Tuesday, July 24, 2012

Another Appeals Court Upholds Medicaid Annuity Protections

Another federal appeals court has upheld the use of immediate annuities to allow married couples to more quickly qualify for Medicaid long term care benefits. 

When a wife or husband needs long term care, a couple may face financial ruin. The cost of a month in a nursing home in Pennsylvania is over $7,500. Care at home is expensive as well. The cost for licensed homemaker or home health aide services averages $20.00 an hour.  

Few people have insurance that covers any portion of these costs. Medicare is usually available only temporarily or not at all.  The best potential source of financial assistance for most people is the Medicaid program, but it has strict financial qualification rules that can prevent people from qualifying until most of their savings are gone. This can be particularly devastating for the spouse who is still healthy and living in the community (the “community spouse.”) A community spouse who must use up all of the couple’s savings caring for a sick husband can be forced to live in poverty for the rest of her life.   

In 1988, during the Reagan Administration, the federal government did something about this “spousal impoverishment” problem. It passed a law that allows a married person to qualify more easily for Medicaid help with the cost of long term care if there is a community spouse. The 1988 law built in financial protections for community spouses so that they can retain all of their income and a limited level of resources to held prevent present and future impoverishment. The basic level of protected resources is called the community spouse resource allowance (CSRA).  

If the CSRA is insufficient to protect all of the resources for the community spouse, additional options may be available. One of these is the purchase of a financial product called a single premium immediate annuity that complies with the requirements of the Medicaid laws. Annuities have long been used by elder law attorneys to protect the financial security of their community spouse clients. This planning option allows a community spouse a separate way to protect resources in addition to the CSRA.  

The Deficit Reduction Act (DRA) of 2005 which was passed during the Administration of George W. Bush confirmed that a community spouse could protect additional resources in excess of the CSRA by purchasing an annuity if the annuity meets certain requirements. This special kind of “DRA annuity” converts otherwise excess resources into an income stream that can provide for and be retained by the community spouse. 

Note that the DRA annuity product is unlike the typical immediate annuity sold by many insurance companies – because it must meet the strict requirements of the DRA law. Expert assistance should always be sought from a qualified elder law attorney before purchasing any annuity for Medicaid purposes.   

The DRA annuity provisions are very beneficial to community spouses (and to the insurance companies who sell these products and had a hand in writing the law.) On the other hand, state Medicaid agencies (like the Department of Public Welfare in Pennsylvania) don’t like annuities because they allow individuals to qualify for Medicaid sooner, which means state funds will be expended sooner. But, the federal law requires states to follow the federal rules on annuities. In a series of annuity cases in federal courts in Pennsylvania, elder law attorneys (including Matthew Parker of my firm, Marshall, Parker and Associates, Stanley Vasiliadis of Vasiliadis and Associates and Kemp Scales, of Scales Law Offices) have forced the Welfare Department to follow the federal law.  

Although Pennsylvania has led the way, the battle over DRA annuities is being fought in other states as well. Some of these cases are now reaching decision by federal appeals courts (one level below the Supreme Court) in other jurisdictions.  This month (July 2012) in a case from Oklahoma the U.S. Court of Appeals for the Tenth Circuit has joined the ranks of the many courts that have upheld the use of annuities to protect the community spouse. The case is Morris v. Oklahoma Department of Human Services

When Glenda Morris needed long term care she and her husband Leroy had countable resources of $107,812 which meant that Gloria had a CSRA of $53,906. If the couple had done nothing, Glenda would not have qualified for the Oklahoma Medicaid Advantage Waiver program that could help pay the costs to keep her at home. 

Acting on the advice of his elder law attorney, Leroy “spent down” the couple’s excess resources by purchasing a DRA annuity. But the Oklahoma state Medicaid agency denied Gloria’s application anyway, and its decision was upheld by a lower “district” court.  However, the Tenth Circuit Court of Appeals said that the agency and lower court were wrong in rejecting Gloria’s application.  In reversing the lower court, the Court of Appeals wrote:

We understand the district court’s concerns about the annuity provisions in the Medicaid statutes, and we acknowledge the fiscal strain Medicaid can exert on state budgets. Nevertheless, we hold that the purchase of a qualifying annuity renders resources unavailable to the institutionalized spouse even if the annuity is purchased in addition to the community spouse’s CSRA. Qualifying annuities are not considered available to the institutionalized spouse pursuant to § 1396p(c)(1)(G) and 20 C.F.R.§ 416.1201. The CSRA is rendered unavailable to the institutionalized spouse under § 1396r-5(c)(2). These separate provisions create two different mechanisms by which a Medicaid applicant can render resources unavailable. The statute does not require an applicant to pick one or the other. Nor does any transfer penalty apply to qualifying annuities purchased prior to a determination that the institutionalized spouse is eligible for benefits.

As court after court has noted – the law on the use of annuities to qualify for Medicaid benefits was created by Congress and can only be changed by Congress. 

In my opinion, states that disagree with the law should seek to have Congress revisit this issue rather than deny benefits to people who are following the law. 

Married couples who reside in Pennsylvania can get additional information how to use a DRA annuity and other options to protect their assets from the law firm of Marshall, Parker and Associates which can be reached at 1-800-401-4552.  Residents of other states may wish to seek the advice of a Certified Elder Law Attorney – a national list is available at www.nelf.org.


Unknown said...

So I heard that you can sell annuity, what is that all about?

Jeff Marshall said...

If an annuity is to work for purposes of Medicaid qualification, neither the annuity or its income stream can be sold.

Unknown said...

Amazing blog and post also.
Planning for Retirement

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jackjack said...

You always highlight latest legislation over annuity area. Thanks for covering this segment of annuity market.
annuity plans