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Medicaid Annuity Cases: Non-Assignable, Irrevocable Assets

Posted on: March 27, 2017 at 9:05 pm, in

This article continues in the examination of cases in which Medicaid annuities are being used. The state continues to argue that this is not an allowed practice and that the spouse in need of Medicaid should be declined benefits. However, the courts are upholding the rulings that the annuities cannot be considered available resources.

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Vieth v. Ohio Department of Job & Family Services (Vieth v. Ohio Dept. of Job & Family Services (Ohio Ct. App., 10th Dist., No. 08AP-635, July 30, 2009))

The Vieth couple had $300,000 in assets that were countable when Mr. Vieth entered a nursing home. To reduce the countable asset amount, Mrs. Vieth made the decision to purchase annuities. She bought two, one for $127,000 and the other for only $14,000. Based on the Ohio code, the state concurred that the couple met all requirements because the annuities were considered to be Medicaid compliant. However, when it came time for Mr. Vieth to apply for Medicaid, he was denied because an “improper transfer of assets” had been completed. This was in reference to the annuity purchases that were made by his wife.
Although the Medicaid agency later noted that the laws were changed by the Deficit Reduction Act and annuities and the purchase of an annuity would not be treated as an improper transfer; however, the department maintained that the methods of calculation of the CSRA (Community Spouse’s Resource Allowance) were not changed. This means that the way spousal resources would be treated in regards to eligibility for Medicaid remained the same, regardless of the changes to the law. This is why the applicant was denied, stating that the money that was used to buy the annuities were over and above the limits of the Community Spouse’s Resource Allowance; thus, the assets would be considered countable assets when determining Medicaid eligibility.
Due to these discrepancies, the court studied several cases that involved annuities, including the mentioned James v. Richman case. The court found that there was no legitimate support for the Medicaid department’s arguments. It remained irrelevant that the money used to buy the annuity was over the limits of the CSRA so that the annuity income would be used to increase the income for the community spouse. The one thing that was considered was that the annuity was in compliance and met all rules and regulations that were set forth by the federal DRA law. These requirements include:
  • The annuity is irrevocable
  • It is non-assignable
  • It is based on the owners life expectancy and is actuarially based
  • It will provide equal payments during the annuity term
  • There will be no balloon payments or deferrals
  • The state will be named as the beneficiary subsequent to the surviving spouse
The rules of the state of Ohio will not be considered in this case because they are not consistent with the federal laws regarding the use of Medicaid compliant annuities.

Lopes v. Starkowski

This case was heard by the U.S. District Court in Connecticut which approved the purchase of the Medicaid annuity. Mr. Lopes resided in a nursing home at the age of 85 and had $1,600 in assets. His wife’s assets totaled $340,000. Instead of spending down her assets, Mrs. Lopes purchased an annuity that had a premium of $166,220. This purchase allowed Mr. Lopes to be eligible for Medicaid because she spent down the assets when she made the purchase.
The state initially requested evidence that would prove the annuity was non-assignable. The reason for this was because if the annuity does have the ability to be assigned or transferred, it may have increased value and would then be deemed a countable asset. A letter was provided by the insurance company that sold the annuity. But the state DHS (Department of Human Services) continued to argue that the stream of income could be sold off even though the actual annuity could not be sold or transferred. The state even went so far as to find an individual that would be willing to purchase the rights to annuity payments that were held by Mrs. Lopes. She refused to sell the income and the state went on to deny the application for Medicaid.
Even though Mrs. Lopes could have sold her rights to the income from the annuity, the court held that she would then be breaching the contract terms and, as a result of this breach, this would make her able to assign the income stream as a non-countable asset. The court also held that when treating an assignable income as an asset, it would not be consistent with the federal laws. The federal laws state that, “no income of the Community Spouse shall be deemed available to the institutionalized spouse.” The court then pointed out that the DHS translation could open the Pandora’s Box to states’ recharacterization of various income sources and deeming them as assets, including Social Security income. This would result in violation with the statutes that have been given in regards to the approval of Medicaid benefits. The court also states that the statutes referring to Medicaid compliant annuities are a “generally permissive attitude” on behalf of Congress aimed at “carefully constructed annuities.”
Contact Estate Street Partners at (888) 938-5872 or (508) 429-0011 if calling in the Boston, MA, area. Find out more about Medidcaid complaint annuities and how you can avoid the Medicaid spend down.

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