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September 24, 2012 at 11:04 AM
Many brokers are unfamiliar with the Medicaid single premium immediate annuity (SPIA) market. In fact, it seems some brokers thought Medicaid SPIA planning was eliminated when updates were made to state Medicaid laws.
For brokers knowledgeable about Medicaid SPIA planning, the changes actually make appropriate Medicaid SPIA planning acceptable. In addition, this market represents a huge opportunity for brokers because it provides a valuable resource to members of the aging population who are facing the high costs of long-term care, such as nursing home facilities.
There are three ways an individual can pay for nursing home costs: private pay, long-term care insurance and Medicaid. Private pay and long-term care insurance can be expensive options, and the individual may not qualify for long-term care insurance. Although Medicaid is not often thought of as the primary option, it should not be overlooked.
In a simplified example of a Medicaid planning case, let’s assume a husband and wife have $300,000 in countable assets. The husband must enter a care facility, for which the private pay cost is $8,000 per month. The husband receives $3,000 per month in Social Security income and his pension. This leaves a $5,000 monthly difference in the cost of the care facility, plus the couple is worried about maintaining the wife’s ability to live.
The couple’s broker suggests they purchase a $200,000 Medicaid SPIA in the wife’s name from an annuity provider. The broker figures out that a period certain payout of 65 months will provide $3,067 per month in income. This $3,067 will be paid to the wife, and when the husband enters the care facility, his $3,000 per month of income will be paid to the facility. Medicaid will then pay the difference to the facility up to the Medicaid pay amount.
By following this course of action, the couple’s assets have been reduced to $100,000, qualifying the husband for Medicaid assistance for the care facility and enabling the wife to retain income. Rules vary by state, so it is always important to consult an elder planning attorney when speaking about Medicaid planning.
