State of Wisconsin Department of Health Services

HISTORY

The policy on this page is from a previous version of the handbook. 

17.11 Annuities

17.11.1  Treatment of Revocable Annuities

17.11.2  Evaluating Irrevocable Annuities for Divestment

17.11.2.1 Annuities that are not considered Divestment

17.11.2.2 Annuities that are considered Divestment

17.11.3 Verification

17.11.4 Disclosure

17.11.5 Remainder Beneficiary Designation

17.11.1 Treatment of Revocable Annuities

The following policy applies to both an annuity purchased by a member and an annuity purchased by a community spouse .

1. Determining Resource Value
   1. When the annuity is revocable and the funds deposited can be withdrawn, the value of the annuity principal, plus accumulated interest, is a countable resource.
   2. When an annuity company will apply a financial penalty for early withdrawal of the funds in an annuity account, the amount that the member would receive upon full surrender of the annuity contract is the counted resource value of the annuity.
2. Treatment of Withdrawals and Interest
   1. When a member makes withdrawals from the principal or accumulated interest on an annuity account, the withdrawals are a conversion of a resource.
   2. Interest accruing on an annuity account that is paid to the annuitant as it is earned is excluded income.
   3. Interest earned on a revocable annuity that is left in the account to accumulate is not considered income but instead is considered as an increase in the resource value of the annuity account.

17.11.2 Evaluating Irrevocable Annuities for Divestment

17.11.2.1 Irrevocable Annuities that are not considered divestment:

1. Names “Wisconsin Department of Health Services Estate Recovery Program” (hereafter referred to as “the State”) as the remainder Beneficiary if purchased or created on or after January 1, 2009. In those cases where there is a spouse, disabled child or minor child, the State is beneficiary in the second position;

AND

2. Is created from funds in a ROTH IRA , 408 IRA or other employer sponsored plan; or is purchased from a life insurance company or other commercial company that sells annuities as part of its normal course of business;
3. Is considered an individual retirement annuity (according to Sec. 408(b)) of the Internal Revenue Code of 1986 (IRC), or a deemed Individual Retirement Account (IRA) under a qualified employer plan (according to Sec. 408(q) of the IRC);
4. Provides substantially equal monthly payments with no balloon, deferred or graduated payments (variations in payment amounts due to changes in interest rates are allowed);
5. Is Annuitized for the individual or spouse (currently issuing payments);
6. Is a period-certain annuity that will return the full principal and interest within the annuitant’s life expectancy as listed in the Period Life Table (from socialsecurity.gov).
7. The number of months that annuity payments will be issued should be less than the number of months of the individual’s life expectancy (multiply figure from the Period Life Table (from socialsecurity.gov) by 12).

 

Note: Annuities that provide for indefinite “lifetime payments” will not return the full principal and interest within the member’s life expectancy.

 

Example 1: The member applies for HBCW.  He had invested in a ROTH IRA while he was working. He converted the IRA to an irrevocable annuity when he retired 6 months ago and named the State as the beneficiary.  Since the annuity meets the conditions above, the purchase of the annuity is not considered divestment.

 

Example 2: The member applied for Institutional Medicaid on 7/28. This is a community spouse case. On 7/18, the community spouse used $126,500.00 of the couple’s resources to purchase an irrevocable 9-year period certain immediate annuity from the XYZ Life Insurance Company. The community spouse is the annuitant. The community spouse was 74-years-old on the date the annuity was purchased and had a life expectancy of 9.75 years (117 months). The annuity will issue regular monthly checks of $1,488.75 for a set period of 9 years or 108 total months. The insurance company will pay out a total of $160,785.00 over the period of the annuity contract.   The annuity names the State as the beneficiary in the position after the institutionalized spouse. The contract date of the annuity was 7/18 and the first monthly payment was issued on 8/18. The annuity, which was purchased by the community spouse, names the State as the beneficiary, was purchased from a life insurance company, will issue regular monthly payments, is currently issuing payments and will provide for full return of principal and interest during the community spouse’s life expectancy. Therefore, since the annuity meets the requirements above, the purchase of the annuity is not considered divestment. The monthly annuity payments count as income to the community spouse.

17.11.2.2 Irrevocable Annuities that are considered divestment:

When the annuity does not meet the criteria in Section 17.11.2.1 above, the annuity is considered as a divestment.  The value of the annuity is considered a divestment as of the date the annuity was purchased, or the date it became irrevocable, whichever is later.

 

Example 3: The member applied for HCBW on 9/15.  Also on 9/15, the member used $20,000 of his cash resources to purchase an immediate annuity from the ABC Insurance Company. The contract date is 9/15 and the first payment will be issued on 10/15.  The annuity will issue payments of $200 per month for 10 years (120 monthly payments). This would result in a return of $24,000 over the proposed period of the contract. The member is currently 79-years-old and has a life expectancy of 7.40 years (88.8 months). The annuity does not name the State as the primary beneficiary.

 

In this example, the annuity was purchased from a life insurance company, will issue regular monthly payments and is currently issuing payments. However, the annuity does not meet the requirements because the state is not named as the primary beneficiary and the proposed period of payments (10 years) exceeds the member’s life expectancy (7.40 years). Therefore, the full purchase price of the annuity is considered divestment. (See MEH 17.5 for policy regarding the penalty period begin date.)  The $200 per month annuity payments are also counted as income in determining eligibility.

17.11.3 Verification

1. Verify the terms of a revocable or irrevocable annuity by obtaining a copy of the annuity contract and account statements from the annuity or insurance company;
2. Verify the beneficiary of an irrevocable annuity by obtaining:
   1. A copy of the annuity application the member signed at the time the member purchased the annuity (Annuity contracts generally never contain the name of the annuity beneficiary. The beneficiary will be listed on the application that the member signed at the time the annuity was purchased. Usually, it is a one page form completed by hand.)

17.11.4 Disclosure

Beginning January1, 2009, all applicants for Medicaid long term care services and all members of Medicaid long term care services undergoing an eligibility review are required to disclose information about any annuities purchased on or after January 1, 2009, in which they or their community spouses have an interest.

 

This requirement also applies to annuities purchased before January 1, 2009, if any action is taken by the individual that changes either the course of payment from the annuity or the treatment of the income or principal of the annuity. These transactions include:

 

• Additions of principal,
• Elective withdrawals,
• Requests to change the distribution of the annuity,
• Elections to annuitize the contract,
• A change in ownership, or
• Any other non-routine action not listed below.

 

The following types of changes and events would not subject an annuity purchased prior to January 1, 2009 to treatment under the new policy rules:

 

• Routine transactions such as notification of an address change, notification of death or divorce of a remainder beneficiary, and other similar circumstances;
• Changes that occur based on terms of the annuities which existed prior to January 1, 2009 and which do not require a decision, election or action to take effect; or
• Changes beyond the control of the individual, such as a change in law, a change in the policy of the issuer, or a change in the terms based on other factors, such as the issuer’s economic status.

 

A separate annuity disclosure form (Annuity Information - Disclosure F-10192) must be completed by applicants for each annuity owned by the applicant or the applicant’s community spouse in order to meet the disclosure requirement. This form must also be sent to SSI recipients who are applying for HCBW and MLTC programs. The Disclosure form must be sent to all applicants and recipients who indicate that they have an annuity. A copy of the completed form and any documents verifying the status of the annuity must be scanned into the electronic case file (ECF).

 

The Wisconsin Medicaid for the Elderly , Blind, and Disabled Application (F-10101) has been updated to collect additional information about annuities and provide information about the requirement to designate the State as a remainder beneficiary of the annuities owned by applicants for LTC Medicaid or their spouses.

 

If the applicant/ member  or his or her spouse (or representative) refuses to disclose the required information related to the annuity, the applicant/member is ineligible for Medicaid for the failure to cooperate in providing requested information.

17.11.5 Remainder Beneficiary Designation

The local agency must then send a copy of the completed and signed beneficiary designation form(s) to the annuity issuer with the cover form (Issuer of Annuity - Notice of Obligation, F-10190) that instructs the issuer to make the state a remainder beneficiary. Allow the issuer up to 30 days to confirm the designation has been made.

 

When the issuer responds and indicates that the State has been designated the remainder beneficiary, or that there is no death benefit available under this annuity, treat this annuity as meeting the designation requirement and proceed with the LTC eligibility determination.

 

If the issuer does not respond within 30 days of the date the Notice of Obligation form was sent, the IM agency must contact the issuer by phone and request that the issuer respond within 10 days. If the issuer does not respond 40 days after the Notice of Obligation form was sent, contact the CARES Call Center for further guidance.

 

If the form from the annuity issuer indicates that the remainder beneficiary designation change is in process and provides a date by when the designation will be completed, the IM agency should treat this annuity as meeting the designation requirement and proceed with the LTC eligibility determination. If the issuer fails to confirm that the designation change has been completed by the date indicated on the form, the IM agency must contact the issuer and request that they confirm within 10 days that the changes have been completed. If the issuer has not responded 10 days after the request was made, contact the CARES Call Center for further guidance.

 

Once the state has been designated as the remainder beneficiary, the annuity issuer must notify the local agency about any changes made to that annuity to ensure the annuitant does not change the terms of the annuity beneficiary designation at a later date. The issuer acknowledges this obligation by completing and returning the Issuer of Annuity - Notice of Obligation (F-10190).

Copies of all of these completed forms must be scanned into the ECF.

 

Pend the Medicaid LTC application until one of the following occur:

 

• The applicant provides the required disclosure or beneficiary designation forms by the verification due date,
• Verification has been received that the State of Wisconsin has been legally named as the appropriate remainder beneficiary of the annuity, or that no death benefit is available under the annuity,
• Verification has been received that the beneficiary designation change is in process,
• The issuer indicates that the applicant, member or spouse failed to cooperate with the issuer’s process to name the State as a remainder beneficiary, or
• You receive direction from the CARES Call Center to certify the applicant/member for LTC coverage.

 

A divestment penalty period must be imposed for applicants and members who refuse to cooperate in this annuity beneficiary designation process. The divestment date is the date the annuity was purchased, or the date of the latest annuity transaction. The amount of the divestment is the full purchase price of the annuity.

 

 

 

This page last updated in Release Number: 15-01

Release Date: 06/10/2015

Effective Date: 06/10/2015

 

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The information concerning the Medicaid program provided in this handbook release is published in accordance with: Titles XI and XIX of the Social Security Act; Parts 430 through 481 of Title 42 of the Code of Federal Regulations; Chapters 46 and 49 of the Wisconsin Statutes; and Chapters HA 3, DHS 2, 10 and 101 through 109 of the Wisconsin Administrative Code.

Notice: The content within this manual is the sole responsibility of the State of Wisconsin's Department of Health Services (DHS). This site will link to sites outside of DHS where appropriate. DHS is in no way responsible for the content of sites outside of DHS.

Publication Number: P-10030