Medicaid for the Elderly and People with Disabilities Handbook

F-7100, Determining Annuity Policy

F-7110 Persons Impacted by Post-Deficit Reduction Act (DRA) Annuity Policy

Revision 09-4; Effective December 1, 2009

Post-DRA annuity policy impacts any person who applies for Medicaid in an institutional setting on or after Oct. 1, 2006. Post-DRA annuity policy would also impact any person who is Medicaid eligible in the community and requests a program transfer to a Medicaid program in an institutional setting on or after Oct. 1, 2006. This includes:

  • Applicants — For applications filed on or after Oct. 1, 2006, consider both pre-DRA and post-DRA annuity policies.
  • Program transfer requests — For program transfer requests from any Medicaid program to an institutional program or waiver services requested on or after Oct. 1, 2006, consider both pre-DRA and post-DRA annuity policies.
  • Redeterminations — For redeterminations of institutional or waiver services worked on or after Oct. 1, 2006, consider both pre-DRA and post-DRA annuity policies.
  • Reported changes — For reported changes in annuities worked on or after Oct. 1, 2006, consider both pre-DRA and post-DRA annuity policies. This includes all annuities, regardless of purchase date.

Note: Neither pre-DRA or post-DRA transfer of asset policies regarding annuities apply to a person who has had continuous Medicaid coverage before March 1, 1981. This includes any person who is Medicaid eligible in the community and requests a program transfer to an institutional program or waiver services and who has had continuous Medicaid coverage before March 1, 1981.

F-7120 Application File Date or Program Transfer Request Date

Revision 21-4; Effective December 1, 2021

If the application file date or program transfer request date is:

  • before Oct. 1, 2006, use pre-DRA annuity policy;
  • on or after Oct. 1, 2006 and the annuity was purchased or the last annuity transaction date was before Feb. 8, 2006, use pre-DRA annuity policy; or
  • on or after Oct. 1, 2006 and the annuity was purchased or the last annuity transaction date was on or after Feb. 8, 2006, use post-DRA annuity policy.
     

The application file date is the date the Texas Health and Human Services Commission (HHSC) receives an application form containing the applicant’s name, address and appropriate signature. 

The program transfer request date is:

  • the date a Medicaid recipient is admitted to a long-term care facility; or 
  • he date a request (Form H1746-A) is received to test a Medicaid recipient for waiver Medicaid.

F-7130 Annuity Transaction

Revision 09-4; Effective December 1, 2009

Transactions other than purchases that would make an annuity subject to the DRA policy include any action taken by the person that changes the course of payment from the annuity or that changes 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 and similar actions.

F-7140 Annuity Purchase or Transaction Date

Revision 09-4; Effective December 1, 2009

If the annuity purchase or transaction date is:

  • before Feb. 8, 2006, use pre-DRA annuity policy regardless of the application file date/program transfer request date or the date of the case manager action for an existing case; or
  • on or after Feb. 8, 2006, use pre-DRA and post-DRA policy in determining annuity treatment based on the application file date or program transfer request date or the date of the case manager action for an existing case.

F-7200, Post-DRA Annuity Policy

F-7210 Employment and Retirement-Related Annuities

Revision 09-4; Effective December 1, 2009

An annuity that meets the following guidelines is not a resource or transfer of asset:

  • An annuity described in subsection (b) or (q) of Section 408 of the Internal Revenue Code of 1986; or
  • An annuity purchased with proceeds from:
    • an account or trust described in subsection (a), (c) or (p) of Section 408 of the Code;
    • a simplified employee pension (within the meaning of Section 408(k) of the Code); or
    • a Roth Personal Retirement Account described in Section 408A of the Code.

F-7220 Post-Deficit Reduction Act (DRA) Treatment of an Annuity

Revision 09-4; Effective December 1, 2009

When an annuity meets the post-DRA terms and conditions:

  • do not count the annuity as a resource;
  • do not consider the annuity as a transfer of asset; and
  • consider the monthly payments as unearned income.

F-7230 Post-Deficit Reduction Act (DRA) Terms and Conditions

Revision 13-2; Effective June 1, 2013

The annuity meets the post-DRA terms and conditions if the annuity is irrevocable and non-assignable. The irrevocable and non-assignable annuity must also:

  • be in the institutionalized person's name;
  • provide for payments in equal amounts during the term of the annuity;
  • not have any provision for deferral of payments or balloon payments;
  • guarantee to return within the person's life expectancy at least the person's principal investment (life expectancy is calculated using life expectancy tables available from the Social Security Administration's (SSA) online Period Life Table); and
  • name the state of Texas as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the institutionalized person.

The annuity meets the post-DRA terms and conditions when the institutionalized person is married and the annuity:

  • is in the institutionalized person's name;
  • is irrevocable and non-assignable;
  • provides for payments in equal amounts during the term of the annuity;
  • has no provision for deferral of payments or balloon payments;
  • guarantees to return within the person's life expectancy at least the person's principal investment (life expectancy is calculated using life expectancy tables available from the SSA's online Period Life Table); and
  • names the state of Texas as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the institutionalized person, or names the state of Texas in the second position if the community spouse or minor or disabled child is named in the first position.

The annuity meets the post-DRA terms and conditions when the institutionalized person is married and the annuity:

  • is in the ineligible community spouse's name;
  • is irrevocable and non-assignable;
  • provides for payments in equal amounts during the term of the annuity;
  • has no provision for deferral of payments or balloon payments;
  • guarantees to return within the ineligible community spouse's life expectancy at least the ineligible community spouse's principal investment (life expectancy is calculated using life expectancy tables available from the SSA's online Period Life Table); and
  • names the state of Texas as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the institutionalized person or names the state of Texas in the second position if the institutionalized person or minor or disabled child is named in the first position.

F-7240 Treatment of an Annuity When Terms and Conditions Are Not Met

Revision 09-4; Effective December 1, 2009

When an annuity does not meet the post-DRA terms and conditions, first determine if the annuity is either revocable or irrevocable.

If the annuity is revocable:

  • Consider the annuity as a countable asset based on the current fair market value.
  • Consider a transfer of assets depending on how much has been paid out of the annuity.

Example:

AnnuityAmountConsideration
Purchase Price$ 60,000 
Refund Value$ 40,000Countable Resource
Paid Out+$10,000Person Received
 $ 50,000 
Purchase Price$ 60,000 
 –$50,000 
Difference$ 10,000Transfer of asset

If the annuity is irrevocable:

  • For an application, consider the purchase price as a transfer of asset.
  • For an action to an existing annuity that does not meet post-DRA policy, consider the remaining payout value at the time of the action as a transfer of asset.

When considering transfer of assets policy, refer to the look-back period policy for penalty start date and the calculation of penalty period.

Note: Annuities purchased on or after Oct. 1, 2006, are not subject to interest payout comparison with another company's products.

Follow regional procedures to request assistance from HHSC Legal regarding the terms and conditions of an annuity and in determining the appropriate treatment of the annuity.

F-7250 Notice Requirements for Application and Redeterminations

Revision 09-4; Effective December 1, 2009

To meet post-DRA annuity requirements, revised Form H1200, Application for Assistance – Your Texas Benefits; Form H1200-EZ, Application for Assistance – Aged and Disabled; Form H1200-PFS, Medicaid Application for Assistance (for Residents of State Facilities) Property and Financial Statement; Form H1200-A, Medical Assistance Only (MAO) Recertification; and Form H1010, Integrated Application, include the following statement:

"You must disclose if you and/or your spouse have an interest in an annuity or similar instrument. If you are determined eligible for Medicaid, the state becomes the remainder beneficiary of the instrument."

In addition, if using a streamline redetermination process, notices sent to the recipient must include the following statement:

"The DRA requires that the issuer (company) of an annuity owned by a recipient must be notified that the state is the remainder beneficiary."

F-7300, Pre-DRA Annuity Policy

F-7310 General Treatment of Annuities and the Five Criteria Test

Revision 09-4; Effective December 1, 2009

When the annuity meets the five criteria in §358.334, Treatment of a Nonemployment-Related Annuity with a Purchase or Transaction Date before Feb. 8, 2006:

  • it is not counted as a resource; and
  • payments are counted as unearned income.

When an annuity does not meet the criteria:

  • It is counted as a resource and the countable value is presumed to be 80% of the remaining payout.
  • It is a transfer of assets only when it does not pay out the principal, plus a reasonable amount of interest within the annuitant's life expectancy.
  • The date of the transfer is the date of the annuity purchase or, if applicable, the date that the annuity contract was last amended in exchange for consideration. If the annuity contract has been amended, refer to agency legal counsel to determine if amendment has affected the date of the transfer.

Use the life expectancy table to determine the amount payable during the client's life expectancy. The remaining payout is the amount of the transfer. Example: If the life expectancy is six years and the payout is eight years, the amount payable the last two years is the amount of the transfer.

To determine life expectancy, use the available online actuarial publication from the Social Security Administration's Period Life Table.

F-7320 Determining a Reasonable Amount of Interest

Revision 09-4; Effective December 1, 2009

F-7321 Treatment of Annuities That Return the Principal Within the Life Expectancy But Pay No Interest

Revision 09-4; Effective December 1, 2009

If the annuity in question is guaranteed to pay out only the principal investment within the annuitant's life expectancy, then it does not meet the requirement to return a reasonable amount of interest. If this is the case, then the annuity is a countable resource.

HHSC presumes that the fair market value of such an annuity is 80% of its total remaining payout. This presumption may be overcome only if the client provides credible evidence to the contrary. This may be done only by providing a written appraisal of the annuity's value obtained from at least two reputable companies that are in the business of purchasing annuities.

If the countable value of the annuity does not render the client resource ineligible, determine whether there is any penalty resulting from a transfer of assets. Transfer of asset policy applies because, by purchasing an annuity that pays out no interest, the purchaser does not receive fair market value on the principal investment. To determine the amount of the transfer, first determine the interest percentage that a one-year CD in the local marketplace was paying at the time of the annuity purchase. Obtain this information from a local bank or financial institution. After obtaining this information, use the following formula:

  • Purchase Price
  • x One-Year CD Interest Rate
  • = Uncompensated Transfer

Example: If the purchase price of the annuity in question is $10,000 and the one-year CD rate is 3%, the amount of the uncompensated transfer is $300 ($10,000 x .03 = $300). The date of the transfer is the date of the annuity purchase. Follow current policy to determine if the uncompensated transfer results in any penalty.

F-7322 Treatment of Annuities That Return the Principal Within the Life Expectancy and Pay Interest

Revision 09-4; Effective December 1, 2009

If the annuity in question is guaranteed to pay out the principal investment, plus at least some interest within the annuitant's life expectancy, the following standard applies for determining whether the interest is reasonable: the interest returned is comparable to at least two similar annuities.

The client must furnish these comparisons, which the client may obtain from the person who sold the client the annuity or from any other reputable source. Each market comparison provided must be a similar product from a company licensed to sell annuities in Texas. For example, if the annuity in question is a single premium annuity with a five-year payout, the comparisons provided must be for a single premium annuity with a five-year payout based on the same principal investment as the annuity in question. Copies of the market comparisons must be filed in the case record. The annuity being reviewed must pay out interest in an amount at least equal to or greater than the furnished comparisons.

If the client does not provide comparisons or the comparisons do not meet the standard, the annuity in question does not return a reasonable amount of interest, so it is a countable resource.

HHSC presumes that the fair market value of such an annuity is 80% of its total remaining payout. This presumption may be overcome only if the client provides credible evidence to the contrary. This may be done only by providing a written appraisal of the annuity's value obtained from at least two reputable companies that are in the business of purchasing annuities.

If the countable value of the annuity does not render the client resource ineligible, determine whether there is any penalty resulting from a transfer of assets. To determine the amount of the transfer, first determine the interest percentage that a one-year CD in the local marketplace was paying at the time of the annuity purchase. Obtain this information from a local bank or financial institution. After obtaining this information, use the following formula:

  • Purchase Price
  • x One-Year CD Interest Rate
  • = Amount Transferred
  • − Actual Guaranteed Interest Payout
  • = Uncompensated Transfer

Example: If the purchase price of the annuity in question is $10,000 and the one-year CD rate is 3%, the amount transferred is $300 ($10,000 x .03 = $300). If the actual guaranteed interest payout of the annuity in question is $200, the uncompensated transfer is $100 ($300 - $200 = $100). The date of the transfer is the date of the annuity purchase. Follow current policy to determine if the uncompensated transfer results in any penalty.

Note: All annuity documents must be referred to agency legal counsel. Legal counsel will provide a written opinion on terms and conditions that impact eligibility.

Use Form H1210, Subrogation (Trusts/Annuities/Court Settlements), to report to the Provider Claims area any potential paybacks to the state as the residuary beneficiary of irrevocable annuities.