Paying for long-term care can be hard, especially when someone is trying to qualify for Medicaid. Medicaid has strict income and asset limits, and many people find themselves in a tough spot—needing care but having too many assets to qualify. That’s where a Medicaid annuity may help.
A Medicaid annuity is a special kind of financial tool. It lets someone turn a chunk of money into a steady monthly income. This can lower their countable assets and help them qualify for Medicaid sooner.
How a Medicaid Annuity Works
Medicaid has rules about how much money and property someone can have. For example, in most states, a single person can’t have more than $2,000 in countable assets. A married couple can usually have up to $3,000 combined.
If a person has too much saved, they won’t qualify for Medicaid. But they might also not have enough to pay for long-term care out of pocket. That’s why some people use a Medicaid annuity.
Here’s how it works:
- A person buys the annuity with a lump sum.
- The annuity pays out a fixed amount every month.
- The money paid out doesn’t count as an asset—it’s income.
- The annuity must meet certain rules to be accepted by Medicaid.
By doing this, the person’s assets drop below Medicaid’s limits, making them eligible for help.
What Makes a Medicaid Annuity Medicaid-Compliant?
Not every annuity will work for Medicaid planning. Medicaid only accepts annuities that follow these rules:
- Irrevocable – Once it’s set up, it can’t be changed or canceled.
- Non-assignable – The annuity can’t be sold or transferred.
- Actuarially sound – It must pay out within the person’s life expectancy.
- Equal payments – The same amount must be paid every month with no delay or balloon payments.
- State as beneficiary – The state must be named as the first beneficiary to get paid back for any Medicaid benefits provided.
If an annuity doesn’t meet these rules, it could cause a Medicaid penalty or denial.
Using a Medicaid Annuity for a Spouse
Sometimes only one spouse needs care. Medicaid calls this person the “institutionalized spouse.” The other is the “community spouse.”
Medicaid allows the community spouse to keep a certain amount of assets. This is called the Community Spouse Resource Allowance (CSRA). In 2025, the CSRA is up to $157,920.
Even so, couples may still have too many assets. A Medicaid annuity can help by shifting some of the institutionalized spouse’s assets into an income stream for the community spouse.
This lets the spouse needing care qualify for Medicaid, and the other spouse still has money coming in every month.
Income Rules and the Monthly Maintenance Needs Allowance
Medicaid also looks at income. But when a Medicaid annuity is set up properly, the income it provides can go to the community spouse without affecting Medicaid eligibility.
The Monthly Maintenance Needs Allowance (MMMNA) is the minimum amount a community spouse needs each month to live on. In 2025, this amount ranges from $2,555 to $3,852.50 depending on the state.
If the community spouse’s own income is less than the MMMNA, part or all of the annuity payments can be used to meet that need.
Pros and Cons of a Medicaid Annuity
Pros:
- Helps lower assets to qualify for Medicaid.
- Provides steady income for the healthy spouse.
- Can protect some family money from being spent on care.
- Doesn’t count as a gift, so it doesn’t trigger a Medicaid penalty.
Cons:
- Must follow strict rules or Medicaid will reject it.
- The state may claim leftover annuity money after the person dies.
- Not all annuities are Medicaid-compliant.
- Must be carefully timed with Medicaid’s 5-year look-back period.
What Is the 5-Year Look-Back?
Medicaid checks financial records going back five years before a person applies. This is called the “look-back period.” If they find gifts or transfers made to avoid spending money on care, they may delay coverage.
Buying a Medicaid annuity within this period is okay, but only if it’s Medicaid-compliant. If not, it may be treated as a gift or improper transfer.
When to Think About a Medicaid Annuity
This type of annuity isn’t for everyone. It may make sense when:
- Someone needs long-term care and has too many assets.
- A married couple wants to protect money for the healthy spouse.
- A person is close to qualifying for Medicaid but needs to spend down.
Because the rules are complex, many people talk to an elder law attorney before buying a Medicaid annuity. An experienced advisor can make sure the annuity is set up correctly so there are no surprises during the Medicaid application.
Cost of Long-Term Care
Long-term care is expensive. According to recent data:
- The average monthly cost for a home health aide is around $5,462.
- Nursing homes can cost even more.
Medicaid can cover these costs, but only after a person qualifies. A Medicaid annuity may help someone qualify sooner and save thousands in care costs over time.
Final Thoughts
A Medicaid annuity can be a helpful option for people who need long-term care and want to protect some of their money. It turns savings into income and helps people meet Medicaid’s rules without giving away all their assets. But the annuity must be set up correctly, or it could cause problems later.
If you or a loved one is thinking about long-term care and how to pay for it, a Medicaid annuity might be worth exploring. To learn more about how this works and if it fits your situation, call (910) 777-5734 to speak with someone who can help.