Annuity Issues in Medicaid Eligibility

Elder law attorneys and financial planners are utilizing Medicaid-compliant annuities with increasing frequency. While these planning strategies are legal, they can frustrate the expectations of a senior living services provider that made an admission decision based on the assets declared as part of the application process if the resident requests benevolent care or applies for Medical Assistance benefits sooner than anticipated. 

The 2005 Deficit Reduction Act established a safe harbor under which an annuity is not considered a resource for the purposes of determining Medicaid eligibility. Whether an annuity fits within the safe harbor requirements and is considered to be a Medicaid-compliant annuity is based on a four-part test: the annuity must (a) name the Pennsylvania Department of Human Services as the remainder beneficiary, (b) be irrevocable and non-assignable, (c) be actuarially sound, and (d) provide for payments in equal amounts during the term of the annuity with no deferral and no balloon payments. For an annuity to be actuarially sound, it must pay out the total amount within the actuarially determined life expectancy of the person receiving the payments.

The risk for senior living communities is that residents who have already been admitted may subsequently place their assets into Medicaid-compliant annuities, which results in premature benevolent care applications at the residential living and personal care levels or Medicaid applications at the nursing facility level.  Continuing Care Retirement Communities should review a resident’s finances as they move through the care continuum and should review and revise their agreements, policies and procedures to address the conversion of assets declared as part of the application process into annuities.  However, personal care homes and nursing facilities must keep in mind that a resident has a right to manage his or her finances, and nursing facilities in particular must keep in mind that they cannot prohibit residents from engaging in legal Medicaid planning strategies once they are admitted, so long as the Medicaid planning strategies do not result in a gap in payment. 

If you have questions about annuities or how to revise your agreements, policies and procedures to protect against asset conversion, please contact do not hesitate to contact us at (717) 620-2424.

Steven M. Montresor –

Dayna E. Mancuso –