If you do not have insurance and think that you may need long-term care in the future, you may want to spend down your assets to qualify for Medicaid. You could achieve this by converting a portion of your non-exempt assets into an annuity. As most states offer special consideration to the income annuity. Before reading further, do ensure that using an income annuity in conjunction with Medicaid is viable in your state. A local attorney should be able to help you out with understanding the same.
To make the most of this option, you must use an income annuity with an irrevocable payout option. The reason for this is because the contract will be valued with the owner's assets if the owner has the authority to alter the terms of the payout. You must also remember that to qualify for Medicaid, you must have as few assets as possible.
Another point to remember is that the income received by the annuity should not exceed the amount allowed under the Medicaid spend down rules. Neither should it exceed the state's income cap limits. The irreversible payment schedule will not allow you to reduce the income from the contract, which will make you permanently ineligible for Medicaid.
For instance, if choose to check-into a care home that costs $4,000 per month, you must transfer enough assets into an income annuity, to ensure, you get an approximate of $1600 per month for the rest of your life. But taking your Social Security income into account, which we shall fix at a hypothetical $1300 per month, your income comes to a total of $2900 per month. This could make you ineligible for Medicaid due to the income cap mentioned by the state. For 2010, the maximum amount of earned income was $2022. This way you do not receive benefits from Medicaid, nor would you have enough to cover your monthly bills. If you do decide to opt for income annuity to benefit from Medicaid, ensure that your income level is just right, as there'll be no way to change the terms, once you start receiving your monthly payouts.