Most Americans will need long-term care.
While many of us don’t give much thought to needing long-term care services, the fact is that most of us will experience this need at some point in our lives. Experts estimate that among Americans 65 and older, approximately 7 in 10 will need long-term services and supports. On average, women need 3.7 years of long-term care, and men need 2.2 years.
Long-term care is expensive.
Long-term care costs add up quickly. The American Council on Aging reports that in 2020, the nationwide average annual cost of nursing home care was $93,075 for a shared room and $105,850 for a private room. Often, these costs quickly drain elder Americans’ assets, leaving their families with costs they can’t afford. Medicaid can be a vital lifeline in this situation, but individuals must meet strict income and asset limits to qualify.
Medicaid has strict income and asset requirements.
While Medicaid eligibility guidelines vary by state, an individual’s assets are commonly limited to $2,000. For this calculation, married couples are considered to own assets jointly. Items such as a primary home, vehicle, and personal and household items are generally excluded from this total, and in some cases, a spouse’s retirement savings account will also be excluded. You can learn whether your state counts spousal retirement accounts when determining Medicaid eligibility by checking this chart.
Additionally, most states provide for a Community Spouse Resource Allowance, which allows spouses who are not applying for Medicaid assistance to retain a much larger share of assets (commonly an additional $130,380). This is intended to prevent spouses of Medicaid recipients from having too little income and assets to meet basic living expenses.
In 2021, most states require an individual’s income to be less than their cost at the facility in order to qualify for benefits. Some states also impose an additional cap of $2,382, which requires the use of a special, income-only trust. Unlike assets, a non-applicants spouse’s income is not counted when determining Medicaid eligibility.
Annuities can help individuals gain Medicaid eligibility.
The purchase of an annuity, either by the applicant or the spouse, can help many Americans meet Medicaid eligibility guidelines. Not all annuities are useful for this purpose, however, and it’s important to work with an experienced Medicaid planning professional to ensure your strategy complies with Medicaid guidelines.
Medicaid-Compliant Single-Premium Immediate Annuities
An annuity works by exchanging one or more up-front payments for a promised stream of income, which begins either immediately or in the future. Single-premium immediate annuities (SPIAs) are tools that many people use to convert their assets into a stream of income, allowing them to qualify for Medicaid. Immediate annuities are irrevocable (meaning that you can’t get the up-front payment back), and they must meet additional qualifications to be Medicaid compliant:
- The income must last for a fixed term that is equal to or shorter than the applicant’s life expectancy.
- The annuity contract must be non-transferrable and provide no way to access value other than the specified income stream.
- Income payments must remain the same throughout the life of the contract.
- In most jurisdictions, the state Medicaid agency must be named as the primary beneficiary.
If you’re trying to gain Medicaid eligibility to pay for long-term care services, it’s critical that you work with a financial professional who is experienced in Medicaid planning before deciding to purchase an annuity. Medicaid guidelines are strict and complex. You must ensure that you’re meeting both income and asset requirements for your state and that any annuity you purchase to meet them is Medicaid compliant.
ELCO Mutual has been helping seniors meet their financial planning needs for more than 72 years and is experienced in providing Medicaid-compliant SPIAs. Learn more about ELCO’s single premium immediate annuities.