Bill Would Change How Medicaid Treats Annuities

An Oklahoma congressman wants to tighten the rules on how annuities are calculated for Medicaid coverage formulas.

Rep. Markwayne Mullin, R-Okla., recently unveiled a draft of the Close Annuity Loopholes in Medicaid Act bill. The draft bill is similar to a version he introduced in the House in 2015.

In short, Mullin’s position is that too many people who can afford to pay for nursing home care are shielding their assets by putting money into annuities.

“The Government Accountability Office reported that some spouses on Medicaid are masking resources of over $1 million,” Mullin co-wrote in an essay published today. “By pursuing policies like the CALM Act, we can ensure that Medicaid coverage is for the truly needy – rather than providing care for those masking their high income.”

Created in 1965, Medicaid uses a combination of federal and state funding to pay for health care for poor people, and for nursing home care for residents who meet state nursing home benefits eligibility guidelines.

Advisors assist with Medicaid planning to structure an individual or couple's assets specifically so they can qualify for Medicaid nursing home benefits. Nursing home bills can run as high as $80,000 a year.

The CALM Act would change how the Medicaid treats annuity income within its eligibility guidelines. Under existing rules, if a couple buys an annuity, and one spouse uses Medicaid nursing home benefits, Medicaid considers all of the annuity income as that of the spouse still living in the community.

Mullin’s bill would require Medicaid to count half of any income from an annuity a couple purchased within the previous five years toward the cost of long-term care. The bill would not apply to annuities that were purchased five years or before.

NAIFA supports the current annuity rules regarding calculations for Medicaid nursing home coverage, said Diane Boyle, senior vice president, government relations for NAIFA.

“Changes to these rules would serve as a disincentive for people to plan for their long-term financial needs and could ultimately cost the government more in overall Medicaid expenditures if fewer people had access to these products and resulted in both the institutionalized spouse and the community spouse qualifying for Medicaid,” she said via email.

Federal courts have sided with consumers on this issue in the past. In 2015, a Pennsylvania appeals court ruled that short-term annuities cannot be considered assets in calculating Medicaid eligibility.

The court found that the annuities “were sheltered from inclusion in the plaintiffs’ assets,” allowing the plaintiffs to “reduce excess resources without incurring penalties,” under the federal Deficit Reduction Act (DRA) of 2005.

Mullin attracted only one cosponsor for the 2015 version of his bill.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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