MRS. SMITH CASE

Mrs. Smith case

Mrs. Smith case

Introduction

Medicaid annuities are annuities that long-term care recipients use to shelter assets, thereby qualifying them early for Medicaid eligibility. As such, these annuities have the potential to increase Medicaid costs. This study estimates the cost of annuities to the Medicaid program. From a sample of Medicaid applications in five states, we found the rate at which annuities were used and simulated their cost to Medicaid. We estimated that in 2004, Medicaid annuities cost Medicaid about $197 million, which represented a small proportion of Medicaid's almost $50 billion cost for nursing home care.

Discussion and Analysis

Annuities convert assets such as savings accounts, certificates of deposit, and stocks that are countable under Medicaid eligibility rules into assets that are not countable. Annuities generate fixed monthly or annual income payments and often are used to provide sheltered income to a spouse who is living in the community. Even if no spouse exists, an annuity can slow the rate at which assets are spent down during a nursing home stay and help preserve an estate.

Even after it became clear that some form of health insurance would be enacted, advocates disagreed bitterly over whether the program should be compulsory or voluntary, serve all incomes or just the poor, and be run by the federal government or the states; also at issue was how public and private agencies would be balanced.

Previous estimates of prevalence and costs. Estimates of the prevalence of Medicaid annuities, and their cost to Medicaid, are difficult to find. The U.S. Government Accountability Office (GAO) recently examined asset transfers by the elderly. The study did not focus on annuities but found that about 22 percent of elderly households reported transferring an average of $3,000 cash in 2002.3 It also found that in 2002 the median household ...