Texas Health and Human Services Commission
Medicaid for the Elderly and People with Disabilities Handbook
Revision: 13-2
Effective: June 1, 2013

F-7000

Annuities

§358.333.  Treatment of Employment- and Retirement-Related Annuities

(a)
In this section:
(1)
an employment-related annuity means an annuity that provides a return on prior services, as part of or in a similar manner to a pension or retirement plan; and
(2)
a retirement-related annuity means an annuity purchased by or on behalf of an annuitant in an institutional setting.
(b)
An employment-related annuity or a retirement-related annuity established before February 8, 2006, is not a countable resource. Income from such an annuity is treated in accordance with 20 CFR §§416.1120-416.1124.
(c)
An employment-related annuity established or having a transaction on or after February 8, 2006, is not a countable resource. Income from such an annuity is treated in accordance with 20 CFR §§416.1120-416.1124.
(d)
A retirement-related annuity with a purchase or transaction date on or after February 8, 2006, is not a countable resource, if the annuitant's income eligibility is determined under the special income limit. Income from such an annuity is treated in accordance with 20 CFR §§416.1120-416.1124, if the annuity:
(1)
is an annuity described in subsection (b) or (q) of §408 of the Internal Revenue Code of 1986; or
(2)
is purchased with proceeds from:
(A)
an account or trust described in subsection (a), (c), or (p) of §408 of the Internal Revenue Code of 1986;
(B)
a simplified employee pension (within the meaning of §408(k) of the Internal Revenue Code of 1986; or
(C)
a Roth IRA described in §408A of the Internal Revenue Code of 1986.

§358.334.  Treatment of a Nonemployment-Related Annuity with a Purchase or Transaction Date before February 8, 2006

(a)
This section describes the Texas Health and Human Services Commission's (HHSC's) treatment of nonemployment-related annuities purchased or having a transaction date before February 8, 2006. In this section, a nonemployment-related annuity means a revocable or irrevocable annuity a person may purchase to provide income.
(b)
A nonemployment-related annuity is not a countable resource if the annuity:
(1)
is irrevocable;
(2)
pays out principal in equal monthly installments and pays out interest in either equal monthly installments or in amounts that result in increases of the monthly installments at least annually;
(3)
is guaranteed to return within the person's life expectancy at least the person's principal investment plus a reasonable amount of interest (based on prevailing market interest rates at the time of the annuity purchase, as determined by HHSC);
(4)
names the state of Texas or HHSC as the residual beneficiary of amounts payable under the annuity contract, not to exceed any Medicaid funds expended on the person during the person's lifetime, except as described in subsection (c) of this section; and
(5)
is issued by an insurance company licensed and approved to do business in the state of Texas.
(c)
If a person in an institutional setting is married and the spousal impoverishment provisions of §358.413 of this subchapter (relating to Spousal Impoverishment Treatment of Income and Resources) apply, the requirement in subsection (b)(4) of this section does not apply to a nonemployment-related annuity purchased by or for a community spouse.
(d)
A nonemployment-related annuity that does not meet the requirements of subsection (b) or (c) of this section is a countable resource.
(1)
HHSC applies transfer-of-assets provisions in Division 4 of this subchapter (relating to Transfer of Assets) to an annuity that is a countable resource and does not meet the criterion in subsection (b)(3) of this section. The date of the transfer of assets is the date of the annuity purchase or, if applicable, the date the annuity contract was last amended in exchange for consideration. HHSC determines the amount of the transfer by assessing the difference between the life expectancy of the person and the number of years remaining until the annuity is paid out. The amount payable during that period is the amount of the transfer of assets.
(2)
If the annuity is a countable resource and is revocable, HHSC:
(A)
counts the amount refundable upon revocation of the annuity as the value of the resource; and
(B)
applies transfer-of-assets provisions in Division 4 of this subchapter if the person sells the annuity for less than the amount refundable upon revocation.
(3)
If the annuity is a countable resource and is irrevocable, HHSC:
(A)
counts fair market value as the value of the resource and presumes fair market value is 80% of the annuity's total remaining payout;
(B)
applies transfer-of-assets provisions in Division 4 of this subchapter if the annuity is sold for less than the purchase price minus the amount of principal already paid; and
(C)
if the terms of the annuity contract are non-negotiable, applies transfer-of-assets provisions in Division 4 of this subchapter to the total remaining payout.
(e)
Income from a nonemployment-related annuity that is not a countable resource under subsection (c) of this section is treated in accordance with 20 CFR §§416.1120-416.1124.

§358.335.  Treatment of Annuities with a Purchase or Transaction Date on or after February 8, 2006

(a)
This section describes the Texas Health and Human Services Commission's (HHSC's) treatment of nonemployment-related annuities purchased or having a transaction date on or after February 8, 2006. In this section, a nonemployment-related annuity means a revocable or irrevocable annuity a person may purchase to provide income.
(b)
A nonemployment-related annuity is not a countable resource if the annuity:
(1)
is irrevocable;
(2)
is nonassignable;
(3)
provides for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments made;
(4)
is guaranteed to return within the person's life expectancy at least the person's principal investment (that is, it is actuarially sound, as determined in accordance with actuarial publications of the Office of the Chief Actuary of the United States Department of Health and Human Services); and
(5)
names the state of Texas as the remainder beneficiary in the first position for at least the total amount of Medicaid paid on behalf of a person in an institutionalized setting.
(c)
If a person in an institutionalized setting is married and the spousal impoverishment provisions of §358.413 of this subchapter (relating to Spousal Impoverishment Treatment of Income and Resources) apply, a nonemployment-related annuity is not a countable resource if the annuity meets the requirements of subsection (b)(1) - (4) of this section and the annuity:
(1)
names the state of Texas as the remainder beneficiary in the first position for at least the total amount of Medicaid paid on behalf of the person in an institutional setting; or
(2)
names the state of Texas in the second position if the community spouse or a minor or disabled child is named in the first position.
(d)
A nonemployment-related annuity that is revocable is a countable resource. For a revocable nonemployment-related annuity, HHSC:
(1)
uses fair market value to determine the value of the resource; and
(2)
applies transfer-of-assets provisions in Division 4 of this subchapter (relating to Transfer of Assets) based on the amount already paid out of the annuity.
(e)
A nonemployment-related annuity that is irrevocable is not a countable resource. For an irrevocable nonemployment-related annuity, HHSC:
(1)
applies transfer-of-assets provisions in Division 4 of this subchapter to the purchase price of the annuity; and
(2)
for a transaction involving an existing annuity, applies transfer-of-assets provisions to the remaining payout value at the time of the transaction.
(f)
Income from an annuity that is not a countable resource is treated in accordance with 20 CFR §§416.1120 - 416.1124.

F-7100  Determining Annuity Policy

Revision 09-4; Effective December 1, 2009

F-7110  Persons Impacted by Post-Deficit Reduction Act (DRA) Annuity Policy

Revision 09-4; Effective December 1, 2009

Post-DRA annuity policy impacts any person who applies for Medicaid in an institutional setting on or after Oct. 1, 2006. Post-DRA annuity policy would also impact any person who is Medicaid eligible in the community and requests a program transfer to a Medicaid program in an institutional setting on or after Oct. 1, 2006. This includes:

  • Applicants — For applications filed on or after Oct. 1, 2006, consider both pre-DRA and post-DRA annuity policies.
  • Program transfer requests — For program transfer requests from any Medicaid program to an institutional program or waiver services requested on or after Oct. 1, 2006, consider both pre-DRA and post-DRA annuity policies.
  • Redeterminations — For redeterminations of institutional or waiver services worked on or after Oct. 1, 2006, consider both pre-DRA and post-DRA annuity policies.
  • Reported changes — For reported changes in annuities worked on or after Oct. 1, 2006, consider both pre-DRA and post-DRA annuity policies. This includes all annuities, regardless of purchase date.

Note: Neither pre-DRA or post-DRA transfer of asset policies regarding annuities apply to a person who has had continuous Medicaid coverage before March 1, 1981. This includes any person who is Medicaid eligible in the community and requests a program transfer to an institutional program or waiver services and who has had continuous Medicaid coverage before March 1, 1981.

F-7120  Application File Date or Program Transfer Request Date

Revision 09-4; Effective December 1, 2009

The application file date is the date the application is received. The program transfer request date from any Medicaid program to an institutional program is the date of admission to an institution. The program transfer request date from any Medicaid program to waiver services is the date a written notice is received from a DADS case manager or a contracted provider.

If the application file date or program transfer request date is:

  • before Oct. 1, 2006, use pre-DRA annuity policy;
  • on or after Oct. 1, 2006, use pre-DRA annuity policy if the annuity was purchased or the last annuity transaction date was before Feb. 8, 2006; or
  • on or after Oct. 1, 2006, use post-DRA annuity policy if the annuity was purchased or the last annuity transaction date was on or after Feb. 8, 2006.

A Medicaid recipient in the community that is not receiving waiver services may transfer assets without penalty. However, if the recipient becomes institutionalized or applies for waiver services, the recipient is subject to transfer of assets. Treat the program transfer request date for an institutional program or a request for waiver services the same as the application file date when assessing annuities.

F-7130  Annuity Transaction

Revision 09-4; Effective December 1, 2009

Transactions other than purchases that would make an annuity subject to the DRA policy include any action taken by the person that changes the course of payment from the annuity or that changes the treatment of the income or principal of the annuity. These transactions include additions of principal, elective withdrawals, requests to change the distribution of the annuity, elections to annuitize the contract and similar actions.

F-7140  Annuity Purchase or Transaction Date

Revision 09-4; Effective December 1, 2009

If the annuity purchase or transaction date is:

  • before Feb. 8, 2006, use pre-DRA annuity policy regardless of the application file date/program transfer request date or the date of the case manager action for an existing case; or
  • on or after Feb. 8, 2006, use pre-DRA and post-DRA policy in determining annuity treatment based on the application file date or program transfer request date or the date of the case manager action for an existing case.

F-7200  Post-Deficit Reduction Act (DRA) Annuity Policy

Revision 09-4; Effective December 1, 2009

F-7210  Employment and Retirement-Related Annuities

Revision 09-4; Effective December 1, 2009

An annuity that meets the following guidelines is not a resource or transfer of asset:

  • An annuity described in subsection (b) or (q) of Section 408 of the Internal Revenue Code of 1986; or
  • An annuity purchased with proceeds from:
    • an account or trust described in subsection (a), (c) or (p) of Section 408 of the Code;
    • a simplified employee pension (within the meaning of Section 408(k) of the Code); or
    • a Roth Personal Retirement Account described in Section 408A of the Code.

F-7220  Post-Deficit Reduction Act (DRA) Treatment of an Annuity

Revision 09-4; Effective December 1, 2009

When an annuity meets the post-DRA terms and conditions:

  • do not count the annuity as a resource;
  • do not consider the annuity as a transfer of asset; and
  • consider the monthly payments as unearned income.

F-7230  Post-Deficit Reduction Act (DRA) Terms and Conditions

Revision 13-2; Effective June 1, 2013

The annuity meets the post-DRA terms and conditions if the annuity is irrevocable and non-assignable. The irrevocable and non-assignable annuity must also:

  • be in the institutionalized person's name;
  • provide for payments in equal amounts during the term of the annuity;
  • not have any provision for deferral of payments or balloon payments;
  • guarantee to return within the person's life expectancy at least the person's principal investment (life expectancy is calculated using life expectancy tables available from the Social Security Administration's (SSA) online Period Life Table); and
  • name the state of Texas as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the institutionalized person.

The annuity meets the post-DRA terms and conditions when the institutionalized person is married and the annuity:

  • is in the institutionalized person's name;
  • is irrevocable and non-assignable;
  • provides for payments in equal amounts during the term of the annuity;
  • has no provision for deferral of payments or balloon payments;
  • guarantees to return within the person's life expectancy at least the person's principal investment (life expectancy is calculated using life expectancy tables available from the SSA's online Period Life Table); and
  • names the state of Texas as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the institutionalized person, or names the state of Texas in the second position if the community spouse or minor or disabled child is named in the first position.

The annuity meets the post-DRA terms and conditions when the institutionalized person is married and the annuity:

  • is in the ineligible community spouse's name;
  • is irrevocable and non-assignable;
  • provides for payments in equal amounts during the term of the annuity;
  • has no provision for deferral of payments or balloon payments;
  • guarantees to return within the ineligible community spouse's life expectancy at least the ineligible community spouse's principal investment (life expectancy is calculated using life expectancy tables available from the SSA's online Period Life Table); and
  • names the state of Texas as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the institutionalized person or names the state of Texas in the second position if the institutionalized person or minor or disabled child is named in the first position.

F-7240  Treatment of an Annuity When Terms and Conditions Are Not Met

Revision 09-4; Effective December 1, 2009

When an annuity does not meet the post-DRA terms and conditions, first determine if the annuity is either revocable or irrevocable.

If the annuity is revocable:

  • Consider the annuity as a countable asset based on the current fair market value.
  • Consider a transfer of assets depending on how much has been paid out of the annuity.

Example:

Annuity
Amount
Consideration
Purchase Price
$   60,000
 
Refund Value
$   40,000
Countable Resource
Paid Out
+$10,000
Person Received
 
$   50,000
 
Purchase Price
$   60,000
 
 
–$50,000
 
Difference
$   10,000
Transfer of asset

If the annuity is irrevocable:

  • For an application, consider the purchase price as a transfer of asset.
  • For an action to an existing annuity that does not meet post-DRA policy, consider the remaining payout value at the time of the action as a transfer of asset.

When considering transfer of assets policy, refer to the look-back period policy for penalty start date and the calculation of penalty period.

Note: Annuities purchased on or after Oct. 1, 2006, are not subject to interest payout comparison with another company's products.

Follow regional procedures to request assistance from HHSC Legal regarding the terms and conditions of an annuity and in determining the appropriate treatment of the annuity.

F-7250  Notice Requirements for Application and Redeterminations

Revision 09-4; Effective December 1, 2009

To meet post-DRA annuity requirements, revised Form H1200, Application for Assistance – Your Texas Benefits; Form H1200-EZ, Application for Assistance – Aged and Disabled; Form H1200-PFS, Medicaid Application for Assistance (for Residents of State Facilities) Property and Financial Statement; Form H1200-A, Medical Assistance Only (MAO) Recertification; and Form H1010, Integrated Application, include the following statement:

"You must disclose if you and/or your spouse have an interest in an annuity or similar instrument. If you are determined eligible for Medicaid, the state becomes the remainder beneficiary of the instrument."

In addition, if using a streamline redetermination process, notices sent to the recipient must include the following statement:

"The DRA requires that the issuer (company) of an annuity owned by a recipient must be notified that the state is the remainder beneficiary."

F-7300  Pre-Deficit Reduction Act (DRA) Annuity Policy

Revision 09-4; Effective December 1, 2009

F-7310  General Treatment of Annuities and the Five Criteria Test

Revision 09-4; Effective December 1, 2009

When the annuity meets the five criteria in §358.334, Treatment of a Nonemployment-Related Annuity with a Purchase or Transaction Date before Feb. 8, 2006:

  • it is not counted as a resource; and
  • payments are counted as unearned income.

When an annuity does not meet the criteria:

  • It is counted as a resource and the countable value is presumed to be 80% of the remaining payout.
  • It is a transfer of assets only when it does not pay out the principal, plus a reasonable amount of interest within the annuitant's life expectancy.
  • The date of the transfer is the date of the annuity purchase or, if applicable, the date that the annuity contract was last amended in exchange for consideration. If the annuity contract has been amended, refer to agency legal counsel to determine if amendment has affected the date of the transfer.

Use the life expectancy table to determine the amount payable during the client's life expectancy. The remaining payout is the amount of the transfer. Example: If the life expectancy is six years and the payout is eight years, the amount payable the last two years is the amount of the transfer.

To determine life expectancy, use the available online actuarial publication from the Social Security Administration's Period Life Table.

F-7320  Determining a Reasonable Amount of Interest

Revision 09-4; Effective December 1, 2009

F-7321  Treatment of Annuities That Return the Principal Within the Life Expectancy But Pay No Interest

Revision 09-4; Effective December 1, 2009

If the annuity in question is guaranteed to pay out only the principal investment within the annuitant's life expectancy, then it does not meet the requirement to return a reasonable amount of interest. If this is the case, then the annuity is a countable resource.

HHSC presumes that the fair market value of such an annuity is 80% of its total remaining payout. This presumption may be overcome only if the client provides credible evidence to the contrary. This may be done only by providing a written appraisal of the annuity's value obtained from at least two reputable companies that are in the business of purchasing annuities.

If the countable value of the annuity does not render the client resource ineligible, determine whether there is any penalty resulting from a transfer of assets. Transfer of asset policy applies because, by purchasing an annuity that pays out no interest, the purchaser does not receive fair market value on the principal investment. To determine the amount of the transfer, first determine the interest percentage that a one-year CD in the local marketplace was paying at the time of the annuity purchase. Obtain this information from a local bank or financial institution. After obtaining this information, use the following formula:

  •    Purchase Price
  • x One-Year CD Interest Rate
  • = Uncompensated Transfer

Example: If the purchase price of the annuity in question is $10,000 and the one-year CD rate is 3%, the amount of the uncompensated transfer is $300 ($10,000 x .03 = $300). The date of the transfer is the date of the annuity purchase. Follow current policy to determine if the uncompensated transfer results in any penalty.

F-7322  Treatment of Annuities That Return the Principal Within the Life Expectancy and Pay Interest

Revision 09-4; Effective December 1, 2009

If the annuity in question is guaranteed to pay out the principal investment, plus at least some interest within the annuitant's life expectancy, the following standard applies for determining whether the interest is reasonable: the interest returned is comparable to at least two similar annuities.

The client must furnish these comparisons, which the client may obtain from the person who sold the client the annuity or from any other reputable source. Each market comparison provided must be a similar product from a company licensed to sell annuities in Texas. For example, if the annuity in question is a single premium annuity with a five-year payout, the comparisons provided must be for a single premium annuity with a five-year payout based on the same principal investment as the annuity in question. Copies of the market comparisons must be filed in the case record. The annuity being reviewed must pay out interest in an amount at least equal to or greater than the furnished comparisons.

If the client does not provide comparisons or the comparisons do not meet the standard, the annuity in question does not return a reasonable amount of interest, so it is a countable resource.

HHSC presumes that the fair market value of such an annuity is 80% of its total remaining payout. This presumption may be overcome only if the client provides credible evidence to the contrary. This may be done only by providing a written appraisal of the annuity's value obtained from at least two reputable companies that are in the business of purchasing annuities.

If the countable value of the annuity does not render the client resource ineligible, determine whether there is any penalty resulting from a transfer of assets. To determine the amount of the transfer, first determine the interest percentage that a one-year CD in the local marketplace was paying at the time of the annuity purchase. Obtain this information from a local bank or financial institution. After obtaining this information, use the following formula:

  •    Purchase Price
  • x One-Year CD Interest Rate
  • = Amount Transferred
  • − Actual Guaranteed Interest Payout
  • = Uncompensated Transfer

Example: If the purchase price of the annuity in question is $10,000 and the one-year CD rate is 3%, the amount transferred is $300 ($10,000 x .03 = $300). If the actual guaranteed interest payout of the annuity in question is $200, the uncompensated transfer is $100 ($300 - $200 = $100). The date of the transfer is the date of the annuity purchase. Follow current policy to determine if the uncompensated transfer results in any penalty.

Note: All annuity documents must be referred to agency legal counsel. Legal counsel will provide a written opinion on terms and conditions that impact eligibility.

Use Form H1210, Subrogation (Trusts/Annuities/Court Settlements), to report to the Provider Claims area any potential paybacks to the state as the residuary beneficiary of irrevocable annuities.