Beware of “Medicaid” Annuities

Less than a week after attending the 2012 Fall Conference of the Elder Law & Disability Rights Section of the state bar, I was at a family gathering when I heard a relative in her 70s saying she had to buy a “Medicaid” annuity or she was going to be left with only her house, one car and $2,000 if her husband had to go into the nursing home. I didn’t quite lunge at her, but I came close.

While annuities can serve as good investment tools, they are usually not a good choice for Medicaid planning; however, they have become a tool for unscrupulous salespeople to scare seniors about the costs of nursing home care. Yes, it is expensive to stay in a nursing home. If properly discharged to a long-term care facility, Medicare will only cover the cost of the first 20 days in full. Medicare coverage then diminishes until it runs out completely after 100 days. Without a good long-term insurance plan, this means the patient is on the hook for bills of $5,000 to $7,000 a month. This leaves many middle-class families with the option of either wiping out all of their assets or applying for Medicaid to help cover the costs.

What my relative was referencing with the house, one car and $2,000 is what is referred to as a Medicaid “spend down.” Unfortunately, the nice insurance agent who called my relative to warn her about her impending financial doom wasn’t telling her the full story, which she could have gotten by consulting with an elder law attorney.

As a student intern, I worked on a case where a senior couple had been duped into buying such an annuity. They had been told to put all of their assets together to invest in this annuity to protect those assets from government reach if they had to go on Medicaid. Unfortunately, the salesman had not explained to the couple that there were huge penalties for withdrawing money above and beyond the stipulated annual payment or for terminating the annuity before its maturity date. When the husband started having health problems, the wife was informed about these steep recapture fees, which would decrease the longer she held onto the annuity; however, the annuity would not mature until she reached the age of 115.
The salesman knew this when he sold the policy. He also knew that he would get a huge fee upfront for every policy he sold, whether it was scrupulous or not. In this case, we contacted the Michigan Office of Financial and Insurance Regulation which oversees financial institutions, including insurance companies. However, I don’t know if the client ever actually filed a complaint because the insurer assured her that the situation would be corrected.

For anyone who wants to protect as many assets as legally possible while applying for Medicaid to help with long-term care costs, there is no substitute for consulting with a qualified elder law attorney. There are a number of local lawyers who are certified through the National Academy of Elder Law Attorneys (the author is not one of them).

Moreover, only licensed attorneys are allowed to give legal advice; unless an insurance agent has a law license, he or she is not qualified to advise clients whether or not they meet state and federal rules for applying for government assistance.

If there is a question as to whether someone is licensed, go to the State Bar of Michigan website,, and type in that person’s name. If someone giving legal advice is not found in the membership directory (unless that person is licensed in another state), it is considered the unlicensed practice of law and a complaint form can be found at Under MCL § 600.916, anyone who conducts the unlicensed practice of law “is guilty of contempt of the supreme court and of the circuit court of the county in which the violation occurred, and upon conviction is punishable as provided by law.”

So, if you hear your relatives saying they need to buy an annuity to protect their assets, you may not need to lunge at them, but at least walk over and suggest contacting an elder law attorney first.


Christine Caswell is a Lansing-area attorney who practices in administrative law, elder law and probate and estate planning.







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