Treatment of Annuties for Ohio Medicaid Benefits – Effective Aug 2016

[Revised] OAC 5160:1-3-05.3  Medicaid: the disclosure and treatment of annuities for medical assistance programs. (Effective 8/1/2016)

(A) This rule describes the treatment of annuities for the purpose of determining eligibility for medical assistance and long term care services.

(B) Definitions.

(1) “Actuarially sound annuity” means a product designed to pay off the entire asset value over the actual or expected annuitant’s lifetime.

(2) “Annuitant” means the individual who is entitled to receive payment from an annuity.

(3) “Annuitized” means an annuity providing payments to the individual or other entity.

(4) An “annuity” provides fixed, periodic payments, either for life or a term of years. When an individual purchases an annuity, he or she generally pays to the entity issuing the annuity a lump sum of money, in return for which he or she is promised regular payments of income for certain amounts. These payments may continue for a fixed period of time or for as long as the individual (or another designated beneficiary) lives. The annuity typically contains a remainder clause under which, if the annuitant dies, the contracting entity converts whatever is remaining in the annuity into a lump sum and pays it to a designated beneficiary.

(5) “Asset” means all income and resources of the individual and of the individual’s spouse, including any income or resources that the individual or such individual’s spouse is entitled to but does not receive.

(6) “Balloon payment” means a lump sum equal to the initial premium minus any distribution paid out prior to the end of the annuity period.

(7) “Community spouse” is defined in rule 5160:1-1-01 of the Administrative Code.

(8) “Institutionalized” is defined in rule 5160:1-1-01 of the Administrative Code.

(9) “Remainder beneficiary” means the individual or entity who will receive the lump sum upon the death of the annuitant or the term of the annuity has expired.

(10) “Spouse” means a person who is legally married to another person under Ohio law.

(11) “Transaction” means any action taken by the individual or community spouse that changes the treatment of the income or principal of the annuity.

(C) Treatment of annunities for eligibility for medical assistance.

(1) Any annuity not providing fixed, monthly payments shall be treated as a countable resource. Once annuitized, the annuity shall be considered an excluded resource.

(2) Once the annuity is annuitized, any fixed, monthly payment received from the annuity shall be considered as unearned income to the named annuitant.

(D) Treatment of annunities for long term care services.

(1) Treatment of annuities purchased or transactions on or after February 8, 2006.

(a) Any purchase or annuity transaction, including annuities purchased by a spouse, shall be treated as the disposal of an asset for less than fair market value as outlined in rule 5160:1-3-07.2 of the Administrative Code unless:

(i) The state of Ohio is named as the remainder beneficiary in the first position for the total amount of medical assistance furnished to the individual; or

(ii) The state of Ohio is named as such a beneficiary in the second position for the total amount of medical assistance furnished to the individual after the community spouse or minor or disabled child, and is named in the first position for the total amount of medical assistance furnished to the individual if such spouse or a representative of such child disposes of any such remainder for less than fair market value; except that

(b) If the annuity is purchased by or on behalf of an annuitant who has applied for medical assistance, the purchase of the annuity will be deemed an improper transfer even if the beneficiary naming requirements in paragraph (D)(1) are met, unless:

(i) The annuity is an annuity described in subsection (b) or (q) of section 408 of the Internal Revenue Code of 1986 (as in effect on February 1, 2016); or

(ii) The annuity was purchased with proceeds from:

(a) An account or trust described in subsection (a), (c), or (p) of section 408 of such code; or

(b) A simplified employee pension (within the meaning of section 408(k) of such code); or

(c) A Roth IRA described in section 408A of such code; or

(iii) The annuity meets the following requirements:

(a) Irrevocable and non-assignable; and

(b) Actuarially sound as determined by the life expectancy tables published by the office of the actuary of the social security administration in accordance with 26 C.F.R. 20.2031-7 (as in effect on February 1, 2016). For an annuity to be considered actuarially sound, the total amount of proceeds shall be designed to be dispersed in equal monthly payments with no anticipated lump sum payment. The only allowable lump sum payment is the refund provided when the annuitant dies prior to the end of the guaranteed period and paid to the remainder beneficiary; and

(c) Provides for payments in equal amounts during the term of the annuity with no deferral and no balloon payments made. The purchased annuity shall not have a balloon payment provision unless the balloon payment designation is for the community spouse.

(c) Transactions which occur on or after February 8, 2006, with respect to an annuity purchased prior to February 8, 2006, may subject the annuity to the requirements in paragraph (D)(1) of this rule.

(i) Such transactions include any action taken by the individual that changes the course of payments to be made by the annuity or the treatment of income or principal of the annuity. The actions include additions of principal, elective withdrawals, requests to change the distribution of the annuity, elections to annuitize the contract and similar actions taken by the individual after February 8, 2006.

(ii) Routine changes and automatic events that do not require any action or decision after the effective date of enactment are not considered transactions that would subject the annuity to the requirements in paragraph (D)(1) of this rule. Routine changes could be notification of an address change, death, divorce of a remainder beneficiary, or other similar transactions.

(2) Treatment of annuities purchased prior to February 8, 2006. Any annuity that has not been annuitized shall be considered an available resource when completing a resource assessment.

(a) An annuity that is making payments at the time of application for medical assistance, shall not be considered an available resource. However, any payments shall be considered unearned income to the annuitant.

(b) An annuity that is not making payments is considered an available resource if the terms of periodic payments can be changed.

(E) Individual responsibilities.

(1) The individual applying for or receiving long term care services in a long term care facility, under a HCBS waiver program, or under PACE shall disclose any annuity owned by either the institutionalized individual or community spouse.

(2) The individual applying for or receiving long term care services in a long term care facility, under a HCBS waiver program, or under PACE, or the community spouse shall designate the state of Ohio as the remainder beneficiary for any annuity purchased on or after February 8, 2006, as follows:

(a) The state of Ohio is named as the remainder beneficiary in the first position; or

(b) The state of Ohio is named beneficiary in the second position after the community spouse or minor or disabled child and is named in the first position if such spouse or a representative of such a child disposes of any such remainder for less than fair market value.

(c) The individual is required to provide verification of the remainder beneficiary designation. Failure to provide verification will result in termination or denial for medical assistance.

(F) Administrative agency responsibilities. The administrative agency shall:

(1) Request from the individual applying for or receiving long term care services in a long term care facility, under a HCBS waiver program, or under PACE a disclosure of any annuity ownership the individual or community spouse has in an annuity for any annuity purchased on or after February 8, 2006.

(2) Explain as part of the application process or upon discovery, such provisions which require the state of Ohio to become a remainder beneficiary for any annuity purchased on or after February 8, 2006.

(3) Verify the remainder beneficiary designation for any annuity purchased on or after February 8, 2006.

Replaces: 5160:1-3- 05.3

Effective: 8/1/2016
Five Year Review (FYR) Dates: 08/01/2021
Promulgated Under: 111.15
Statutory Authority: 5160.02, 5163.02
Rule Amplifies: 5160.02, 5163.02
Prior Effective Dates: 5/1/97, 10/28/02, 10/1/06, 1/15/15

Ohio Medicaid – Eligibility Procedure Letter No. 112

We know that when a spouse enters a nursing home, you have to spend down almost all of your assets to qualify for Medicaid. But what if there was another option on how you might be able to save thousands of dollars from your retirement investments yet still meet Medicaid qualifications.

Before we talk about this new option we will first cover how to qualify for Medicaid
To qualify for Medicaid you have to spend down your assets to $1,500. But there are exclusions to what has to be spent down. For married couples, you can still keep:
– Your home that you live in
– One automobile
– Household goods and personal property
– Irrevocable funeral trusts and prepaid burial contracts
– 50% of your financial assets up to max of $119,220, anything after that would have to be spent down.

These financial assets also include our IRA’s and 401K’s but until recently you had to spend down your qualified retirement accounts before you were eligible for Medicaid. The most common way couples did this was to use their retirement accounts to pay the nursing home bills. So let’s say you had a $200,000 IRA or 401K and the nursing home cost was $10,000 per month you could use up your IRA of 401K in less than 2 years.

But that has changed thanks to Ohio Medicaid Eligibility Procedure Letter No. 112, we can now use a Medicaid Compliant annuity to convert the IRA or 401K to an income stream with the goal of immediately qualify for Medicaid and have Medicaid pay all or most of the nursing home costs.

A Medicaid compliant annuity is a contract with an insurance company that converts financial assets into an income stream.

But you can’t use just any annuity. Per the State of Ohio Administrative Code the annuity has to have these attributes.
– Irrevocable – can’t change or surrender the annuity for value
– Non-assignable – can’t assign to a 3rd party
– Actuarially Sound – annuity payments up to the person’s life expectancy
– Equal Payments – monthly income payments, same amount each month
– State of Ohio as beneficiary – but only up to recovery costs for care provided by the nursing home.

Also keep in mind that the higher your income, the less you can save.

What if the spouse dies in the nursing home, does the State of Ohio get all of their annuity payments or death benefit? No, first in line is the surviving spouse and depending on the annuity, payments will continue to the spouse. The whole goal here is to help the surviving spouse stay in their home and community they love.

What if we already own an annuity are we covered? Not necessarily, the annuity has to comply with the Ohio Administrative code; if not, the funds would have to be transferred to a Medicaid compliant annuity.

Here’s an easy way to tell if the annuity you own is Medicaid compliant. If it allows for a change of beneficiary it is NOT Medicaid compliant.
The above information deals with married couples. The rules and strategies are different for single people, but they can save a lot of money as well.

IALC Files Lawsuit to Protect Consumers

DES MOINES, Iowa, June 9, 2016 /PRNewswire-USNewswire/ — The Indexed Annuity Leadership Council (IALC) today filed a legal challenge to the Department of Labor’s fiduciary rule. While the IALC agrees that financial professionals should act in their clients best interest when providing retirement advice to individuals, this legal challenge is necessary because the rule creates an unworkable standard for independent agents and insurance companies and goes far beyond DOL’s authority. The fiduciary rule will significantly restrict access to products and retirement information for those retirees who need it most, namely middle income retirees depending on savings they have accumulated during their working years to support them in retirement.

“We are not disputing that retirement advisors should act in the best interests of their clients. That is not the basis of this litigation. While the DOL is attempting to redirect the focus, the reality is that the DOL fiduciary rule will harm millions of hard-working Americans who need the principal protection and lifetime guaranteed income that fixed indexed annuities offer.” said Jim Poolman, Executive Director of IALC.

“Americans are living longer and increasingly have primary responsibility for planning for their own retirements. Because of this, fixed indexed annuities have become a critically important financial instrument to make sure their funds last through their retirement years. In addition to principal protection and guaranteed lifetime income, these products uniquely provide the ability to receive higher interest than other safe money products, without the downside risk of losing principal in down markets. By limiting access to these products, DOL harms the very people it is trying to protect—those who cannot afford to put their retirement at risk of market loss.”

“During the rulemaking process, IALC provided constructive recommendations to the Department of Labor with the objective of helping finalize a rule that promotes the best interest of all Americans saving for retirement. Unfortunately, the final DOL regulation unfairly targets certain types of fixed annuity products, making it harder for Americans to purchase fixed indexed annuities when it is in their best interest to do so. IALC will continue to be a voice in advocating for retirement choices to protect millions of Americans, and this legal challenge is simply the next step in our efforts.”

The full complaint can be read here.

About the IALC
The Indexed Annuity Leadership Council (IALC) brings together a consortium of life insurance companies with a commitment to providing consumers, the media, regulators and industry professionals complete and factual information about the use of fixed indexed annuities. Namely, that these products provide a source of guaranteed income, principal protection, and interest rate stability in retirement as well as balance to any long-term financial plan. To date, IALC member companies have more than 1.3 million policies in force with more than $84 billion in assets.

About Fixed Annuities
Fixed annuities offer protection against market loss as the insurance company assumes the risk of market downturns. In other words, there is no risk of loss of principal and any earnings credited to the policy are guaranteed and cannot be lost or reduced in future periods (so long as the owner does not surrender the contract prematurely). Earnings can be credited based on a periodically declared rate, a multi-year guaranteed rate, or a rate established based on a formula that references a market index (a fixed indexed annuity). In each case the contract’s premium is not invested in a separate account or specific investment, but rather is supported by the general account of the insurance company. In the case of a fixed indexed annuity, the index is used to compute earnings credited to the policy, but there is no actual investment by the policyholder or the insurance company in the financial instruments that comprise the particular index. The only difference among these fixed annuity products is the method for determining the earnings credited to the policy. In addition to principal protection and guaranteed lifetime income, fixed indexed annuities uniquely provide the ability to receive higher interest than other safe money products, without the downside risk of losing principal in down markets. Today, consumers hold more than $330 billion in fixed indexed annuity contracts.

Ohio Gives Green Light to Medicaid Compliant Annuities

Ohio Seal

Medicaid Eligibility Procedure Letter No. 112 from the State of Ohio Dept. of Medicaid

Effective Date: February 26, 2016

OAC Rules: 5160: 1-3-05.3 and 5160:1-3-07.2(G)

To: All Medicaid Eligibility Manual Holders

From: John B. McCarthy, Director

Subject: Treatment of Annuities

Reason for Change: The Ohio Department of Medicaid (ODM) is revising its policy about how to treat the purchase of an annuity by an individual or the individual’s spouse after the date of institutionalization, but before the eligibility determination date, in an amount that is above the Community Spouse Resource Allowance (CSRA).

Prior Policy: Currently, caseworkers are required to treat the purchase of the annuity by an individual or the individual’s spouse after the date of institutionalization, but before the eligibility determination date, as an improper transfer if the purchase price is above the CSRA.

New Policy: Effective immediately, the purchase of annuity by an individual or the individual’s spouse after the date of institutionalization, but before the eligibility determination date, in an amount above the CSRA shall not be determined improper if the purchase of the annuity meets the requirements listed in Ohio Administrative Code 5160:1-3-05.3. Those requirements include, that the State of Ohio be named as a remainder beneficiary in the correct position.

Action Required: Effective immediately, when determining eligibility for long-term care services, caseworkers must determine whether the purchase of an annuity meets the requirements listed in Ohio Administrative Code 5160:1-3-05.3. One of those requirements is that the State of Ohio must be named as the primary remainder beneficiary (or as the second remainder beneficiary after a community spouse or minor or disabled child) for at least the value of the Medicaid assistance provided. If the annuity does not name the State of Ohio as a remainder beneficiary in the correct position, the annuity must be treated as an improper transfer. The full purchase price of the annuity is the amount that is subject to penalty. If any of the other applicable requirements listed in Ohio Administrative Code 5160:1-3-05.3 are not met, the purchase of the annuity must be treated as an improper transfer. The full purchase price of the annuity is the amount that is subject to penalty.

For a copy of the original letter or to obtain a Medicaid Compliant Annuity contact Gateway Advisors at 440-709-6563

Choosing between an Immediate or Deferred Annuity

Annuities are the amounts of money paid out to a person who has retired from work. They are paid in lump sum, monthly, quarterly or even annually depending on the retirement strategy. This usually happens if when you were still working you made some insurance contributions with retirement in mind.

One may choose to receive annuities for a given number of years or for the rest of your life. How much you get as annuity is largely influenced by the period of time you worked and other factors. However, you may influence the amount you receive by either taking up fixed annuity or a variable annuity.

There are essentially two types of annuities; deferred and immediate. Deferred annuity entails investing money for a time period until you reach your retirement while immediate annuity allows you to receive payments as soon as you make your first investment. This means that, as you start approaching retirement age, that is when you may consider purchasing immediate annuities. Immediate annuities are seen as a way of converting a portion of the retirement savings into perpetual earnings that lasts as long as you do. Immediate annuities may either be fixed or variable.

Fixed Annuity

Fixed annuity basically means that you get fixed amounts of money for the given period of time, whether specified or for the rest of your life. The insurance company therefore calculates the fixed portions by taking into consideration the approximated time period left of your life and the amount of money paid into life insurance and pays this at regular intervals.

Most retirees prefer this method of investment as they are guaranteed and thus offer security; it is also easy to predict when you are going to receive the payments. Fixed annuities are also stable, in that the amount of money to be paid will not decrease no matter the economic levels. The insurance company takes on the risk of the annuities on behalf of the client. Fixed taxes also tend to offer the benefit of reduced income taxation on the annuities.

Variable Annuity

Unlike their counterpart, variable annuities are not as simple. In this case, the retiree does not receive steady cash payments; instead, they invest the money in securities portfolio whose performance then determines the amount of money they will receive as annuity.

Retirement Calculator

The reason behind choosing variable over fixed annuities is the perceived high cost of living and incase of good performance of portfolio, more money will be received as annuity.

Most people however do not prefer nor recommend this type of investment given the uncertainty involved. It is particularly risky for a person without any other source of income. It’s unpredictability and irregular nature of the pensions should raise an alarm if nothing else. As if its not enough, variable annuities are subjected to income taxation at ordinary interest rates that may be as high as 35 percent which is a major disadvantage.


Immediate annuities are better preferred compared to deferred annuities. However, before you decide on whether to take up fixed or variable investments, put in mind your financial status and the amount of risk you are willing to make, to avoid grave financial mistakes.

Points To Consider When Purchasing An Immediate Annuity

Points to consider when purchasing immediate annuities can be a daunting task, and usually you cannot change your mind once you have made the purchase. That is why it is very important to do your homework first. Here are a few factors that you have to put into consideration when purchasing these products.

Shop Around

There are a lot of highly-rated insurance providers today that offer immediate annuities, and at any point in time, one or two companies might be offering more monthly income for your investment than the rest, due to their own financial capacity and marketing techniques. Insurance experts suggest getting quotes from at least three insurance companies in your state, and ensuring it is on an apples-to-apples comparison for the same kind of annuity.

Safety First

Keep in mind that this is the safe part of your retirement income. Thus, you have to check the background of the insurance companies on your list. A reputable insurance company should be highly rated by renowned rating agencies such the Better Business Bureau (BBB), Standard & Poor’s or A.M. Best. If you think you will be rewarded by taking an investment risk, do that with the fraction of your retirement savings that you do not invest in an immediate annuity and put it in the stock market where there is more potential reward for taking investment risk.

Insurance Company

Consider Inflation Protection

Inflation protection starts the payment at a lower level, but increases it once a year, usually by the inflation rate calculated by the government. Inflation protection reduces your “money’s worth ratio” by about five cents on the dollar. Considering the current economic status of the U.S., inflation protection makes sense.

Keep It Simple

Don’t accept costly add-ons, such as coupling the annuity with long-term care insurance or life insurance. These add-ons will only increase the cost of the annuity and make it difficult for you to compare insurance companies.

Consider Diversification

Don’t put all your eggs in one basket. You may want to consider spreading your annuity purchase among three or more insurance companies to lessen your exposure to insurance company bankruptcy. For instance, assuming that you have about $300,000 to invest in an annuity; for every insurance company, you should get quotes on investing $100 grand, $200 grand, and $300 grand. If you invest your money in two or more companies, your total revenue might not be much less than investing all your money in one company, and you will have more peace of mind. Check to see if your state has a guarantee association that can add up to $250,000 of protection per account to protect you against insurance company bankruptcy. Most states have their own website, just Google your state name and the words guarantee association for state specific information and coverage.

Ask How Long the Annuity Quotes Are Valid

Annuity rate quotes usually have an expiration date (i.e. seven days, 14 days, etc.). A lot of insurance companies today will accept your application without funding and locking in the quote. But, you will be given up to 60 days to fund the contract.

Ask if Your Health Status will Affect Your Annuity Application

If you have a serious health condition, be sure to mention that in your application form. You may be qualified for a medically underwritten immediate annuity which will pay you a greater amount per month.

Ask What Will Happen to Your Premium Payment or Income Stream If You Die Too Early

When it comes to life only immediate annuities, the amount you paid for your immediate annuity is forfeited upon your death. But, most annuity companies nowadays offer optional riders that return the remaining unused premium dollars when you die prematurely. Thus, don’t forget to ask the refund options when you gather quotes.

Read the Fine Print

As with any crucial financial decision, it’s advisable to carefully read the fine print before you sign the dotted line. Carefully review the annuity quote or illustration. If you have any questions or concerns, be sure to address them with your agent before you purchase the immediate annuities. Keep in mind that you can’t change your mind once you’ve made the purchase.

Satisfaction Guaranteed

Know that whatever your decision is, your satisfaction is always guaranteed! You have ten days (or one month, in some states) from the day your contract is sent to you to request that the insurance company refunds your full premium to you. No questions will be asked. This is known as the “free look” period, during which you can have a lawyer or a family member review the immediate annuities contract to make sure it gives you the coverage you need.  For more info click here


Types of Annuities

There are many types that investors can take advantage. Each of them offers different features that help investors to meet their varied investment needs. The two main types are fixed and variable annuities. The fixed type has a fixed rate of return over a set period of time. The variable has a varying rate of return. The value of the rate of return in this case is determined by how well the sub-accounts do. There are many other types that are available. Therefore, one should understand the features of every one of them so as to make an informed decision.

Annuity Definition

They are contracts between an insurance company and an investor. They are a long term investments and funds should not be withdrawn before the set period of time. If any withdrawals are made before the term is over, some penalties may apply.

Fixed Rate

With the fixed type of investors are assured a fixed rate of interest for a predetermined period of time by an insurance company. This kind of annuity does not drop in value. This makes it a low-risk investment. The returns are quite low compared to other retirement investments but often much greater than bank cd’s. Some insurance companies offer an up-front bonus or additional bonus interest rate. State insurance departments regulate these and they come in both deferred and immediate payment options.

Immediate Income

The two main things that set immediate annuities apart from other forms of is the change in ownership and guaranteed income payout. With this type, unlike others, you turn over ownership of your retirement funds to an insurance company. In exchange, you get a steady stream of payments generally for 10 -30 years or life. Immediate  income payments are normally higher that other annuities because you cannot get your money back in a lump sum.


A variable annuity is money that is invested in an investment fund, like a mutual fund, that has specific investment goals. The payout is not fixed as in the fixed type, instead it is based on the performance of the funds after all expenses, fees and costs have been deducted. Variable are a high risk investment, but they offer a great opportunity for growth. The downside to this kind is that there is no guaranteed payout. Due to this, variable must be regulated by the (SEC) Securities & Exchange Commission.


Indexed annuities are a unique type of fixed product that has some features that the variable type offers. They offer a guaranteed interest rate, just like the fixed rate, but also have another additional rate that is determined by the market index. For those who do not know, the market index is a financial tool that is used by investors to track the performance of part of the stock market. Examples of market indexes include the Dow Jones Industrial Average, S&P 500 and the NASDAQ. When there is growth based on the index the investors receive additional interest. This kind of annuity also has immediate and deferred payments.


There are several risks that one should consider when choosing one type over another. People who choose to go the safe route by choosing fixed usually stand the risk of missing out on the chance of greater returns and growth. On the other hand, those who decide to go with the variable type, risk losing their principal and cannot have peace of mind with the assurance of guaranteed return on their investment.


Riders are extra features that can be added.  There are different types of riders that can be added to meet different needs of an investor. Investors have the freedom to add several riders on their contract.  However, riders carry restrictions. Therefore, one should do some research before adding any onto his or her plan. Some of the common types of riders are: • Death benefit rider • Lifetime income benefit rider


Allows one to earn tax deferred interest that grows without incurring any penalties or fees. This helps one to save for his or her retirement. The different types offer one several options to choose from. This ensures that everyone gets a chance to achieve his or her financial goals in the most comfortable way.   It is important for one to plan for his or her retirement years. There are several ways through which one can do that. Investing in an annuity is one of them. Therefore, one should learn about the different types and choose one that he or she feels is the best.