Medicaid Annuity

Medicaid-compliant annuities are fixed immediate annuities that allow applicants to meet Medicaid’s asset criteria by reducing his or her non-exempt assets, thus making them eligible for Medicaid benefits, such as long-term care. For married couples, Medicaid-compliant annuities enable the healthy spouse to continue receiving supplementary income.

Elaine Silvestrini, Writer
  • Written By
    Elaine Silvestrini

    Elaine Silvestrini

    Financial Writer

    Elaine Silvestrini is an advocate for financial literacy who worked for more than 25 years in journalism before joining as a financial writer.

    Read More
  • Edited By
    Kim Borwick
    Kim Borwick, Financial Editor for

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for

    Read More
  • Financially Reviewed By
    Rubina K. Hossain, CFP®
    Rubina K. Hossain

    Rubina K. Hossain, CFP®

    Certified Financial Planner™ Professional

    Certified Financial Planner Rubina K. Hossain is chair of the CFP Board's Council of Examinations and past president of the Financial Planning Association. She specializes in preparing and presenting sound holistic financial plans to ensure her clients achieve their goals.

    Read More
  • Updated: December 5, 2022
  • 8 min read time
  • This page features 27 Cited Research Articles
Fact Checked
Fact Checked partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Cite Us
How to Cite's Article

APA Silvestrini, E. (2022, December 5). Medicaid Annuity. Retrieved February 3, 2023, from

MLA Silvestrini, Elaine. "Medicaid Annuity.", 5 Dec 2022,

Chicago Silvestrini, Elaine. "Medicaid Annuity." Last modified December 5, 2022.

Medicaid annuities help spouses of Medicaid recipients continue to pay their bills in retirement.

In order to qualify for Medicaid, a person must spend almost everything he or she has. But if one spouse doesn’t require long-term care, this can leave the healthy spouse impoverished, too.

Medicaid annuities enable the healthy spouse to receive a source of income to supplement Social Security when the other spouse needs Medicaid for long-term care.

The rules of these annuities are very strict and must be followed precisely, so it is strongly recommended that you consult an expert in elder-care law when purchasing a Medicaid-compliant annuity.

Medicare Doesn’t Cover Long-Term Care

The cost of medical care in retirement can derail even the best laid plans. This is particularly true when it comes to long-term care.

Although many may assume Medicare, the federal program that provides health care coverage for people aged 65 and over, will cover health care costs in retirement, there is usually a large gap between what Medicare does and does not pay for. That includes long-term care, which is not covered by Medicare.

This is despite the fact that the U.S. Department of Health and Human Services estimates that someone turning 65 has a nearly 70 percent chance of needing some kind of long-term care services in their remaining years.

And long-term care is expensive. The national median cost for a semi-private room in a nursing home is nearly $8,000 a month, according to the 2021 Genworth Financial Cost of Care Survey. That’s more than $90,000 a year. Even a sizable retirement nest egg will vanish under the weight of those kinds of costs.

Estimated National Costs for Long-Term Care
Semi-private room$7,908
Private room$9,034
Assisted Living Facility$4,500
Homemaker services$4,957
Home health aide$5,148
Adult day health care $1,690

According to the American Association for Long-Term Care insurance, the average cost for long-term care insurance for a couple who are both 60 years old is $3,400 a year. The association says 30 percent of people between the ages of 60 and 69 who apply for this insurance are declined coverage.

Approximately 7.5 million Americans had some type of long-term care insurance in 2020. Many of these policies are linked to other products, such as annuity long-term care riders.

Looking for guaranteed income in retirement?
Annuities can provide you with income for life, ensuring you won't run out of money in retirement. Find out if an annuity is right for you.

Annuities and Medicaid Requirements for Long-Term Care Coverage

Fortunately, Medicaid does cover long-term care. In fact, Medicaid is the largest provider of long-term care in the nation.

But Medicaid is the government health insurance program for the poor. This means you must have almost no assets or income to qualify for coverage. This includes retirement savings and annuities.

Medicaid is the specific rules in your state may differ administered by states, so. But generally, annuities are useful in providing income for a spouse who isn’t seeking Medicaid coverage for long-term care.

It’s also important to note that annuity payments are counted as income and will affect eligibility based on income limits and that not all annuities are Medicaid-compliant.

The best type of annuity for this purpose is the single premium immediate annuity (SPIA). These fixed annuities are the least complicated, and they provide for specific, predictable payments that can comply with Medicaid rules. Variable annuities, on the other hand, do not have specific, guaranteed returns and are not always Medicaid-compliant.

Limits on Assets and Income; You Just Can’t Give It Away

Although each state has its own rules, most states limit a Medicaid-covered individual to $2,000 in “countable,” or non-exempt, assets. People whose financial resources are valued at more than $2,000 are required to spend down their assets to become eligible for Medicaid.

But under the rules, you can’t just give away your assets to become Medicaid eligible.

In fact, the government has what’s called a “lookback period,” meaning it reviews what happened with assets in the five years leading up to the Medicaid application.

During that period, any assets that were given away or sold for less than fair market value are considered to have been available for payment of expenses that otherwise would have been covered by Medicaid. Consequently, the government delays Medicaid eligibility for the period those assets could have been used to pay for nursing home care.

Newsletter Icon
Join Thousands of Other Personal Finance Enthusiasts
Because missing out on important news and updates could cost you.

Exceptions for the Healthy Community Spouse

As strict as the rules are, the government does make allowances for a spouse who doesn’t require Medicaid for long-term care. These spouses are referred to as community spouses, as they continue to live in the community.

These allowances are designed to prevent what the government refers to as spousal impoverishment. In other words, the government does not require a healthy spouse to descend into poverty in order to provide nursing home care for a partner.

The government counts everything except personal belongings, the primary home and household items and a vehicle as assets.

The expanded limits for the healthy spouse are referred to as the community spouse resource allowance, or CSRA. In some states, the healthy spouse may keep an amount equal to half of the couple’s total countable assets up to the maximum cap.

For example, if the couple had $150,000 in assets and the cap in that state was $128,640, the healthy spouse could keep up to $75,000, or half of the couple’s assets. Some states do not have this restriction and allow the healthy spouse to keep an amount up to the cap. In those states, the healthy spouse in this scenario could keep up to $128,640, if that was the state’s cap.

The healthy spouse could use some of any excess assets to purchase a Medicaid-compliant annuity to transform the assets into income. However, some states have additional rules for these annuities, and some states don’t permit them at all.

And if the healthy spouse later requires nursing home care, the annuity income must be used to pay for it.


Spousal Income Limits

Keep in mind, Medicaid also limits the income the healthy spouse may receive from the person receiving care. The maximum monthly needs income allowance for 2022 is $3,435. There is also a monthly housing allowance of $686.63. These limits apply in all states except Alaska and Hawaii, which have higher caps.

The healthy spouse may keep all his or her own income, regardless of the caps.

You Can Keep Your House and Get Medicaid

The rules exempt between $595,000 and $893,000 in equity in homestead property from being considered as part of assets and subject to depletion before Medicaid eligibility.

Medicaid also has income limits, but they apply only to the Medicaid recipient.

Medicaid-Compliant Annuity Requirements

Annuities can help convert assets to income for the spouse who is not covered by Medicaid. But the government has strict rules that govern this.

In 2005, as part of the Deficit Reduction Act (DRA), Congress tightened the requirements for qualifying for Medicaid.

According to the Centers for Medicare and Medicaid Services, the Deficit Reduction Act of 2005 introduced rules that “discourage the improper transfer of assets to gain Medicaid eligibility and receive long-term care services.”

As a condition of eligibility for coverage of long-term care services, Medicaid applicants are required to disclose any interest in an annuity.

Medicaid Compliance

To be Medicaid-compliant, annuities must name the state as the primary remainder beneficiary (or as the second remainder beneficiary after a community-based spouse or minor or disabled child) for at least the value of the Medicaid assistance provided.

In other words, the annuity contract must specify that if the annuity holder dies, the state would be the beneficiary for the amount of money up to the value of the care funded by Medicaid. The state would be next in line behind the surviving spouse who lives locally or a minor or disabled child of the annuity holder.

If the annuity does not name the state as a remainder beneficiary in the proper position, the annuity must be treated as a “transfer of assets for less than fair market value.” The full purchase price of the annuity would be subject to penalty and count against Medicaid eligibility.

To be Medicaid-compliant, the annuity also must be purchased with retirement plan funds. Or it must be:
No changes may be made to its terms.
It can’t be put in someone else’s name and cannot be sold or otherwise transferred to a third party, such as a factoring company, which purchases the rights to annuity payments.
Actuarially sound
It provides payments only for the specific, estimated life span of the annuity holder and no longer.

The law also requires the payments to be in equal installments during its entire term, with no deferral or balloon payments. And the payments are counted as income subject to caps set by Medicaid for eligibility.

Non-Compliant Annuities and Medicaid

If the Medicaid applicant has an annuity inside a qualified retirement plan, known as a qualified annuity, that annuity is not counted as an asset that limits Medicaid eligibility. However, the Internal Revenue Service mandates that once the holder of a qualified annuity reaches the age of 72, he must withdraw a minimum amount each year. This is known as a required minimum distribution (RMD). Medicaid rules require that RMD withdrawals be turned over to the nursing home to cover costs.

Annuities purchased with after-tax dollars outside of qualified retirement plans are known as non-qualified annuities.

In general, if the rules for Medicaid compliance weren’t followed when a non-qualified annuity was purchased, it is counted when determining Medicaid eligibility. However, a non-qualified annuity can be transferred to the healthy spouse without running afoul of Medicaid rules or creating tax problems.

If the owner of a non-qualified annuity doesn’t have a healthy spouse, he or she may assign the annuity to a Medicaid Trust. This allows the annuity holder to keep the income payments and start the five-year look-back period for Medicaid eligibility.


Connect With a Financial Advisor Instantly

Our free tool can help you find an advisor who serves your needs. Get matched with a financial advisor who fits your unique criteria. Once you’ve been matched, consult for free with no obligation.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: December 5, 2022

27 Cited Research Articles writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Administration on Aging. (n.d.). Costs of Care. Retrieved from
  2. American Association for Long-Term Care Insurance. (2019). Long-Term Care Insurance Facts-Data-Statistics-2019 Report. Retrieved from
  3. Benz, C. (2018, August 20). 75 Must-Know Statistics About Long-Term Care: 2018. Retrieved from
  4. Centers for Medicare & Medicaid Services. (2008, January 8). Important Facts for State Policymakers Deficit Reduction Act. Retrieved from
  5. Di Costanzo, S.M. (2018, September 1). The Interplay Between Annuities And Medicaid Planning. Retrieved from
  6. Elder Law Answers. (2018, December 26). Feds Release 2019 Guidelines Used to Protect the Spouses of Medicaid Applicants. Retrieved from
  7. Elder Law Answers. (2019, March 4). Medicaid’s Attempt to Ensure the Healthy Spouse Is Not Impoverished: The CSRA. Retrieved from
  8. Elder Law Answers. (2019, March 1). Medicaid’s Treatment of the Home. Retrieved from
  9. Elder Law Answers. (2019, March 3). The Use of Immediate Annuities in Medicaid Planning for Married Couples. Retrieved from
  10. Elder Law Answers. (2015, March 3). Using Annuities for Long-Term Care Planning. Retrieved from
  11. Gale, W. & Harris, B. (2019, April 26). Social Security Isn’t the Only Retirement Crisis. Look at Medicare and Medicaid. Retrieved from
  12. Genworth Financial. (2021). Cost of Care Survey. Retrieved from
  13. Gunnarsson, H.W. (2011, November). Attention estate planners: new Medicaid asset transfer rules finally adopted. Retrieved from
  14. Haithcock, S.G. (2018, November 27). What Is a Medicaid Annuity and Is it Beneficial? Retrieved from
  15. Hopkins, J. (2019, December 18). Why The SECURE Act Makes 2020 The Year Of Missed RMDs From IRAs. Retrieved from
  16. Laise, E. (2017, October). Medicaid Annuities Help Protect Savings. Retrieved from
  17. Lane, R. (2018, July 31). What If Your Annuity Client Ends Up Using Medicaid to Pay for Care? Retrieved from
  18. (n.d.). Costs of Care. Retrieved from
  19. Marshall, J. (2013, October 29). Medicaid Annuity Case Clarifies Remainder Beneficiary Rules. Retrieved from
  20. Mattlin, B. (2018, May 11). Annuities Can Help or Harm Medicaid Eligibility. Retrieved from
  21. (n.d.). Spousal Impoverishment. Retrieved from
  22. Mueller, K.P. (2018, August 22). Should mom buy a Medicaid-compliant annuity? Retrieved from
  23. NJ Money Help. (2018, April.) What is a Medicaid-compliant annuity? Retrieved from
  24. NOLO. (n.d.). Using Annuities in Medicaid Long-Term Care Planning. Retrieved from
  25. U.S. Centers for Medicare & Medicaid Services. (2022, June 2). Updated 2022 SSI and Spousal Impoverishment Standards. Retrieved from
  26. U.S. Department of Health and Human Services. (n.d.). How Much Care Will You Need? Retrieved from
  27. Wright, W.E. & Abshire, M.D. (2019, March 15). Elder Law: Medicaid makes serious change to treatment of retirement accounts. Retrieved from