Does the State Have to Be Named the Primary Beneficiary on a Medicaid Compliant Annuity?

One requirement of a Medicaid Compliant Annuity (MCA) is naming the state Medicaid agency as a beneficiary. In many cases, the state must be named the primary beneficiary, though exceptions exist where the contract owner can list a different party as the primary beneficiary with the state as contingent. You may have some clients who are hesitant to use an MCA due to this requirement. However, it’s important that they understand the benefits outweigh the risk of estate recovery on the annuity. Let’s discuss the primary beneficiary MCA requirement in more detail.

Read More: The Rules of a Medicaid Compliant Annuity

MCA Cases Where the State Must Be Primary Beneficiary

When the community spouse owns an MCA, the state almost always must be named as a primary beneficiary, unless they have a minor or disabled child. The same goes for a single, unmarried person who is purchasing an MCA.

• An MCA owned by a community spouse without a minor or disabled child (in most states)
• An MCA owned by a single individual without a minor or disabled child

Exceptions to the Primary Beneficiary MCA Requirement

If the MCA is purchased by an institutionalized spouse, the community spouse can be named primary beneficiary with the state Medicaid agency being listed as contingent beneficiary. If the MCA owner, whether a community spouse or institutionalized person, has a minor or disabled child, the child can be named the primary beneficiary ahead of the state. Additionally, some states may have other exceptions beyond those listed here.

• An MCA owned by an institutionalized spouse – may name the community spouse as the primary beneficiary
• An MCA owned by any person with a minor or disabled child – may name the child as the primary beneficiary
• An MCA purchased in a state with special beneficiary rules (e.g., Michigan)

Benefits of Using an MCA > The Risk of Estate Recovery

Although listing the state as the primary beneficiary may deter some clients from using an MCA, it’s important that they understand the savings from accelerating Medicaid eligibility typically outweigh any estate recovery on the annuity. Not to mention, the state Medicaid agency can only recover to the extent of Medicaid benefits paid on behalf of the institutionalized individual and only if the MCA owner predeceases the annuity term.

When purchasing an MCA for the community spouse, it’s crucial to structure the term appropriately based on the owner’s health and longevity. When using the Gift/MCA Plan for a single person, typically no balance is owed to the state since the individual uses the MCA to privately pay for care before they begin receiving benefits.

If you have questions about whether the state Medicaid agency must be named as the primary beneficiary on your client’s Medicaid Compliant Annuity, don’t hesitate to reach out to us.