Call us : 480-967-8477
Mail us : [email protected]

Why a Medicaid Compliant Annuity May Be the Best Spend Down Strategy?

What is Medicaid Spend-Down?

Medicaid Spend-Down is simply turning “countable assets” (like savings) into “non-countable assets” that ALTCS ignores. You’re not losing the money—you’re moving it into the non-countable category.

This is also called “Medicaid Asset Conversion.”

Here is an important concept to understand: What is the “First Period of Continuous Institutionalization- FPCI how it affects the spend-down process?”  

The “First Period of Continuous Institutionalization” (FPCI) refers to the initial, uninterrupted time span during which an individual resides in an institutional setting, such as:

  • A nursing home
  • A hospital
  • A rehabilitation facility
  • Or other similar medical or long-term care institutions

This term is often used in the context of Medicaid eligibility and long-term care planning, particularly when applying for benefits under programs like ALTCS (Arizona Long Term Care System) or Veterans Affairs benefits.

Key Features of the First Period of Continuous Institutionalization:

  • “First” means it is the initial qualifying stay used to establish a timeline for eligibility.
  • “Continuous” means there must not be a break in the institutional care that exceeds a specific time limit (often 30 days or less, depending on the program).
  • It is often used to establish:
    • When asset and income tests start to apply.
    • The snapshot date for spousal impoverishment calculations (important when one spouse enters care and the other stays at home).
    • The start date for medical necessity evaluation.

What does the FPCI date have to do with the relationship to various spend down strategies?

The slang for FPCI is the “Snap-Shot Date.”  This is the first of the month of 30 days of continuous care that the Community Spouse Resource Assessment is used to determine the total countable assets.

So let say you go into Rehab on June 15th and then go from there to an assisted living, then June 1st would be the Snap-Shot Date. Again this is the date that your assets are counted.  This is a fixed date based on your care start date. I you are applying for Home Care benefits this date is also established by the Medical PreAdmission Screening assessment and approval rate.

 

What are Exempt Assets VS. Countable Assets?

ALTCS Applications Approved

ALTCS Spend-Down Chart

Exempt Assets

  • Primary Residence
  • One Car
  • Personal Property / Contents
  • $1,500 of cash surrender value in a permanent life insurance policy
  • Irrevocable Prepaid Funeral (Funeral Trust)

COUNTABLE ASSETS

  • Checking and Savings
  • CD’s, Savings Bonds, & Money Market
  • Mutual Funds & Bonds
  • Gold, Silver, Presious Metals & Collector Coins
  • Annuities
  • IRA’s (ROTH and Traditional)
  • Life Insurance
  • Home / Primary Resident if in a Trust
  • Other Real Estate

UNAVAILABLE ASSETS

  • Medicaid Compliant Annuities
  • Real Estate for sell (Listed through MLS)

Legal Ways to Spend Down Countable Assets

Here are common ways to spend down assets before applying for ALTCS:

Pay Off Debt – Good idea if you have credit cards or loans.

Buy Personal Items – Furniture or appliances you actually need.

Home Improvements – Fixing a roof or installing safety features.

Pay Off Mortgage – Can help, especially if you’re married.

Buy a New Home – If your old home isn’t suitable anymore.

Buy a Car – One car is allowed, even if you don’t drive.

Use a Funeral Trust – You can prepay up to $15,000 for burial costs.

Create or Modify a Trust – Complex, but can help in some cases.

Gift Money – Legal, but causes a delay in benefits (called a penalty period).

Buy a Medicaid Compliant Annuity (MCA) – Often the smart and safe option.

Why the Medicaid Compliant Annuity (MCA) Is So Useful

An MCA takes extra assets and turns them into monthly income for the healthy spouse. This income doesn’t count against ALTCS limits.

Key MCA Rules:

  • You must buy it with a single payment.
  • You can’t cancel or cash it out.
  • It must pay out over a period shorter than your life expectancy.
  • Monthly payments must be equal (no lump sums).
  • ALTCS (the state) must be a beneficiary to get repaid after death.
ALTCS Applications Approved

Example: Married Couple with $350,000 in Assets

ALTCS allows the healthy spouse to keep up to $160,660 and the spouse needing care just $2,000. That means this couple must spend down about $190,000.

The Married Couple decide to:

  • Pay off $20,000 in debt
  • Buy $2,000 in furniture
  • Set up two $5,000 funeral trusts

That reduces the amount to spend down to $166,000.

Instead of giving away money (which would cause a 20-month penalty), they:

  • Buy a Medicaid Compliant Annuity for $162,000, which pays the healthy spouse $27,000/month for 6 months.

This strategy allows them to:

  • Qualify for ALTCS
  • Keep almost all their money legally

Final Result

Starting with total household Assets: $350,000
Assets Preserved After Spend-Down: ~$345,920

Breakdown:

  • $20,000 – Debt paid
  • $2,000 – Personal property
  • $10,000 – Funeral trusts
  • $162,000 – Medicaid Compliant Annuity
  • $157,920 – Community Spouse Allowed Amount
  • $2,000 – Applicant’s asset limit

Outcome: The spouse needing care is approved for ALTCS benefits. The couple keeps the majority of their assets.

The use of the Medicaid Compliant Annuity is a sophisticated planning tool. It is not a Do-It-Yourself process.

To learn if the MCA makes sense for you, call us today or use the form to contact us. 

480-967-8477
[email protected]