Annuities 510-05-70-45

(Revised 10/1/04 ML #2939)

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(N.D.A.C. Section 75-02-02.1-33.1)

 

  1. An annuity is a financial instrument, identified as such, that is established to provide periodic income payments over a defined period of time (see "annuity").  Most annuities are sold by organizations such as insurance companies (see "issuing entity"), though individuals sometimes assume the responsibility to pay annuity contracts. An annuity may be purchased with a single lump sum payment or through periodic payments.  Annuities have long been used as a means of creating retirement income, and many established retirement plans involve the use of annuities. Annuities are also used in an attempt to convert countable assets into income so as to avoid consideration of those assets in eligibility determinations.  This section describes the effect of any annuity on any application for Medicaid benefits. This section identifies annuities that are not countable assets; annuities that are countable assets and how to establish their value; and how to determine if the purchase or annuitization of an annuity is a disqualifying transfer, and if so, how to determine the amount of the disqualifying transfer. This section takes into consideration the requirements of North Dakota law, including asset considerations (510-05-70-10), valuation of assets (510-05-70-60) and N.D.C.C. 50-24.1-02.8, which governs transfers involving annuities and purchases of annuities by community spouses. This section recognizes the extent to which annuities may be returned to the issuing entity for a cash settlement, transferred to another individual as payee, or have the payee's rights to income sold to another without the permission, or even the knowledge, of the issuing entity.

  2. For purposes of this section:

  1. "Annuitant" means the individual whose life is considered in determining the price and payment schedule of an annuity, and who is usually the payee of the annuity;
  2. "Annuitized annuity" means an annuity subject to a contractually established schedule of payments to be made by the issuing entity, other than an immediate lump sum payment of all of the annuity's value;
  3. "Annuity" means a policy, certificate, contract, or other arrangement between two or more parties whereby one party pays money or other valuable consideration to the other party in return for the right to receive payments in the future for a fixed period of time;
  4. "Community spouse" has the same meaning as in 05-65-10, Definitions for Spousal Impoverishment.
  5. "Home and community based services spouse" has the same meaning as in 05-65-10, Definitions for Spousal Impoverishment.
  6. "Institutionalized spouse" has the same meaning as in 05-65-10, Definitions for Spousal Impoverishment.
  7. "Issuing entity" means the individual or entity that issues and undertakes a promise to make payments provided in an annuity;
  8. "Level monthly payments" means substantially equal monthly payments such that the total annual payment in any year varies by five percent or less from the total annual payment of the previous year and does not provide for a balloon or deferred payment of principal or interest;
  9. "Reasonable estimate of life expectancy" means the anticipated lifetimes of individuals of a given age and sex according to the life expectancy table at Appendix O or, as of the date on which an annuity is annuitized, if an individual suffers from a condition that requires long term care, is anticipated to require long term care within twelve months, or has been diagnosed with a disease or condition likely to reduce the individual's life expectancy, that individual's actual life expectancy as established by a reliable medical statement that estimates the remaining duration of life.  

Example 1:  Mr. White has a condition that will likely require him to enter a nursing home within the next 12 months.  He decides to set up an annuity that will pay benefits for a specific time period based on his life expectancy.  The life expectancy table is not used to estimate his life expectancy, but a reliable medical statement is needed.

Example 2:  Ms. Green decides to set up and annuitize an annuity that will pay benefits for a specific time period based on her life expectancy. At that time she is not in long term care and is not expected to require such care within the next 12 months, and she has not been diagnosed with any disease or condition that is likely to affect her life expectancy.  Nine months later she has a stroke, ends up in a nursing home, and applies for Medicaid.  The life expectancy table is used to determine whether the annuity she annuitized was set up to pay within her life expectancy because her condition was not anticipated when the annuity was annuitized.

  1. Any annuity is a countable asset unless this section provides otherwise if a member of a Medicaid unit or the spouse of a member of a Medicaid unit is a payee.  An annuity may not be excluded from consideration as an asset on the basis that it is not saleable without working an undue hardship.

  2. An annuity is not countable as an available asset if it constitutes an employee benefit that qualifies for favorable tax treatment under the Internal Revenue Code or is a plan described in the Internal Revenue Code as a retirement plan under which contributions must end and withdrawals begin by age seventy and one-half, but any payment derived from that annuity is income.

  3. An annuity purchased by a community spouse is not countable as an available asset for purposes of making an assessment or determining eligibility in a spousal impoverishment case, but any payment derived from that annuity is income, if:

  1. To The annuity is irrevocable and cannot be assigned to another person;
  2. The issuing entity is an insurance company or other commercial company that sells annuities as part of the normal course of business;
  3. The annuity provides for level monthly payments;
  4. The annuity will return the full purchase price and interest within a reasonable estimate of the purchaser's life expectancy; and
  5. The monthly payments from the annuity do not exceed $2267 unless specifically ordered otherwise by a court of competent jurisdiction acting to increase the amount of spousal support paid on behalf of a community spouse by an institutionalized spouse or a home and community based services (HCBS) spouse.
  6. The value of a countable annuity is:
  1. If the annuity may be surrendered to its issuing entity for a refund or payment of a specified amount or provides an available lump-sum settlement option, an amount equal to the total available proceeds from that refund, surrender, or settlement;
  2. If the annuity may be assigned, an amount equal to its value as a contractual right to receive money payments; and
  3. Otherwise equal to the highest amount offered by a buyer ready and able to complete the purchase of the right to receive a stream of income consisting of the payments yet to come due under the terms of the annuity.  

  1. "Receivables" are the legal right to be paid money due under the terms of a contract.  The income stream produced by an annuity is such a receivable. Any person may purchase the right to this income stream. A "factor" is someone who buys receivables at a discount. The “factors' market” is one place that an annuity’s income stream may be sold.  Companies and individuals nationwide will pay a lump sum in return for the right to receive the remaining annuity payments.  This income stream may be sold regardless of whether the annuity is irrevocable or not assignable.  If the market value of an annuity cannot be established otherwise, it must be established by a good faith effort to sell the income stream produced by an annuity through the factors' market.  Several offers must be sought in order to establish the fair market value of the annuity.

  2. A determination shall be made whether the irrevocable annuitization of an annuity constitutes a disqualifying transfer upon application for Medicaid for coverage of nursing care services, and upon any subsequent irrevocable annuitization, of an annuity.  Except as provided in subsection 9, the irrevocable annuitization of an annuity constitutes a transfer with an uncompensated value equal to the proceeds that would have been available from the surrender of the annuity immediately before annuitization if the annuity was not immediately annuitized, or the purchase price if the annuity was immediately annuitized, reduced by the total of:

  1. All payments made to members of the Medicaid unit under the terms of the annuity prior to the time the calculation is made; and
  2. The value of the annuity at the time the calculation is made.

  1. Annuitization of an annuity by a community spouse is not a disqualifying transfer for purposes of determining eligibility in a spousal impoverishment case if the annuity meets all of the requirements of subsection 5.

  2. For additional information concerning spousal impoverishment prevention, see 510-05-65.  For additional information concerning the treatment of disqualifying transfers, see 510-05-80.  

  3. Annuities shall be submitted to the Medicaid Eligibility unit for assistance in determining whether the annuity is countable as an asset or whether a disqualifying transfer occurred.  A copy of the entire annuity policy, the date of birth of the annuitant, and verification of the annuity purchase price and, if applicable, date of annuitization, and, when appropriate, the annuitant's actual life expectancy as established by a reliable medical statement that estimates the remaining duration of life must be secured and submitted with the inquiry.