Her Husband’s Spend-Down Will Be $190,000. One Move the Nursing Home May Never Mention Will Turn It Into Her Income, and Could Make Him Eligible the Next Month
When Medicaid handed a couple a $190,000 spend-down figure, the nursing home said nothing about a legal move that could redirect that money entirely. The clock was already running.
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Imagine a couple who’ve been married for 50 years. He has advanced dementia and needs a nursing home bed. She’s healthy and still lives in the house they bought decades ago. When the Medicaid social worker adds up their savings, the news is bad: they’re $190,000 over the line. In this example, that’s their spend-down, the amount Medicaid expects the couple to use up before it pays anything.
Without planning, that $190,000 may disappear into care costs and other spend-down expenses before Medicaid steps in. Another option can turn some or all of those countable savings into an income stream for the spouse staying home. If the annuity is structured correctly under federal and state Medicaid rules, it can move the couple closer to eligibility without simply writing the nursing home one private-pay check after another.
Where the $190,000 Goes Instead
First, the two programs involved. Long-term nursing home care is covered by Medicaid, the joint federal-state program, once a person’s assets drop low enough. Most people get Medicare at 65, and the federal health insurance covers short rehab stays after a hospitalization. It doesn’t pay for years of custodial care. That gap is why families end up looking at spend-down figures in the first place.
When one spouse enters a nursing home, Medicaid counts the couple’s assets together. Then it protects a share for the spouse who stays home, under provisions Congress enacted in 1988 to prevent what it called “spousal impoverishment.” Everything above the protected share is the spend-down.
A properly structured annuity can exchange countable cash for a stream of payments to the wife. Instead of sitting in an account where Medicaid sees a resource, the money arrives over time as income to the spouse at home. That change in treatment is what makes the strategy work.
February 8, 2006 Rules That Make It Legal
Congress tightened Medicaid’s annuity rules in 2006. One requirement matters directly to this couple: the state generally has to be named as a remainder beneficiary so it can recover Medicaid costs from money left in the annuity after the protected beneficiaries are accounted for.
Federal law also imposes an irrevocable, non-assignable, actuarially sound and equal-payment test on certain annuities purchased by or for the person applying for long-term care Medicaid. That particular federal test doesn’t apply in the same way when the community spouse is the annuitant, which is why the wife’s contract has to be reviewed under the rules of the state where her husband applies.
The takeaway is simpler than the statute: this isn’t an ordinary annuity purchase. The beneficiary language, owner, annuitant, payment term and state Medicaid rules all have to line up before the couple moves the $190,000.
Why Her Annuity Income Doesn’t Count Against Him
Once the husband qualifies, Medicaid looks at his income. The spouse at home can’t be required to pay for his care out of her own income. Payments made in her name stay hers.
That matters because household income often falls short. The estimated average monthly Social Security benefit for an aged couple who both receive benefits is $3,238. It rises to $3,355 after the 3.6% cost-of-living adjustment that takes effect in 2027. A wife paying the mortgage, utilities and her own medical bills on her share of that check feels every dollar. An annuity gives her a paycheck built from money that would otherwise have gone to the nursing home.
One Wrong Clause Turns the Annuity Into a Penalty
One wrong provision can wreck the strategy. If the state isn’t named in the required beneficiary position, the purchase can be treated as a transfer for less than fair market value. State rules can impose other requirements on the annuity and determine whether any value remains countable.
That’s why the contract has to be built for the couple’s state and circumstances. The federal rules create the framework, but state Medicaid policy fills in important details. An annuity that works perfectly for one couple may create a new eligibility problem for another.
Why Timing Decides How Much of the $190,000 Is Saved
Every month the husband pays the private rate shrinks the pool an annuity could convert. Couples who come out ahead usually bring in an elder law attorney who handles Medicaid applications in their state before the first private-pay check clears. They decide the asset picture, the beneficiary language and the timing first, and buy the product last.
If someone starts by selling the annuity before looking at the couple’s full finances, the order is backwards. First comes the Medicaid plan. The product comes last.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
