Are Medicaid annuities a scam?

3 answers | Last updated: Jun 20, 2016
A fellow caregiver asked...

At age 68, my mother owns her home and has substantial retirement and savings accounts. She's hounded by mail, e-mail, and phone by marketers trying to convince her to sign up for something called a Medicaid annuity. Are Medicaid annuities a scam?

Expert Answers

Barbara Steinberg is the CEO and founder of BLS Eldercare Financial Solutions, which specializes in helping families pay for long-term care for their loved ones. A registered financial gerontologist, she speaks regularly on the topic of paying for long-term care and is a financial expert for

While it may not be a scam, the purchase of a Medicaid annuity is of no benefit to most people -- especially single people and those with enough money to pay for their own care, like your mother.

Medicaid is basic health insurance for people over 65 years of age who have limited income. To qualify for Medicaid, your parent would have to meet certain income and asset requirements. Medicaid annuities theoretically allow senior citizens to shelter some of their assets in order to qualify for Medicaid coverage of costly long-term care or nursing home expenses.

But these annuities have several drawbacks and benefit few people. It's true that assets held in Medicaid annuities aren't counted against the Medicaid asset limits, but these annuities are irrevocable and once your mother started receiving payments, she couldn't access the principal for any reason -- even if she were to leave the nursing home.

If your mother has retirement and savings accounts, she will most likely be able to afford higher-quality long-term care than Medicaid would provide, assuming she were able to qualify for Medicaid through an annuity or otherwise spending down her assets. Something else to keep in mind: Once your mother began receiving care from a Medicaid facility, whatever income she received from her annuity would go directly to Medicaid.

For some married couples, Medicaid annuities might make sense because, theoretically, one spouse could receive the income from the annuity while the other was in a nursing home facility. But the rules are complicated and vary from state to state, so if you're considering this for your parents, make sure to speak with an independent financial advisor -- not the sales person hawking the annuity -- who understands the pros and cons of these types of financial products before you sign up.

Community Answers

Dale m. krause, j.d. answered...

A Medicaid Annuity, if it meets the requirements of the Deficit Reduction Act of 2005("DRA"), can protect assets that would normally have to be spent on a nursing home stay. The primary purpose of a DRA Compliant Medicaid Annuity is to convert an asset - which you cannot have, into an income stream. With the forbidden asset eliminated, a person can generally qualify for Medicaid benefits - the governmental program that helps the majority of individuals pay for a long-term stay in a nursing home.

Steve dabbs, cmp™ answered...

When used properly a Medicaid restricted annuity can preserve assets for a single individual. It's use allows someone to be approved for Medicaid benefits much sooner than otherwise possible. This allows the single individual to pay for care at a wholesale rate rather than a retail rate. This is true because the State they live in pays a lower rate for the same care than does the general public. So even though the State Medicaid agency takes the annuity payments as a co-pay or in estate recovery. The state is taking it back at a wholesale rate, thereby potentially preserving assets for loved ones.

Married individual can preserve a majority of their estate with the proper use of a Medicaid Annuity.