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MassHealth Treatment of Annuities


Background

Under the current MassHealth rules, the income from an annuity is countable income if
the beneficiary is the MassHealth recipient but the principal is not treated as a countable asset as
long as the annuity is (1) irrevocable, (2) immediate, meaning in payment mode, (3) actuarially
sound, meaning the annuitant will receive the funds invest back during his or her expected life
expectancy, (4) the beneficiary is the MassHealth applicant or spouse; and (5) and any term
certain period is less than the annuitant's life expectancy. See 130 CMR 506.013 (C) and 130
CMR 520.007 (C). Thus, individuals have been able to convert countable assets into non-
countable income streams through the purchase of an annuities since there is no income limit for
a MassHealth recipient or a community spouse. This has been a key planning strategy protecting
the financial security of a community spouse.

As part of the FY 2004 state budget, the Massachusetts legislature has authorized the
DMA to seek a waiver from the federal government to treat annuities like “trusts.” It is not clear
what this means. Some states consider the purchase of an annuity as a disqualifying transfer,
treat annuities as a countable asset or require that the state be named a beneficiary of the annuity.
All of these are possible outcomes here in Massachusetts, but given the waiver process, it could
take years before we know the reality in Massachusetts.

Planning Options for Annuities

Since in most cases the community spouse does not purchase an annuity until after the ill
spouse moves to a nursing home, there is no reason to change this strategy for now. In fact,
given the new income-first rule, more community spouses are likely to purchase annuities in the
future.