A 'Medicaid annuity' could be a beneficial choice when your spouse requires nursing home care.

• Medicare generally doesn’t cover long-term care.
• The monthly cost of a private room in a nursing home exceeds $8,800.
• People with limited assets and income can receive financial assistance from Medicaid to cover medical expenses.
• Using a Medicaid-compliant annuity can help couples preserve their assets while still qualifying for Medicaid.

Often, older couples face the unexpected expense of nursing home care for one spouse.

Medicare typically does not cover long-term care, while Medicaid provides assistance when a person's financial resources are limited. However, some couples may face the possibility of depleting their own assets to pay for nursing home care, which costs approximately $8,821 per month or $106,000 annually, leaving the healthy spouse in a precarious financial situation.

Jeffrey Levine, a certified financial planner and CPA, stated that they are in a difficult situation because they have extra cash that will prevent them from qualifying for Medicaid initially.

The pandemic has altered tipping practices.

What can they do to maintain the worth of those assets, Levine questioned.

Another option for couples to qualify for Medicaid could be purchasing a Medicaid annuity, which involves spending down assets.

This strategy enables the conversion of countable assets into an income stream for the healthy spouse, without affecting the calculation of Medicaid eligibility.

Before buying an annuity, it's important to understand its limitations and potential drawbacks.

These are often utilized as crisis planning tools, Levine stated. Although it's not an ideal solution, it might be the best among a set of poor alternatives.

What to know

To determine eligibility for Medicaid coverage of institutional care, the program takes a snapshot of your assets.

Even if assets are in your spouse's name, they are typically viewed jointly, according to Levine.

The minimum amount of assets an individual can have varies by state, but it can be as low as $2,000.

In many states, married couples can maintain up to $137,400 in assets that do not affect their eligibility for Medicaid, with anything above this amount being used to pay for the other spouse's care.

In many states, Medicaid has a five-year "look-back" period, during which the program reviews the previous five years to ensure that assets were not transferred solely to family members in order to qualify for Medicaid.

While some states have a $2,523 income limit, the healthy spouse's income is typically not taken into account.

An annuity can be used by a couple with $100,000 above their state's asset cap to purchase an annuity payable to the healthy spouse based on their own life expectancy.

To be compliant, an annuity must meet certain requirements, such as naming the state as the remainder beneficiary for at least the amount that Medicaid paid for the ill spouse's nursing home care, being an immediate annuity that starts paying the income stream immediately, and being irrevocable.

It's wise to seek advice from a local attorney who specializes in elder law if you're considering a Medicaid annuity in your situation, as there may be states where it won't be effective.

Make sure to explore other possibilities, as advised by Levine.

Some states may have better programs for you to consider, he suggested. In these states, you can simply declare that you are not using your assets to cover your spouse's care or you can request a larger asset limit from the state.