2, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.