Medicaid Compliant Annuity: Irrevocable Annuity
Non-Assignable compliant irrevocable annuity
Many states will argue that when a community spouse is the owner of a Medicaid annuity, then that annuity and all income it produces should be deemed as an available resource. The Courts disagree, stating that there is no way for the owner to access the cash in the irrevocable annuity, therefore rendering it an unavailable resource that should not be considered when determining Medicaid eligibility. The following case is based on these arguments.
Three Cases that Support the Use of Medicaid Annuity
In recent times, there have been many cases in which Medicaid departments in states are counting Medicaid annuities as forms of available assets. They are also treating the purchase of these annuities as a transfer of assets that can incur penalties. Many of these cases have been fought and the Medicaid applicant is favored. The result is that the states are found to not be following the federal statutes. There are three cases in particular that have followed this particular trend.
James v. Richman (547 F.3d 214 (3 Cir. 2008))
Mr. James had been placed in a nursing home located in Pennsylvania and he filed an application for a resource assessment. This is in assessment that is taken where the state Medicaid agency will determine how much of the assets owned by the couple are required to be spent before the spouse residing in the nursing home is able to qualify for Medicaid and also assesses how much of the couple’s assets can be preserved. To reduce the amount of assets, Mrs. James made a $250,000 purchase. She bought an immediate irrevocable annuity. The annuity was set up so that Mrs. James would receive monthly amounts for eight years. With the annuity, she would receive around $3,000. In the contract, it was stated that the annuity could not be “surrendered, transferred, collaterally assigned, or returned for a return on the premium paid.” Since the contract was irrevocable, there would be no cash awarded upon its surrender and the owner of the annuity cannot amend the contract.
With the remaining assets, Mrs. James purchased a new vehicle. Even after these assets had been spent down, Mr. James was still not approved for Medicaid. The reason for the rejection was the $250,000 annuity and its availability. The Medicaid agency claimed that the argument for the rejection was based on the fact that the amount of assets that was in excess of the CSRA (Community Spouse’s Resource Allowance) must not be converted to income for the spouse (i.e the community spouse) that was not in the nursing home by purchasing any Medicaid annuity with the intention of benefitting the community spouse.
The state defended itself by providing a statement from the CEO of J.G. Wentworth, Michael Goodman. The company’s primary services were buying annuities and Mr. Goodman described Mrs. James’ annuity as sellable and transferable in spite of the contract’s position of non-assignability and irrevocable status. However, the Court cited the SSI (Social Security Income) Program Operations Manual System, also referred to as POMS. The Court ruling held because Mrs. James did not possess any legal prowess that would allow her to sell or market or transfer the annuity. This meant that the annuity was in no way an available resource. Mrs. James would not be able to access the cash value of the annuity without breaking the contract, so the annuity could not be counted as an available resource.
In return, the Medicaid agency defended their position, saying that even if she could not access the cash in the annuity, she would still be able to assign her rights pertaining to the annuity payments. The court did not support the argument from the state and said that there is no statutory ground for such a theory and if they were to use this argument it would subvert the MCCA (Medicare Catastrophic Coverage Act of 1988) regulation which asserts “no income of the Community Spouse shall be deemed available to the institutionalized spouse.” The court also stated that its sole job was to implement the intentions of Congress that is mirrored in statutes and the courts’ views of the intention of the Medicaid rules do not count.
Contact Estate Street Partners at (888) 938-5872 or (508) 429-0011 if calling in the Boston, MA, area. Find out more about Medidcaid complaint annuities and how you can avoid the Medicaid spend down.
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