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2005 Testimony

Testimony Before The Senate Industry, Business And Labor Committee

Regarding Senate Bill 2190

January 18, 2005

Chairman Mutch, members of the committee, I am Curtis Volesky, Director of Medicaid Eligibility for the Department of Human Services. The Department is here in opposition to SB 2190.

While many individuals establish annuities to provide retirement income, many also use annuities as a means of sheltering and transferring assets to qualify for Medicaid benefits, at the expense of taxpayers. This statute currently requires that an annuity return the full principle and interest within an individual’s life expectancy, which supports annuities as a means to provide for retirement income. Our interpretation of the current statute bases life expectancy on established actuarial tables, but also takes into consideration those situations in which an individual has a shortened life expectancy due to a terminal health condition. The deletion of language, recommended in subsection 2 of this bill, will not change the fact that a determination of life expectancy will still have to be made but removal of the language will likely make the process more cumbersome, and encourage additional appeals.

The additional language added to subsection 2 would require that we look at the individual’s life expectancy as of the annuity issuance date instead of the date the payment option is selected. This could encourage early purchases of annuities to secure the date; with the annuitant only selecting a payment option at the time he or she needs Medicaid. In effect, someone could purchase an annuity at age 65, when he has a life expectancy of about 15 years, then if he only needed Medicaid at age 75, when life expectancy is about 9 years, select a payment option for 15 years. Similarly, a healthy individual who purchases an annuity at age 65, then later develops a terminal illness that only gives him two years to live, can select a payment option for 15 years. The extra six to 13 years of payments in these examples would effectively be transferred to the beneficiaries without being considered a disqualifying transfer. An individual who purchases such an annuity in an attempt to shelter assets will not even have to fully fund the annuity, or if he does, will still have full access to the funds in the annuity prior to selecting a payment option and applying for assistance.

The provision in subsection 3 is also problematic. When determining eligibility for medical assistance, we consider all assets that are available, or can be made available to pay for medical care. An annuity that includes the provision proposed in subsection 3 will allow the individual to obtain funds to pay for medical care if the person is not eligible for medical assistance. As a result, the annuity itself may not be considered an available asset when applying for medical assistance, but the funds that can be made available will be, making the provision ineffective. To state that the provision will do otherwise, such as not make the funds available would virtually eliminate the need for an asset test in Medicaid. Almost anyone will be able to keep all of his or her assets by setting up such an annuity. This would be in conflict with federal and state law. In addition, even if an annuity has the provision described in subsection 3, the annuity may still be considered an available asset for other reasons. For example, if the annuity contract allows the owner to surrender the annuity for cash, or to assign the annuity payments, or to cancel the contract for some other reason.

I will be glad to answer any questions regarding my testimony. Thank you.


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