MEDICAID, THE MISTRICK DECISION, AND ANNUITIES - WHAT DOES THIS MEAN??
People are frequently confused about the difference between Medicare and Medicaid. Medicare, a federal health insurance program, was created to help citizens honor their medical bills, and eligibility for Medicare is not conditioned upon an individuals needs. Medicare is an entitlement program which a person receives as a result of payment of social security taxation.
Medicaid was created as a medical expense assistance program. Administration of the Medicaid program is determined by each state in conjunction with the federal government, and payments made as a result of Medicaid are sent directly to the provider of the health care service. Medicaid is not an entitlement program, therefore, a person must qualify for Medicaid coverage.
In order to qualify for Medicaid in New Jersey the "nursing home spouse" may have assets not exceeding $2,000.00 and income not exceeding $1,590.00 per month which includes social security. The other spouse (referred to as the community spouse) is entitled to a Community Spouse Resource Allowance (CSRA) of $86,000.00 in assets in the year 2001, the income of the community spouse is not considered in the eligibility computation. The transfer of assets within 36 months (or 60 months if the transfer is made to a trust) is viewed under what is referred to as "the look back period" pursuant to federal legislation and can result in a term of ineligibility for Medicaid, (the "penalty period" is computed by dividing the value of the assets transferred by the average cost of the nursing home stay in New Jersey). The average daily cost of a nursing home stay in New Jersey has been reported to vary between $142.00 per day and $286.00 per day according to the Nursing Home Association and the New Jersey Association of Health Care Facilities.
The case of Sophie Mistrick made Medicaid history in New
Jersey. It was necessary that Mrs. Mistrick be admitted to a
convalescent center; at the time of Mrs. Mistrick's admission,
the couple owned various assets which included an IRA in the
husband's name and the issue arose as to whether the
husband's (the community spouse) IRA should be included in the
calculation for Medicaid eligibility of the wife. Sophie
Mistrick's case commenced in August 1995 by application to the
County Board of Social Services which denied the Medicaid application
concluding that Sophie was not eligible for Medicaid because her
husband's IRA was deemed to be an "includible
resource" for purposes of determining Medicaid eligibility of
his wife. This decision was appealed and on June 8, 1998, the
Supreme Court of New Jersey held in an unanimous decision that an
Individual Retirement Account in the name of the community spouse is
an includible resource for the purpose of determining Medicaid
eligibility.
The Health Care Financing Administration (HCFA), permits the
purchase of an annuity in Medicaid cases. If Mr. Mistrick had
converted his IRA into an annuity, the annuity would not have become
part of the "includible resource" in the calculation of
Medicaid eligibility for Mrs. Mistrick providing the following
criteria are met:
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1. The annuity must be an "immediate" annuity as opposed to a deferred annuity. An immediate annuity pays the annuitant on a periodic basis shortly after the annuity is purchased; a deferred annuity is not suitable for Medicaid planning because a deferred annuity can be surrendered and therefore is included as an available asset in determining Medicaid eligibility. 2. The annuity must be for a "time certain" ; this means that the payment period of the annuity must be shorter than the holder's life expectancy. Although the requirement of a time certain is mandatory, the annuity may include a clause designating a contingent beneficiary in the event the owner predeceases the annuity payment terms. It is important that an individual not designate the estate as the beneficiary of the annuity because that will subject the estate to taxation of the annuity proceeds. 3. The annuity must be formatted so that the spouse becomes the owner of the annuity as well as the annuitant and the annuity and the designations must be designated as irrevocable designations. 4. The annuity must be designated as "non assignable annuity". If the annuity were assignable it could be "cashed out" or otherwise encumbered and converted to cash transforming the annuity into a includible resource for determining Medicaid eligibility. |
Therefore, if an annuity is immediate, non-assignable, irrevocable
with a term that does not exceed the life expectancy, the annuity
will be designated as an inaccessible resource and not included in
the calculation of Medicaid eligibility.
In Elder Law Planning in New Jersey, since a retirement plan (IRA)
is counted as an "includible resource" for determining
Medicaid eligibility; the purchase of an annuity, if properly
structured, represents a good planning technique to protect the
asset and retain the "inaccessible resource" designation
when calculating Medicaid eligibility.
Dated August 8, 2001
