Retirement can pose unexpected challenges. For instance, many older adults eventually decide to hire an assisted living aide or move into a long-term nursing facility. However, paying for high-quality care can come at a high price—a price that most Americans, even former professionals, cannot afford to pay out of pocket. While Medicaid can offer assistance, retirees could lose their eligibility if their post-retirement income is too high. To compensate, they might try to “spend down,” exhausting income to meet federal and state eligibility criteria.
However, spend-downs can leave retirees in precarious financial straits. For many families, a planned Medicaid annuity may make more sense than spending more money to receive basic medical care.
Medicaid Annuities in New York State
An annuity is a contract signed between an individual and their insurance company. Most annuities are intended to provide a regular income stream in retirement. Funds may accrue on a tax-deferred basis and cannot be withdrawn without penalty until the intended recipient reaches a certain age.
While traditional annuities accrue on a tax-deferred basis, Medicaid-compliant annuities are considered “immediate annuities” that begin providing dividends almost immediately. Benefits are usually paid for the duration of the annuitant’s predicted life expectancy.
However, Medicaid annuities are subject to some restrictions. They typically have the following characteristics:
- A Medicaid-compliant annuity must be irrevocable
- The annuity must be actuarially sound, with the investment returned within the beneficiary’s life expectancy
- The investment must provide equal payments
- A Medicaid annuity should name the New York State Medicaid program as the primary beneficiary
Older adults usually establish Medicaid-compliant annuities because they need, or believe that they may need, financial assistance for home care or a long-term nursing facility.
Since Medicaid considers the applicant’s income and assets when determining potential benefits, claimants who invest in approved annuities can exhaust certain assets while still receiving assistance.
Deciding if a Medicaid-Exempt Annuity Is Right for You
Medicaid-compliant annuities serve a narrow purpose, and they are not right for everyone. However, you may need to contact a Medicaid planning attorney if any of the following situations apply to you:
You Need Long-Term Care
The costs of long-term care are high nationwide. However, New York City has some of the highest long-term care rates in the country. The average cost of nursing home care in Brooklyn, for instance, could exceed $11,000 per month.
Older adults who spend any significant amount of time in an assisted living facility or nursing home may find themselves paying exorbitant amounts of money to receive basic, life-sustaining care. Over time, these costs can accumulate, depleting saving accounts and preventing parents from leaving their loved ones an inheritance.
New York State Medicaid can provide critical benefits—but these benefits are often contingent on the claimant meeting strict income limits. A Medicaid-exempt annuity can help applicants preserve their eligibility without needing to “spend down” on unnecessary purchases.
You Have Too Many Assets
The New York State Medicaid program establishes a firm individual “resource limit” of $30,182 for nursing home residents, and a firm resource limit of $40,821 for married couples. Medicaid also sets income allowance limits, which can be as low as $50 per month for nursing home residents.
The state’s strict standards for eligibility can prove difficult to fulfill for couples with significant savings or high-value investments. An annuity can counter Medicaid eligibility standards because it allows retirees to deplete assets without wasting them.
You Can No Longer Receive Insurance Benefits
Some New Yorkers have personal or employer-sponsored insurance plans that provide nursing home and assisted living benefits.
However, if your policy reaches or exceeds its limits, you may not be able to receive additional benefits—even if you are still in reasonably good health, but need specialized care to maintain your quality of life.