CMS Says Purpose of Actuarially Sound Annuity Is Irrelevant

In a letter to Wisconsin ElderLawAnswers member Dale M. Krause, the Centers for Medicare and Medicaid Services (CMS) suggests that the Kentucky Department of Medicaid Services followed inappropriate federal transfer-of-assets policy in requiring that a Medicaid applicant demonstrate that an annuity he purchased was both actuarially sound and was not purchased for the purpose of qualifying for Medicaid. As a result of the letter, written by Renard L. Murray of CMS's Atlanta office, a Kentucky appeal board has overturned a hearing officer's decision in the case.

While a nursing home resident, Jack Gardiner applied for Kentucky Medicaid benefits. That same month, Mr. Gardiner invested $67,404.25 in an actuarially sound single-premium immediate annuity in order to assist with his support upon his return home. The Department denied Mr. Gardiner's application. Because the purchase occurred following the application for Medicaid benefits, the Department presumed that the transfer was solely for the purpose of qualifying for Medicaid.

Mr. Gardiner's representatives subsequently contacted Attorney Krause, who specializes in Medicaid annuities. Attorney Krause wrote CMS requesting an opinion on Kentucky's implied position that to qualify as exempt assets, annuities must not only be evaluated under the transfers for less than fair market value test prescribed in HCFA Transmittal 64, Sec. 3258.9(B), but must also satisfy the "ultimate purpose" test prescribed in Sec. 3258.19(C)(2) of the Transmittal.

Mr. Murray's response, written January 10, 2005, stated that "CMS policy on this issue is that if an annuity meets the actuarial soundness test in 3258.9(B), no transfer of assets for less than fair market value has occurred and the purpose test in 3258.10(C)(2) cannot be used." Mr. Murray added that states may pass legislation restricting the definition of an annuity for Medicaid purposes and amend their Medicaid state plans, neither of which Kentucky has done.

In light of the CMS letter, the Appeal Board for Public Assistance found that the Department had incorrectly determined that Mr. Gardiner's annuity was a countable resource. (Mr. Gardiner died during the pendency of this case.)

Click here for HCFA Transmittal 64.