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Third Circuit Decision in Zahner v. DHS Sparks Opportunities for Medicaid Planning in Pennsylvania

Encouraging news for the families of elderly and disabled individuals who face the prospect of significant costs for their long-term care! A recent decision by the United States Court of Appeals for the Third Circuit will make it easier for Pennsylvania Medicaid applicants and their spouses to use actuarially sound annuities as an approved strategy for Medicaid spend downs.  Prior to this drastic reversal, the Pennsylvania Department of Human Services prohibited the purchase of short-term annuities in order to shelter assets for Medicaid eligibility, as it considered such annuity contracts to be sham transactions designed solely to shelter assets.


Due to this decision, Medicaid applicants can now convert resources that would otherwise disqualify them for Medicaid eligibility into a guaranteed stream of income that can be used to meet the day-to-day expenses of the applicant and his/her spouse if their incomes remain below their applicable monthly or semi-annual income limit.  The decision has paved the way for the use of short-term annuities in Medicaid planning crisis, which is great news for planners who have been awaiting the decision.



Why Short-Term Annuities Are Good Planning Tools

Short-term annuities are an excellent investment for applicants who have too many countable resources for Medicaid eligibility, yet fear that they will be unable to pay their recurring non-medical bills once they do become eligible.  Medicaid rules provide strict income and asset limitations that must be met before a Medicaid application is approved.  Without short-term annuities as a planning tool, Medicaid applicants would be required to quickly spend their limited remaining funds on medical or other expenses prior to becoming financially eligible for Medicaid.


Oftentimes, such a spend down would be wasteful and had the potential to impoverish healthy spouses who had expenses of their own over the remainder of their lifetimes. But now that short-term annuities are considered an acceptable planning strategy, these annuities can reduce the amount of resources of available below the limit, yet still generate cash flows that can cover future expenses of the applicant and his/her spouse.


Annuity Fees Are Good

As an added benefit of the recent Third Circuit’s decision, the brokerage fees incurred in the purchase of a short-term annuity were found to have no bearing on whether a particular short-term annuity was actuarially sound and generated a net return on the investment.  The Department of Human Services had previously considered some of these short-term annuity contracts to be problematic, as brokers charged substantial brokerage fees to find the contracts.  In light of these expenses, the Department of Human Services viewed many of these annuity contracts as sham transactions designed only for obtaining Medicaid eligibility, rather than providing for the financial stability of recipients and their spouses.


But the Third Circuit’s decision recognizes that knowledgeable professional brokers are needed to obtain the right annuity contracts in order to ensure compliance with Medicaid rules. By obtaining the right contracts for Medicaid applicants and their families, brokers can do a great service in helping to reduce resources below the applicable asset limits in a manner that provides financial benefits to their annuitants.



A Small Positive Change in Medicaid Law

The outcome of the case provides Medicaid planning opportunities for the middle class families with net worth in excess of $500,000, a slight turn in the right direction for Medicaid law. As a viable Medicaid planning tool, short-term annuities are beneficial and useful to Pennsylvania families facing ruinous medical bills. With the legal assistance of an experienced estate planning attorney near Reading, PA, to help, individuals can establish annuities that comply with Medicaid.  Our law firm recognizes that new opportunities in Medicaid planning may make it worthwhile for individuals to hire an attorney with experience developing strategies for Medicaid eligibility.


Our attorneys have developed specially designed Medicaid planning plans for families facing a wide range of medical needs and financial circumstances.  Such vast experience makes Kozloff Stoudt Attorneys the perfect source of counseling for families facing the looming threat of substantial bills from long-term nursing care. Our law firm dedicates itself to assisting individuals with the legal, personal and practical aspects of wealth planning with a strong passion for achieving their client’s best interests.


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