Annuities Compliant with Federal Statute Are Not Considered Countable Assets for Medicaid Eligibility (3d Cir.)

Plaintiffs were denied long-term care Medicaid coverage when Pennsylvania considered their recently purchased short-term annuities as countable resources. The federal district court for the  Western District of Pennsylvania affirmed the Department’s decision, holding that the annuities were sham transactions used for the purpose of protecting assets from Medicaid qualification. It also held, however, that a state law making all annuities assignable was preempted by federal law.

On appeal, the Third Circuit reversed, holding that the annuities were not available resources, and also affirmed the lower court’s preemption determination. It said that federal law creates a safe-harbor provision whereby annuities purchased after February 8, 2006 are not available resources for Medicaid eligibility so long as the annuity names the state as beneficiary, is irrevocable, nonassignable, actuarially sound, and provides for equal payments. The court stated that the plaintiffs’ annuities fit within these parameters. It found unpersuasive the state’s argument that the short term of the annuity, small rate of return, and fees make these products not an annuity and more trust-like. The court stated that nothing in federal law requires the annuity investment to be for a certain term of years or produce a particular rate of return to make it an annuity nonetheless. Further, an annuity is not trust-like because of the lack of a fiduciary relationship. The state’s insurance commissioner ensures that annuity products are not sham transactions; this undermines the state’s argument that in theory an annuity could be created that would be paid out in a matter of hours or days. Lastly, the court held Pennsylvania statute making all annuities assignable is preempted by federal law. Each of the plaintiffs’ annuities had valid nonassignability clauses. It is clear that Congress, by creation of the safe-harbor statute, did not intend for all annuities to be countable, which is what the Pennsylvania statute envisions and thus cannot stand.

Zahner v. Secretary, Pennsylvania Dept. of Human Servs., 2015 WL 5131367 (3d Cir. Sept. 2, 2015)

David Wingate is an Elder Law Attorney at the Elder Law Office of David Wingate. The Elder Law office focuses in the following areas of law: powers od attorneys, wills, trusts, Medicaid, and asset protection. David Wingate practices in Frederick and Montgomery, Counties, Maryland.