Rapid Changes in Medicaid Law Require Constant Vigilance

by Jerrold Bartholomew

An astounding thing happened during the fall of 2007. Michigan changed its Medicaid policy with respect to annuities and implemented those changes with retroactive effect.

The new policy requires annuities to have several features in order to avoid being considered a divestment. Among the requirements is a rule that the state of Michigan must be named a remainder beneficiary to the extent of Medicaid benefits received. This law applies to all annuities purchased or altered after February 8th, 2006, the day President Bush signed the Deficit Reduction Act into law.

This policy change is troubling is several respects. First, it certainly defeats a common sense understanding of justice and fair play to change the rules retroactively, particularly where the financial consequences can be so significant. The law changed in October of 2007, but it applies to all annuities purchased or changed more than a year and half before the new policy was announced. Annuities not in compliance with the new policy can be considered a divestment–just as though the money used to purchase the annuity had been given away. So, for example, a $60,000.00 annuity could result in more than 10 months of ineligibility for Medicaid and under the new law, this penalty time would not begin to run until the purchaser was otherwise out of money and in the nursing home.

Second, this policy change–with all of its harsh consequences–is not necessarily understood by those selling and recommending annuities. Even today, annuities are still being sold with the idea that they will help one to qualify for nursing home care. But for many annuities, just the opposite is true. How many annuities are likely to be sold with Michigan as a remainder beneficiary? Would you invest your money that way? Many annuities will actually prevent qualification and it may be extremely difficult or impossible to undo the transaction. With nursing home costs averaging $6,500.00 per month or more, the problem is widespread and troubling.

The lesson here is that Medicaid policy is potentially an issue for almost everyone at or approaching retirement age. It is important to consult with an elder law attorney before making any long term decisions on annuities or other financial products. The impact on Medicaid qualification may surprise you.

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