1234 Enterprise Drive | De Pere, WI 54115
phone 866.605.7437 | facsimile 866.605.7438 | medicaidannuity.com
Krause Financial Services a limited liability company in the State of Wisconsin. Dale M. Krause, and Krause Financial Services, LLC, by means of this flyer, is not offering legal advice. With respect to the material contained in this flyer, some of the material may be affected by current and future changes in law. For those reasons, the accuracy and completeness of such information, and the opinions of its author, are not guaranteed. In addition, because of the complexity and interrelationship of various areas of law which are presented in this flyer, from which there may be certain exceptions or limitations, the strategies and plans outlined in this flyer may not be suited for every individual, in every state. As such, it is strongly suggested that before employing any one or more, of the techniques, strategies, expositions of any law, the reader should secure the services of a competent elder law attorney in his or her respective state. Furthermore, no inference is to be drawn that any of the insurance products provided by Krause Financial Services have been reviewed or approved by any state Medicaid office. Krause Financial Services makes no guarantee that purchase of any insurance products will result in eligibility for Medicaid or any other assistance program.
Medicaid Planning
case
studies
Married Couple
Single Person
with Longevity
Single Person
without Longevity
Case Study: Married Couple
The goal is to obtain immediate Medicaid eligibility for the institutionalized spouse
while providing the community spouse with sufficient income and resources to maintain
his or her lifestyle within the community.
Meet George and Betty
After a long struggle with Parkinson’s disease George enters a nursing home on January 1, 2015. Together, he and his wife Betty have a home, standard furniture and personal property, one car, pre-paid funeral plans, and $200,000 in non-IRA bank accounts. George has monthly income from social security and pension of $1,500 while Betty has monthly social security income of $500. The nursing home bill is $7,250 per month. Betty would like to immediately qualify George for Medicaid benefits.
Step One: Determine the Spend-Down Amount
Betty is allowed to keep the home, a car, furniture and personal property, her funeral trust, and one-half of the cash assets but no more than $119,220. In this case, Betty may keep $100,0001 as her community spouse resource allowance. George is allowed to keep his personal property, his funeral trust, and $2,000 of the $200,000 cash assets. With the protected resources taken into consideration, the spend-down amount is $98,000.
Step Two: Purchase the Medicaid Compliant Annuity
The spend-down amount of $98,000 is immediately eliminated by having Betty purchase a Medicaid
Compliant Annuity. With Betty being 85 years old her Medicaid life expectancy is 6.91 years/82.92 months, which was the deciding factor of her period certain.
1 George and Betty live in a state that has a minimum and maximum Community Spouse Resource Allowance. Had they resided in a
state that only had a maximum Community Spouse Resource Allowance, Betty would have been entitled to the full $119,220.
Investment Period Certain Monthly Payout Total Payout
Step Three: Apply for Medicaid
Betty purchases the Medicaid Compliant Annuity in February of 2015 - after the first continuous period of institutionalization. With the spend-down amount eliminated George is immediately eligible for Medicaid benefits. As a result, in February of 2015 George’s Medicaid co-pay is $0.002. Additionally, in March of 2015 and each month thereafter George’s Medicaid co-pay will be $194.52.
Advantages of the Plan
George obtains immediate Medicaid eligibility. Also, had George and Betty decided not to proceed with the aforementioned Medicaid Compliant Annuity plan and instead continued to privately pay for George’s care the couple would have exhausted their entire spend-down amount in approximately 17 months3.
Disadvantages of the Plan
If Betty predeceases her Medicaid Compliant Annuity, the Medicaid program will be entitled to
reimbursement for the Medicaid expenses paid on behalf of George4. In such an event, Betty’s annuity may leave little or no residual benefits to her children.
To reduce the exposure of a Medicaid reimbursement claim, Betty could reduce the 82-month period certain to something less. However, she will lose all or part of the income shifted to her from George thus increasing George’s monthly co-pay.
2 With Betty’s MMNA being $2,980.50, and her income being only $500, she has a monthly income shortfall of $2,480.50. With this
amount being shifted from George’s monthly income of $1,500, George is left with $0 in monthly income.
3 This amount was determined by dividing the spend-down amount of $98,000 by George’s monthly income shortfall of $5,750. George’s
monthly income shortfall was determined by reducing his monthly nursing home cost of $7,250 by his monthly income of $1,500.
4 This is true whether or not George is still in the nursing home at the time of Betty’s death.
George and Betty expected to pay $7,250 per month
George’s co-pay is only $194.52
per month
George and Betty experience a monthly
savings of $7,055.48
Betty’s MMNA $2,980.50 Betty’s Income $1,720.02 Shift from George’s Income $1,260.48 George’s Net Income $239.52 George’s Needs Allowance $45 George’s Medicaid Co-Pay $194.52
Note: It is recommended above all else that a Medicaid Compliant Annuity period certain
should not be so short as to create an unreasonable amount of monthly income. Essentially, the total monthly income to be received by Betty should be reasonable in light of her current and future monthly needs.
Case Study: Single Person with Longevity
The goal is to allow a single institutionalized individual to make a wealth transfer to
intended heirs while still qualifying for Medicaid benefits as soon as possible.
Meet Helen
Helen, a widow, is 82 years of age and is a permanent resident of a nursing home in the Midwest. With countable resources of $185,000 she has a spend-down amount of $183,000. Additionally, with the nursing home charging $7,000 per month and with her monthly income being only $1,200 from social security and pension she has a monthly income shortfall of $5,800.
Step One: Determine the Length of the Plan
With Helen’s monthly income shortfall of $5,800 being added to the divestment penalty divisor of $7,406, the monthly burn rate is $13,206. With the monthly burn rate being divided into the spend-down amount of $183,000 the resulting figure is 13.86 months. This is the term of the Gifting/Medicaid Compliant Annuity plan.
Step Two: Determine the Gift Amount
The immediate gift amount is $102,647.16. The gift amount was determined by multiplying the term of the plan - 13.86 months, by the divestment penalty divisor of $7,406. This amount is immediately gifted directly to Helen’s intended beneficiaries.
Step Three: Determine the Medicaid Compliant Annuity Investment
The Medicaid Compliant Annuity investment amount is $80,352.84. This amount was determined by reducing the spend-down amount by the gift amount.
Investment Period Certain Monthly Payout Total Payout
5 This amount was determined by dividing the spend-down amount of $183,000 by Helen’s monthly income shortfall of $5,800. 6 This amount was determined by deducting her $45 personal needs allowance from her income of $1,200.
Step Four: Apply for Medicaid
Immediately following the transfer of the gift and purchase of the Medicaid Compliant Annuity Helen applies for Medicaid benefits. The purpose of the Medicaid application is to commence the divestment penalty period associated to the gift.
Economic Results
Helen will be ineligible for Medicaid benefits until the end of the 13.86-month divestment penalty period.
Interesting Points
• Had Helen decided not to proceed with the Gifting/Medicaid Compliant Annuity plan
and instead continued privately paying for her nursing home care she would have exhausted her entire spend-down amount in approximately 325 months.
• If Helen does not live until the 15th month she will not have gained any economic benefit.
• After month 14 her Medicaid monthly co-pay will be $1,1556.
• By opting to proceed with the Gifting/Medicaid Compliant Annuity plan Helen’s intended
beneficiaries received a wealth transfer of $102,647.16. Helen’s children can subsidize her Medicaid care - massages, manicures, pedicures, clothing, etc.
• Finally, in the event that Helen was to predecease the 13.86-month divestment penalty period,
the state Medicaid program would not be entitled to any of the residual benefits remaining in the 14-month Medicaid Compliant Annuity in that the Medicaid program did not provide any medical assistance benefits to Helen. As such, Helen’s intended beneficiaries would be entitled to receive any residual benefits remaining in her Medicaid Compliant Annuity.
Helen has total monthly income of $6,960.98 Helen incurs a monthly shortfall of $39.02
Helen’s total shortfall is $540.82
Case Study: Single Person without Longevity
Continuing from the prior case study, what if Helen had been terminally ill and only
expected to live for a short time?
The goal would then be to immediately qualify Helen for Medicaid, while reducing the
reimbursement claim to the Medicaid program and creating the greatest possible wealth
transfer upon death.
Step One: Eliminate the Spend-Down Amount
Helen’s spend-down amount is immediately eliminated by purchasing a Medicaid Compliant Annuity. With Helen being 82 years old her Medicaid life expectancy is 8.47 years/101.64 months, which was the deciding factor of her period certain.
Step Two: Apply for Medicaid
With the spend-down amount eliminated Helen is immediately eligible for Medicaid benefits.
Step Three: Medicaid Reimbursement Claim
Helen passes away in month 14 of her Medicaid Compliant Annuity payout. With the facility’s monthly Medicaid rate being $4,500, less Helen’s co-pay, Medicaid paid a balance of $1,486.66 to the nursing home each month on Helen’s behalf.
Investment Period Certain Monthly Payout Total Payout
$183,000 101 Months $1,858.34 $187,692.34
Total Income
$3,058.34
Personal Needs Allowance
$45
Medicaid Co-Pay
$3,013.34
Medicaid Bill
$1,486.66
14 Months on Medicaid
$20,813.24
Owed to Medicaid
7 This figure was determined by deducting the 14 months of care valued at $81,200 from Helen’s spend-down amount of $183,000.
The 14 months of care was determined by multiplying Helen’s monthly income shortfall of $5,800 by 14 months.
Step Four: Determine the Wealth Transfer
Helen had designated her children as the beneficiaries of her Medicaid Compliant Annuity after the state Medicaid program, leaving the residual balance for her children.
Interesting Points
• Had Helen opted to do zero planning, and simply continued to privately pay, her
wealth transfer to her children would have been $101,8007. This is $39,062.34 less than the wealth transfer she made after purchasing the Medicaid Compliant Annuity.
• Helen was immediately eligible for Medicaid benefits.
• Helen realized a monthly savings of $2,500, in considering the private pay rate
of $7,000 versus the Medicaid rate of $4,500.
• Helen will reach a “break-even point” in month 25 - the point at which the gifting
plan on pages 30–31 would have been more advantageous than the stand- alone Medicaid Compliant Annuity.
• In year five of the plan, Helen’s Medicaid claim will exceed the residual benefits of
the annuity, leaving no wealth transfer to her intended beneficiaries. Anticipated
Annuity Payout
$187,692.34
14 Months of Payment
$26,016.76
Medicaid Repayment
$20,813.24
Residual Balance for
Children
