Finally, per the DRA, annuities must name the state as beneficiary for at least the value of the Medicaid assistance received (exceptions such as the presence of a disabled child may apply).
In other words, you can convert an asset into an income stream, but you can't change it back. What's more, the "income rules must be examined to determine if the additional income will be a problem or not," Hauptman added. "If the annuity can be converted to a lump sum or sold for a lump sum, Medicaid still treats it as an asset. That’s why most annuities don’t work for Medicaid purposes."
Clearly, the rules are structured to discourage the use of annuities such as a SPIA. "This is all designed to limit the use of this strategy by forcing the money to be paid out sooner and spent down, which is what the state wants you to do before asking it to pay for your care," said Hauptman. "The overriding principle of Medicaid’s financial eligibility and spend-down rules is that the State does not want to pay for your care until you have used all your funds first."
Moreover, the rules are not uniform nationwide. "Rules for long-term-care Medicaid benefits vary from state to state," said Chalgian.
It can get even more complicated. "Because of income limits for some programs, and income contribution rules for other programs, conversion of an asset to a stream of income is not always in the best interests of a person seeking Medicaid long-term-care benefits," Chalgian noted.
To be sure, using annuities to qualify for Medicaid benefits isn't a simple task. "There is great danger in attempting it and failing," warned Hauptman. "You could end up with the worst possible outcome. You won’t get Medicaid to cover the care, which then requires you to continue to pay the entire cost yourself. But then the Medicaid compliant annuity could lock you into an income stream that won’t give you enough to meet that cost."