Seniors Using Annuities to Qualify for Medicaid, Protect Assets
Today's Wall Street Journal examines "Medicaid annuities," which since the late 1990s have allowed "thousands of middle-class and even affluent retirees to collect public assistance" to pay for care in nursing homes. Medicaid will not cover nursing home care if a person has assets of more than $2,000, excluding a home and car, meaning that most seniors' assets go to pay for nursing home care until they are depleted, at which time seniors would have incomes low enough to qualify for Medicaid. However, with an annuity, seniors give nearly all their assets to an insurance company, which agrees to give those assets back over time with interest. Seniors then technically have no "significant assets" and are eligible for Medicaid, as long as the annuity "appears to be set up for retirement income and is irrevocable and nontransferable," the Journal reports. Although shifting funds into an annuity is a "lousy investment" -- buyers earn about 3% per year in interest -- "that's not why" seniors buy them, annuity agent Barry Rahm said. The Journal says that "[t]ypical buyers" are "'blue-collarish' savers with memories of the Depression who 'didn't know about long term care insurance or couldn't qualify for it or couldn't afford it.'"
'Artificial Impoverishment'?
Staffers at nursing homes have given annuities "tacit support," but critics describe them as "artificial impoverishment." State regulators "assail the insurance industry from profiting from a product they estimate has drained $1 billion from Medicaid so far." Insurers selling long term care policies offer perhaps the "sharpest criticism," the Journal reports. MetLife Inc. Senior Vice President Joseph Jordan said Medicaid annuities "smack of avoidance, and we think we would put customers at risk" by selling them. For its part, HCFA has "warned" that annuities should not be used to "abusively shelter assets," and the agency has "done what it can to stamp out Medicaid abuse." Federal officials say they did not intend Medicaid-eligibility guidelines to "make [Medicaid annuities] possible." But HCFA's Medicaid Deputy Director Charlene Brown said the agency has no way to "stop companies from selling what they want to sell."
Growing 'Regulatory Backlash'
As annuities become more popular, a "regulatory backlash is growing," the Journal reports. At least 11 states have placed restrictions on Medicaid annuities, some by seizing remaining funds when the senior dies. In addition, Ohio and Pennsylvania have refused to grant Medicaid benefits to some seniors who use annuities. According to Joe Case, spokesperson for the Ohio Attorney General's Office, "If you allow this to go on, you're going to create a system where even Bill Gates could qualify for Medicaid." State courts "increasingly are supporting the crackdowns." But insurance companies selling Medicaid annuities say they are not doing anything wrong. In fact, some independent agents selling annuities are raising money to launch a federal lawsuit against "activist" states such as Ohio and Pennsylvania (Davis, Wall Street Journal, 6/6).
