Medicaid is simply an immediate annuity purchased by a client to enable his or her spouse to qualify for Medicaid assistance.
They serve to ensure that:
Properly structured, this annuity functions as an expenditure-down tool that removes excess countable assets, allowing nursing home residents to qualify for Medicaid benefits.
Instead of treating the purchase of the annuity as an impermissible transfer of assets to meet Medicaid’s means-tested eligibility requirements, the Federal Deficit Reduction Act (DRA) treats the purchase as a permissible investment, and the annuity payout stream as a shielded community spouse’s “income” (rather than as an asset that would be counted in determining eligibility).
This technique allows the community spouse to use funds over the resource allowance allowed by Medicaid to buy an annuity that provides additional income. This is important because it states that the resources that the community spouse can keep are strictly limited, and still allow Medicaid for his or her spouse.
Despite this, some states (including Ohio and Pennsylvania) have in recent years challenged these annuities, potentially making it much harder for a client to qualify for Medicaid using an annuity.