Tax Bill Makes Change in DRA Annuity Provision

The recently enacted Tax Relief and Health Care Act of 2006, H.R. 6111, includes several “technical corrections” to the Medicaid provisions of the Deficit Reduction Act of 2005 (DRA). One was made to the annuity rules in the DRA's transfer-of-asset provisions.

The DRA requires that Medicaid long-term care applicants name the state as the remainder beneficiary of annuities in which they have an interest, in an amount equal to what the enrollees receive in coverage from the state, 42 U.S.C. §1396p(c)(1)(F)(i). The DRA provided that state remainder rights were equal to the amount paid on behalf of an “annuitant”; the Tax Relief bill replaced this with “institutionalized individual.”

Thus, if the wife of a nursing home resident purchases an annuity, under current law she must name the state as the remainderman for her own potential benefits. Under the change, she may have to name the state as the remainderman for her husband's care instead. The change is retroactive to the bill's enactment.

Following is the pertinent provision changing the annuity rules:

(b) Clarifying Treatment of Certain Annuities (Section 6012)-