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House bill could change how Medicaid treats annuities

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Rep. Markwayne Mullin, R-Okla., is getting more attention for an effort to reduce use of annuities in Medicaid planning arrangements.

Related: McCarthy running to replace Boehner as U.S. House speaker

Medicaid is a program that uses a combination of federal and state funding to pay for health care for poor people, and for nursing home care for residents who meet state nursing home benefits eligibility guidelines.

Medicaid planning is the practice of structuring an individual or couple’s assets in such a way that the individual or couple can qualify for Medicaid nursing home benefits.

Mullin recently unveiled a discussion draft version of the Close Annuity Loopholes in Medicaid Act bill. The draft is similar to H.R. 1771, a bill he introduced in the House in 2015.

Both H.R. 1771 and the new discussion draft would change how the Medicaid eligibility review processes treats annuity income. Today, if a couple buys an annuity, and one spouse uses Medicaid nursing home benefits, eligibility reviewers assume that all of the annuity income must go to support the spouse living in the community.

If H.R. 1771 or the new Mullin discussion draft became law, Medicaid eligibility reviewers would assume that a couple could use half of the income from an annuity purchased within the previous five years to pay for long-term care. Eligibility reviewers would still exclude all income from an annuity that was purchased five years or more earlier.

Mullin attracted only one cosponsor, and no hearings for H.R. 1771.

The House Energy and Commerce health subcommittee plans to talk about the new draft during a hearing on ideas for improving Medicaid scheduled for 10 a.m. Wednesday.

The new Mullin draft could hurt life insurers’ annuity operations by making annuities less attractive as Medicaid “asset shielding” vehicles. But it could increase the typical size of the annuities couples use in Medicaid planning arrangements.

The draft could also make private long-term care insurance policies, and life and annuity products that include long-term care benefits, more attractive, by reducing the likelihood that consumers would be able to use ordinary annuities in efforts to qualify for Medicaid nursing home benefits. 


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