ANNUITIES
Using annuities for
medical costs later in life
“Elderly Americans
expected to more
than double in 40
years. 70% of people
aged 65 and older
will need long-term
services and support. 2 ”
Most seniors in America face the shocking expense of a serious medical condition later in
life, whether that be in relation to their own health or the health of their partner. Yet few are
prepared for this to happen, leading many people to deplete their savings to pay for care.
With the average cost of a semiprivate room in a nursing home costing $7,148 a month, 1
many clients haven’t thought about how this expense could impact their overall financial
situation. And with the number of elderly Americans expected to more than double in the next
40 years, an estimated 70 percent of people aged 65 and older will need long-term services
and support. 2 An option many clients aren’t aware of to help finance these costs is a Medicaid-
compliant annuity.
Could this be one of your clients?
Consider this example: You’ve worked with a husband and wife — Michael and Susan — for
more than 15 years. In this time, you’ve helped them build and maintain a net worth totaling
$426,500 in countable assets. Now well into their retirement, Michael suddenly experiences
a stroke and requires full-time nursing home care. In the middle of determining the best
approach for Michael’s care, the couple has an important decision to make. How can they
fund Michael’s care and still maintain Susan’s standard of living?
Michael and Susan can proceed a couple of ways:
1 They could privately pay for Michael’s care, which would cost about $7,000 a month —
as they wouldn’t be eligible for Medicaid assistance at their current asset level. With
$84,000 per year going toward nursing home costs, the couple’s hard-earned savings
could be gone in about five years if they pursue this option.
Rich Lane
With over 20 years in the fixed
annuities industry, Rich is the
second vice president of individual
annuity sales and marketing for
The Standard, with an emphasis
on product and distribution
development for brokerages, banks
and broker/dealers. Rich has served
on NAFA’s board of directors.
2 Alternatively, the couple could convert their assets into a Medicaid-compliant annuity,
which acts as a spend-down vehicle. Though regulations vary from state to state, the
Omnibus Budget Reconciliation Act of 1993 means assets placed within a Medicaid-
compliant immediate annuity are considered income and no longer count as available
assets when qualifying for Medicaid assistance. Purchasing an immediate annuity will put
the bulk of the couple’s income into a safe place that preserves it for Susan’s needs, while
resulting in Michael’s immediate eligibility for Medicaid to pay for his long-term care.
Setting up a Medicaid-compliant annuity
Federal law allows for a division of assets at the time a spouse enters nursing home care.
To that end, when looking at Michael and Susan’s assets, $302,900 of their original $426,500
can be put in a Medicaid-compliant annuity in Susan’s name, after accounting for Susan’s
community spouse resource allowance. This annuity provides Susan with $4,320 of monthly
income for six years and allows Michael to immediately qualify for Medicaid.
Example calculations
18
Total countable assets: $
Less amount Susan can keep: $
Balance used to purchase annuity: $
Perspectives
Q4 2019
426,500
123,600
302,900
Annuities continued on page 20
1 Compare Long Term Care Costs Across the United States, Genworth, 2017,
https://www.genworth.com/aging-and-you/finances/cost-of-care.html
2 Medicaid and Long-Term Services and Supports: A Primer, 2015,
https://www.kff.org/medicaid/report/medicaid-and-long-term-services-and-supports-a-primer/