The language cited above clarifies that annuities are considered a divestment if they are purchased to
circumvent Medicaid maximum asset limits, and the ultimate purpose of the annuity is to abusively
shelter assets. An individual who purchases such an annuity would be subject to penalties under current
Medicaid rules.
According to Section 405 of the Michigan Department of Health and Human Services Bridges Eligibility
Manual, the purchase of an annuity that is not actuarially sound will be considered a transfer for less
than fair market value and will be counted among an applicant’s assets and may result in a penalty
period in which Medicaid will not pay for certain services. For an annuity to be considered actuarially
sound, the person to whom the annuity payments are made during the guarantee period of the annuity
(called the annuitant) must be expected to live until the end of the guarantee period. In addition, Section
401 of the Bridges Eligibility Manual states that the purchase or amendment of an annuity by or on
behalf of an annuitant who has applied for medical assistance will be considered a transfer for less than
fair market value unless the annuity meets all of the following conditions:
• Is commercially issued by a company licensed in the United States and issued by a
licensed producer (a person required to be licensed under the laws of this state to sell,
solicit, or negotiate insurance)
• Is irrevocable
• Is purchased by an applicant or recipient for Medicaid or their spouse and solely for the
benefit of the applicant or recipient or their spouse
• Is actuarially sound and returns the principal and interest within the annuitant’s life
expectancy
• Payments must be in substantially equal monthly payments (starting with the first
payment) and continue for the term of the payout (no balloon or lump sum payments)
• If the annuity was purchased or amended on or after February 8, 2006, the State of
Michigan must be named as the remainder beneficiary in the first position, or as the
second remainder beneficiary after the community spouse or minor or disabled child,
for an amount at least equal to the amount of the Medicaid benefits paid on behalf of
the institutionalized individual.
However, if the annuity is considered either an individual retirement annuity under section 408(b) of the
Internal Revenue Code (IRC) or deemed an individual Retirement Account under a qualified employer
plan under section 408(q) of the IRC and is purchased with proceeds from certain types of accounts, the
annuity will not be considered a transfer for less than fair market value and will not be subject to the
irrevocability, actuarially sound, and equal monthly payments requirements listed above. The annuity
must be purchased with proceeds from a traditional IRA (Section 408(a) of the IRC), certain accounts or
trusts established by an employer or certain associations of employees (Section 408(c) of the IRC), a
simple retirement account (Section 408(p) of the IRC), a simplified employee pension (Section 408(k) of
the IRC), or a Roth IRA (Section 408A of the IRC).
Michigan Administrative Rule 500.1375(1) states that:
Advertisements shall be truthful and not misleading in fact or by implication.
The form and content of an advertisement of a policy shall be sufficiently complete and