Because Medicaid is a federal/state run program, the rules differ from state to state. When state statutes or administrative rules conflict with federal, however, the federal law will govern. It is up to the courts to determine when statutes conflict.

Two recent court cases brought good news for some Ohioans needing to place their spouses in nursing homes. Appellate courts in two (of the 12) Ohio districts struck down an Ohio law that penalizes the purchase of certain annuities which would give the community spouse extra income. The law still applies in other districts (including most of Northeast Ohio) until their courts decide on the issue, until the Ohio Supreme Court makes a decision, or until the Medicaid rules are changed.

When a spouse requires nursing home care, the community spouse is entitled to keep certain exempt items such as the home and car as well as a portion of the countable assets (bank accounts, stocks, bonds, etc.). The remaining countable assets are deemed to be available to the institutionalized spouse and must be “spent down” to $1500 before the institutionalized spouse will qualify for Medicaid. The excess funds that must be “spent down” can be used to pay for exempt assets for the community spouse.

A notable exception under Ohio law has been the “Medicaid compliant annuity”. These annuities are specifically permitted under federal law. While Ohio law permits these annuities as exempt assets, it does not allow the purchase of the annuities as part of the “spend down”. Any money used to purchase the annuity over and above the community spouse’s share of the countable assets is considered an “improper transfer” which will cause a period of Medicaid ineligibility for the institutionalized spouse.

The two district courts both found this Ohio penalty to be contrary to federal law. Other districts still find a spouse’s purchase of an annuity as part of the spend down to be an improper transfer.

To be “Medicaid compliant”, an annuity must be purchased from a commercial institution such as a bank or insurance company. It must be irrevocable, non-assignable and without cash value. It must make regular fixed payments which are actuarially sound, paying out fully within the life expectancy of the owner. The state must be named as an irrevocable remainder beneficiary up to the amount paid out by Medicaid, second only to a spouse or disabled child.

These annuities can be very valuable in providing extra income for the community spouse, but may not be the best solution in all situations. The community spouse may wish to spend down excess assets in other ways such as paying off a mortgage or purchasing a new car. She may need to pay off debts or purchase prepaid funerals and burial plots for herself and her husband.

A community spouse with low monthly income will be entitled to keep a portion of the institutionalized spouse’s monthly income for herself as a “maintenance needs allowance”. Payments from an annuity would reduce the amount she would receive from the institutionalized spouse dollar for dollar.

The laws surrounding Medicaid are complex. New statutes and administrative decisions frequently change the law. Court decisions and local practices cause the application of the law to vary from county to county. It is important to seek competent advice when planning for yourself or a loved one.

Written by:
Marta J. Williger
Attorney at Law
37 South Main Street #2
PO Box 368
Munroe Falls, OH 44262
(330) 686-7777
January, 2011


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