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Staff Tools | SPD Worker Guide | E.1 Treatment of Annuities
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DHS home | SPD
Staff Tools | SPD Worker Guide | E.1 Treatment of Annuities
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This worker guide is not policy. It is intended to help workers with the determination as to whether the purchase of an annuity is a disqualifying transfer of assets for less than fair market value (OSIP, OSIPM, QMB).
Annuity flowchart Examples of Annuities Purchased On or After January 1, 2006 Examples of Annuities Purchased by Clients (or their Spouses) in Non-Standard Living Arrangements On or After July 1, 2006 Life Expectancy TableCalculate a disqualification if the annuity pays out beyond the expected lifetime of the annuitant (client or community spouse).
Two males, one 65 and one 80 years old, each buy $10,000 annuities in May 2005 to be paid over the course of 10 years. Looking at the tables below we find the 65 year old is expected to live 16.67 years and the 80 year old 7.62 years. Because the 65 year old is expected to have the annuity paid out during his lifetime, there is no transfer of asset issue. The 80 year old, however, is not expected to live long enough to benefit fully from his annuity. There is a transfer of asset issue with him we must explore. The question is how much of his investment is he going to get value from? He is expected to live 7.62 years, the annuity pays out over 10 years. So there is a penalty on 26.9% of the original value. This is the percentage of the value he is not expected to receive (10-7.62 = 2.38 years. 2.38 years /10 years = 23.8%) of the original value. So, $10,000 X 23.8% = $2,380. This amount is the uncompensated value.
The disqualification period is the number of months equal to the uncompensated value divided by the amount defined by rule for various time periods.
For applications received after October 1, 2008, for instance, the uncompensated value is divided by $6,494 (461-140-0296). In the above example, we would have: $2,380 (Uncompensated Value) divided by $6,494 to find out how many months the disqualification period is. Since $2,380 is less than $6,494, there are 0 months of disqualification. Count the monthly annuity payments as unearned income.
This same 80 year old client with a $120,000 annuity with everything else the same would result in:
So he would be disqualified for 4 months from May 1, 2005. The disqualification period is past and there is no disqualification to serve at application.
Summary:
If an annuity is expected to pay out longer than the person’s life expectancy, there is a potential disqualifying transfer. Figure out the percentage of time the client isn’t expected to get the benefit of the annuity. Multiply this by the original amount of the annuity and plug this figure into the transfer of resource penalty calculation as illustrated above.
If the annuity meets the criteria of the rule (461-145-0020(4)(b)(C) or 461-145-0022(8)), count the monthly annuity payments as unearned income. If the annuity does not meet the criteria of the rule, count the annuity as a resource.
A single female client who is 76 years old applies for Medicaid in February 2006. She purchased a $62,000 irrevocable annuity from an insurance company on January 15, 2006. The annuity will pay out $584 per month for 9 years. The client’s non-disabled adult child is the first remainder beneficiary. The client does not have any other children. How would this annuity be treated?
Answer:
First determine whether the annuity meets all of the criteria of 461-145-0020 (4)(b)(C). The annuity is irrevocable and was purchased from a business. The client’s life expectancy is 11.64 years and the annuity will pay out in equal installments over 9 years, so the annuity meets the first 3 criteria. However, the annuity does not meet the 4th criterion because a child under age 21 or child any age with a disability or the Department is not named as the first remainder beneficiary.
If the client agrees to change the first remainder beneficiary to the Department (up to the amount of medical benefits provided), count the $584 per month income only; the $62,000 resource is excluded. If the client does not agree to change the first remainder beneficiary, the annuity counts as a resource. The resource exceeds the $2000 limit so Medicaid eligibility must be denied.
A female community spouse who is 69 years old purchased a $100,000 irrevocable annuity from an insurance company on March 15, 2006. The annuity will pay out $725 per month for 12 years. The community spouse’s non-disabled adult child is the first remainder beneficiary. The community spouse does not have a child under age 21 or a child any age with a disability. The client applies for Medicaid for April 2006. How would this annuity be treated?
Answer:
First determine whether the annuity meets all of the criteria of 461-145-0020 (4)(b)(C). The annuity is irrevocable and was purchased from a business. The community spouse’s life expectancy is 16.45 years and the annuity will pay out in equal installments over 12 years, so the annuity meets the first 3 criteria. However, the annuity does not meet the 4th criterion because a child under age 21 or child any age with a disability or the client/Department is not named as the first remainder beneficiary.
If the community spouse agrees to change the first remainder beneficiary to the client, and the Department (up to the amount of medical benefits provided) should the client not survive the community spouse, count the $725 per month as the community spouse’s income only; the $100,000 resource is excluded. Both the client and the Department as a contingency must be named as remainder beneficiaries, in that order. If the community spouse does not agree to change the first remainder beneficiary, the annuity counts as a resource. Determine the value of the resource per 461-145-0020 (3) and include it in the couple’s resource assessment.
Annuities Purchased by Clients (or their Spouses) in Non-Standard Living Arrangements On or After July 1, 2006 |
Clients in nonstandard living arrangements must agree by signing the application that the Department will be a preferred remainder beneficiary on all annuities purchased on or after July 1, 2006. The client must verify that the remainder beneficiary designation meets the requirements of 461-145-0022 before determined eligible. A notice should be sent to the annuity issuer advising them that the Department is a remainder beneficiary. Use form SDS 0545 to notify the insurance company. Make a copy of the notice for the file and narrate in Oregon ACCESS that the notice has been sent.
Annuities must meet the criteria of 461-145-0022(10) in order to count the monthly annuity payments as unearned income. If the criteria are not met, count the annuity as a resource. If the client is eligible even counting the annuity as a resource, determine whether a disqualification for a transfer of assets must be applied.
A single male client who is 63 years old applies for services and Medicaid in October 2006. He purchased a $45,000 irrevocable and non-assignable annuity from an insurance company on July 15, 2006. The annuity will pay out $392 per month for 10 years. The client’s non-disabled adult child is the first remainder beneficiary. The client does not have a child under age 21 or a child any age with a disability. How would this annuity be treated?
Answer:
First determine whether the annuity meets all of the criteria of 461-145-0022(10). The annuity is irrevocable and non-assignable and was purchased from a business. The client’s life expectancy is 18.11 years and the annuity will pay out in equal installments over 10 years, so the annuity meets these criteria. However, the annuity does not meet the final criterion because a child under age 21 or child any age with a disability or the Department is not named as the first remainder beneficiary.
If the client agrees to change the first remainder beneficiary to the Department (up to the amount of medical benefits provided), count the $392 per month income only; the $45,000 annuity is not a disqualifying transfer of assets and it is not a countable resource. If the client does not agree to change the first remainder beneficiary, the annuity is both a disqualifying transfer of resources and counts as a resource. The client cannot serve a disqualification until he is otherwise eligible for Medicaid, so first count the annuity as a resource. The fair market value most likely exceeds the $2000 limit for Medicaid eligibility and the client is ineligible. When the client reapplies at a later date when he is resource-eligible, impose a disqualifying transfer of assets disqualification if the client still has the annuity. Per 461-140-0300, there is no disqualification if the annuity that would have caused a disqualification is rescinded.
A female community spouse who is 74 years old purchased a $74,000 irrevocable and non-assignable annuity from an insurance company on August 1, 2006. The annuity will pay out $535 per month for 12 years. The client is named as the first remainder beneficiary. The community spouse does not have a child under age 21 or a child any age with a disability. The client applies for services and Medicaid for November 2006. How would this annuity be treated?
Answer:
First determine whether the annuity meets all of the criteria of 461-145-0022(10). The annuity is irrevocable and non-assignable and was purchased from a business. The spouse’s life expectancy is 12.95 years and the annuity will pay out in equal installments over 12 years, so the annuity meets these criteria. However, the annuity does not meet the remainder beneficiary criterion because the spouse cannot name the client (The client could name the spouse, however).
If the community spouse agrees to change the first remainder beneficiary to the Department (up to the amount of medical benefits provided), count the $535 per month as the community spouse’s income only; the $74,000 is not a disqualifying transfer of resources and is not a countable resource. If the spouse does not agree to change the first remainder beneficiary, the annuity is a disqualifying transfer of resources and counts as a resource. Count the annuity as a resource and include it in the couple’s resource assessment. Deny the case if the client is over resources. If the resource limit is met, approve the case. This is because the annuity must be part of the community spouse’s resource allowance (CSRA), if it doesn’t cause the client to be over resources. Section (4) of the rule says when an annuity is part of the CSRA, the Department does not need to be named as a remainder beneficiary.
Life Expectancy Table |
Follow this link to the "Period Life Table" published by the SSA. There are columns for males and columns for females. Use the "Life expectancy" column to determine if an annuity pays principal and interest out in equal monthly installments within the actuarial life expectancy of the annuitant. Use the age that the client or community spouse was on the date that they purchased the annuity.
