Annuities 510-05-70-45

(Revised 8/1/05 ML #2981)

View Archives

 

  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.

  1. 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. "Life expectancy" means the anticipated lifetimes of individuals of a given age and sex according to the life expectancy table at 05-100-75.  

  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.

  1.  An annuity in which a payment option was selected before August 1, 2005 may indicate that it is non-assignable and irrevocable, however, the income stream from the annuity may be sold.
  2. An annuity in which a payment option is selected on or after August 1, 2005 is considered assignable by state law unless the annuity meets all of the requirements of subsection 7.  This provision applies even if the annuity indicates that it is non-assignable. An assignable annuity is usually easier to sell, and may bring a higher offer than the previously mentioned income stream from a non-assignable annuity.

  1. 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. If the annuity may not be surrendered or assigned, an amount 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.
  2. A "factor" is someone who buys receivables at a discount.
  3. 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. Several offers must be sought in order to establish the fair market value of the annuity.

  1. 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. These annuities are considered "qualified" annuities.

  2. An annuity for a community spouse in which a payment option was selected before August 1, 2005 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. 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 the purchaser's life expectancy; and
  5. 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:
  1. For eligibility periods before August 1, 2005, the monthly payments from the annuity do not exceed $2267; and
  2. For eligibility periods on or after August 1, 2005, the monthly payments from the annuity do not exceed $2378.

  1. An annuity for a community spouse, purchased on or after August 1, 2005, 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. 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 principle and has a guaranteed period that is equal to at least 85% of the community spouse’s life expectancy;
  5. The monthly payments from all annuities that meet the requirements of this subsection do not exceed $2378 and, when combined with the community spouse’s other income at the time of application for Medicaid, does not exceed $3567; and
  6. If the applicant for Medicaid is age 55 or older, the Department of Human Services is irrevocably named as the primary beneficiary of the annuity following the death of the applicant and the applicant’s spouse, not to exceed the amount of benefits paid by Medicaid.  If a minor or disabled child survives the applicant and spouse, any payments from the annuity will be provided to those individuals.

  1. Annuities as disqualifying transfers. 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 subsections 6 or 7.

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

  1. 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.