Medicaid Compliant Annuities

Can an Annuity Help You Qualify for Medicaid Without Losing Everything?

An annuity is a contract with an insurance company: you give them a lump sum, and they give you a steady income stream in return. For some Medicaid applicants, the right type of annuity can legally convert excess assets into income, helping them meet strict asset limits without violating Medicaid’s rules.

But here’s the catch — not all annuities are created equal. Only a Medicaid Compliant Annuity (MCA) can be used for Medicaid planning without risking ineligibility. And each state has its own rules.

Why Do Medicaid’s Asset and Income Limits Matter So Much?

What’s the 2025 limit for assets?

Most states cap countable assets at $2,000 for a single applicant and $3,000 for a couple. Some assets — like your primary home, one vehicle, and personal items — are exempt. In 2025, a non-applicant spouse may keep up to $157,920 under the Community Spouse Resource Allowance (CSRA).

What’s the income limit?

For long-term care Medicaid, most states allow up to $2,901/month in income. Annuities reduce assets but increase income, so this number matters — especially for single applicants.

How Can an Annuity Protect Assets and Still Meet Medicaid Rules?

When you’re over the asset limit, you can’t just give money away — that triggers Medicaid’s Look-Back Rule and can cause months (or years) of ineligibility. A Medicaid Compliant Annuity converts non-exempt assets into a steady income stream, removing them from the “countable” category while staying within the rules.

Which Types of Annuities Are Medicaid-Friendly?

Immediate Annuity

Payments begin right away and continue for a set term or your life expectancy. It’s irrevocable, fixed, and structured to comply with Medicaid rules. This is the go-to option for Medicaid planning.

Deferred Annuity

Payments start years later, making this type not Medicaid compliant. Medicaid counts it as an asset, and it can be revoked or cashed out — both red flags for eligibility.

Fixed vs. Variable

Fixed annuities have predictable payments; variable annuities change based on investment performance and are generally not Medicaid compliant.

What Makes an Annuity Medicaid Compliant?

• Immediate start of payments
• Irrevocable — can’t be canceled or altered
• Fixed, equal monthly payments
• Non-transferable
• State named as primary (or contingent) beneficiary for repayment
• Actuarially sound — payment period can’t exceed life expectancy
• Total payout equals the original investment during life expectancy

Failing any of these tests can make the annuity a countable asset and trigger penalties under the Look-Back Rule.

Are Promissory Notes a Viable Alternative?

Sometimes. Like annuities, they turn a lump sum into income, but instead of an insurance company, the “borrower” is usually a family member. They’re allowed in some states but have their own compliance rules — and unlike annuities, they don’t require naming the state as a beneficiary.

How Does Marital Status Change the Annuity Strategy?

Single Applicant

Annuity income is counted and can’t exceed Medicaid’s income limit. In nursing home cases, most income goes to the facility, with only a small personal needs allowance left.

Married with a Non-Applicant Spouse

A powerful strategy — the annuity can turn excess assets into income for the healthy spouse, which is not counted toward the applicant spouse’s eligibility.

Married with Both Spouses Applying

Each spouse may need their own MCA, but payments must still stay within income limits to avoid disqualification.

What Does a Medicaid Compliant Annuity Cost?

Usually, there’s no direct fee — the insurance company profits by investing your lump sum. Very short payment terms (under two years) may trigger a setup fee of about $1,500.

State Medicaid Compliant Annuity Rules (2025)

Key MCA requirements, beneficiary rules, and payment conditions