The Spend-Down Was About to Consume Her Last $180,000. A ‘Medicaid-Compliant Annuity’ Turned It Into Monthly Income the Nursing Home Couldn’t Touch

Someone’s husband enters a nursing home billing roughly $10,800 a month. His wife, still living at home, watches the couple’s remaining $180,000 in savings shrink toward what Medicaid calls a “spend-down.” Her attorney proposes a specific tool: a Medicaid-compliant annuity, sometimes shortened to MCA. Structured correctly, it converts that $180,000 from a countable asset into a stream of monthly income paid to her, the at-home spouse. The nursing home bill for her husband is then measured only against his income, not hers.

That last sentence is the whole point of the exercise, and it deserves an immediate qualifier. An MCA reallocates funds under rules Congress wrote into federal law, leaving the money intact and Medicaid’s framework respected. Miss any one of those rules and the purchase is treated as a disqualifying transfer, triggering a penalty period at exactly the moment the family can least afford one.

Asset Test Versus Income Test

Medicaid long-term care eligibility runs on two separate tests. The asset test looks at countable resources on a snapshot date. The income test looks at monthly cash flow. Cash, CDs, and brokerage accounts sit in the asset column. A pension check or annuity payment sits in the income column.

The MCA moves money from column one to column two. Only the institutionalized spouse’s income counts against him for eligibility. Income paid to the at-home spouse under the “name on the check” rule generally stays with her, which is why she can receive substantial monthly annuity income without disqualifying her husband.

CSRA, MMMNA, and the Spousal Math

Two federal spousal impoverishment protections drive the arithmetic. The Community Spouse Resource Allowance (CSRA) caps how much of the couple’s countable assets the at-home spouse may keep. For 2026, the federal maximum CSRA is $162,660 and the floor is $32,532, though states may set their own figures within those bounds. The Minimum Monthly Maintenance Needs Allowance (MMMNA) sets a floor on the monthly income she may retain before any of the couple’s combined income is diverted to the nursing home. For 2026, the federal MMMNA ranges from $2,705 per month at the floor to $4,066.50 per month at the ceiling, depending on the state and the at-home spouse’s housing costs. Both figures reset annually, so confirming current numbers with a local elder law attorney is essential.

When savings exceed the CSRA, the excess is what an MCA is typically deployed against. The lump sum leaves the asset column, payments arrive in the income column, and the MMMNA governs how much of that income the at-home spouse keeps.

Four Requirements That Make an Annuity “Compliant”

Federal law under the Deficit Reduction Act of 2005 spells out what the contract must look like. An off-the-shelf commercial annuity almost never qualifies. To be Medicaid-compliant, the annuity must meet four specific conditions:

• Irrevocable and non-assignable. The owner cannot cash it out, sell it, or borrow against it.
• Actuarially sound. The payout term cannot exceed the annuitant’s life expectancy under the actuarial tables the state Medicaid agency uses.
• Equal periodic payments. No balloons, no deferrals, no back-loading.
• State Medicaid agency named as remainder beneficiary, in the correct position, up to what Medicaid pays on behalf of the institutionalized spouse.

Warning That Matters Most for Heirs

That fourth requirement carries real consequences. If the annuitant dies before payments run out, whatever remains in the contract goes to the state Medicaid agency to reimburse what it paid for care, up to that amount. Only after the state is repaid does anything left pass to heirs. Families who hear “the nursing home can’t touch it” and picture a windfall for the kids have misread the tool. An MCA protects cash flow for the living at-home spouse; it functions as an income vehicle, not a bequest vehicle. Courts in several states, including a 2022 New Jersey appellate ruling, have scrutinized whether annuity contracts are truly irrevocable as required, underscoring how heavily the specific contract language matters.

Caveats Before Anyone Signs

Timing interacts with Medicaid’s five-year lookback. An improperly structured purchase inside the lookback window can be recharacterized as a gift. Treatment varies by state, and several states have pursued aggressive challenges to short-term MCAs. The single-person case is generally less advantageous: with no at-home spouse to receive the income stream, payments still flow toward the nursing home. Estate recovery remains a separate exposure against the Medicaid recipient’s estate after both spouses have died.

Rate context helps explain why MCA quotes on a $180,000 premium can produce meaningful monthly income in the current environment. The 10-year Treasury yield climbed to 5.29% by September 30, 2026, up sharply from 4.75% just a month earlier, while the FDIC national average 12-month CD rate stood at 1.73% as of September 21, 2026. The gap between those two figures matters because insurers price MCA payouts off longer-duration fixed income, meaning families shopping for an MCA today are working in a notably higher-rate environment than they would have been a year ago.

An MCA is a federally recognized planning tool, but the margin for error is narrow. Anyone weighing one should bring the question to an elder law attorney licensed in their own state. The National Academy of Elder Law Attorneys maintains a public directory.

Editor’s note: This article has been updated to reflect the 10-year Treasury yield of 5.29% as of September 30, 2026 (revised from the prior 4.75% figure), the current FDIC national average 12-month CD rate of 1.73% as of September 21, 2026, and the 2026 federal CSRA and MMMNA figures ($162,660 maximum CSRA, $32,532 minimum CSRA, and an MMMNA range of $2,705 to $4,066.50 per month).

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