1. The Game of Annuities : Start to Finish. Melody Sanders Health Care Education Unit Health Care Eligibility and Access Sept 28-29, 2011

2. Roll The Dice and Advance 2

3. Objectives: You will be able to identify the parties associated with an annuity. You will evaluate an annuity as an asset for basic MA. You will determine the effect of annuitization of an annuity on basic MA and the MA payment of LTC services. You will evaluate an annuity for uncompensated transfers and determine that calculation. 3

4. Definition of Annuity HCPM Glossary: is a purchased contract in which one party agrees to pay the purchaser, or a designee (payee), a return on money deposited with them according to the terms of the contract. HCPM 19.25.30 Annuities 4

5. Types of annuities Burial – Contract with an issuer to fund a burial. Retirement – Employer-funded or Pension plan (Defined Benefit). Investment – self-funded IRA, or a personal savings plan. 5

6. Investing for the future 6

7. Parties (players) of an annuity (game). Issuer – a person or entity (an insurance company) who manages the annuity. The annuity issuer accepts the funds from the owner during the accumulation phase and issues payments after the funds have been annuitized. (The Banker) 7

8. Parties of an annuity- continued Owner(s) – Person(s) who may exercise rights provided in the annuity contract. The owner names the payee(s). The owner chooses the settlement option. The owner names the beneficiaries. 8

9. Parties of an annuity- continued Payee – Someone to whom a benefit is paid. Beneficiary – The person, trust or entity named by the annuity owner to receive death benefits from the annuity. Annuitant – The person upon whose life expectancy annuity payments are based… Not all annuity payments are based upon a person’s life expectancy. 9

10. Stages of an annuity Purchase the annuity by setting up a contract with the issuer. Immediate: the periodic payments begin within one payment interval of the purchase. Deferred: periodic payments begin in the future. A deferred annuity has two phases. 10

11. Deferred Annuity Accumulation phase Annuitization phase (payout phase) 1. The contract is purchased. 2. The principal accumulates funds. 1. Settlement option is chosen. 2. Defines payments and time period. 11

12. Annuity Stage - Annuitization Immediate or deferred Payments Begin Fixed or variable Nature of Payments Term Certain or Life Period of payments So Many Questions !!!! How do I find the answers? Do I really need to know the answers for MA eligibility determination? 12

13. Verification – Annuity Data Worksheet (DHS-5532) may help A copy of the annuity contract. Contract Specification page. Account statements. Current values. Settlement Statement. Payment terms. It may be necessary to get a signed release. 13

14. Annuity Verification Policy Burial, Retirement, Investment. Issuer. Immediate or Deferred. Current Cash value. Owner, payee, beneficiary. Has annuitization occurred. Annuitant. 14

15. Program Areas Medical Assistance: Method A Verify as an asset – counted or unavailable – if asset limit. Verify if an income source. Method B Verify as an asset – excluded, counted or unavailable. Verify as an income source. 15

16. Program Areas- continued MA Payment of Long-Term Care Services (in addition to Basic MA verifications): Funding source (DHS-5143) Annuity Transaction (DHS-5143) Date of purchase Date of annuitization – if applicable. 16

17. Annuitized Annuity Date of Annuitization Cash value on date of annuitization. Current cash value, if available. Current market value, if assignable. If a commuted cash value is available. 17

18. Program Area- continued MinnesotaCare: Verification of annuity is not required as an asset if counted assets are within the asset limit. If income source, verify payments. 18

19. Annuity Data Worksheet Information gathering purpose. How far to proceed is program- dependent; and in relation to where the annuity is within its life span. Developed for when there is a request for MA payment of LTC services. 19

20. Annuity Data Worksheet General Information: Annuity Issuer Identifier – contract number Date of purchase. Purchase price. Annuity Owner Is there an annuity payee? Beneficiary 20

21. Begin with Review of Contract Identify the parties. Identify the type of annuity for current policy application. Determine asset implications. Determine income to apply if annuitized. Apply LTC requirements. 21

22. Sinclair and Mary Jefferson Application Mary Jefferson is applying for MA for herself, her husband, and her grandson- Dion. She is income eligible. She has an annuity and a small checking account. 22

23. Mary Jefferson Annuity Mary Jefferson Owner Found on the Contract Specification Page. Transamerica Life Insurance Company Issuer Found throughout the contract: front page, also specification page. Mary Jefferson Payee Found on Contract Specification Page as the Proposed annuitant. 23

24. Mary Jefferson – MA Relative Caretaker basis. 1. Annuity Issuer: 2. Owner: 3. Identifier: 4. Date of Purchase: 5. Purchase price: 6. Payee: 7. Beneficiary: 1. Transamerica Life Insurance Co. 2. Mary Jefferson 3. A102-SJ 4. 3/1/10- n/a 5. $1,000 – n/a 6. Proposed – Mary 7. JoAnn Larson 24

25. MA Considerations - Asset and/or Income Immediate – Revocable, Assignable – determine as an asset Annuitized – determine as income stream Deferred – Accumulation phase- cash value – asset. Revocable/Assignable - available as an asset. Income stream after annuitization. 25

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28. A Request for MA Payment of LTC Services Disclosure requirements and treatment of certain annuities when there is LTC services Implemented 7-1-08. Implemented under the federal Deficit Reduction Act of 2005. Three requirements to be applied. 28

29. 1. Disclosure Information to determine whether an annuity transaction occurred in the 60 month lookback period, for all annuities owned by person requesting MA payment of LTC services and their spouse. Report all source information for annuities for which either the spouse or the applicant is an owner, annuitant, payee, or beneficiary. 29

30. Definitions Annuity transaction: Definition: A qualified action taken by an annuity owner on an annuity. Occurred within the lookback period- 60 months. Or occurred while the client is an MA-LTC enrollee. 30 Purchase of an annuity. Conversion of another type of asset to an annuity. Conversion of annuity to another type of annuity. Exercising an annuity election: annuitization, contributing additional funds, additional withdrawals, changing distribution or changing any of the parties.

31. Required Annuity Information (DHS-5143) Assist in obtaining disclosure information. Not required, if information can be obtained in contracts or other related information. Begins the evaluation process for requirements 2 and 3. 31

32. Sinclair Jefferson Requesting LTC services (CADI waiver). Married to Mary Jefferson. Mary Jefferson owns an annuity. Evaluated as an asset with CSV for Mary’s MA request. Additional requirements for LTC. 32

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35. MA-LTC Information 35 Information about funding – we have a verbal client statement from Mary. The DHS-5143 is not a required form. An annuity transaction occurred with the purchase of the annuity.

36. 2. Naming DHS as PRB Preferred Remainder Beneficiary Requesting LTC services. At least one annuity transaction within lookback period. Annuity provides for a death benefit and allows someone other than a spouse to be named. 36

37. Flowchart 3 37

38. DHS-5036A - spouse 38

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40. DHS-5037 40

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42. DHS-5037 – continued. 42

43. 43 Step by step:1. Gathered information. 2. Confirmed necessary action. 3. Received signatures DHS-5036. 4. Sent off the DHS-5037. 5. Transfer evaluation - side trip.

44. 3. Evaluation under Transfer Policy Uncompensated Transfer policy is applied when the individual applies for MA-LTC, not when the transfer occurred. The individual must be “otherwise eligible” for MA payment of LTC services to begin the penalty period. 44

45. 3. Evaluation of transfer Annuities for individuals not “otherwise eligible” for MA payment of LTC services are not evaluated for an uncompensated transfer. Excess assets exist. Spenddown not met. Home equity limit over $506,000 and not excluded. Not cooperating to name DHS as the PRB. 45

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47. The PRB and DHS Finishing the process of naming DHS as the preferred remainder beneficiary. The DHS-5037 is returned and DHS has been designated the PRB or the death benefit could not be assigned. Send a copy of the DHS-5037 to DHS Special Recovery Unit. 47

48. PRB and DHS The DHS-5037 is returned but indicates DHS cannot be named as PRB for a reason other than the death benefits are not assignable. Evaluate reason using HCPM 19.25.30.10. Send documentation and release with a HealthQuest if necessary. Client must be cooperating. 48

49. PRB and DHS DHS-5037 is returned and indicates the client is not cooperating with the annuity issuer. Deny or close MA-LTC. Determine period of ineligibility. Update MMIS RLVA - using A code, to block payment of LTC services. Send DHS-4915. Notify case manager/facility with DHS- 5181 or DHS-3050. 49

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51. Annuity Transfer Evaluation Remember: Uncompensated transfer penalty periods begin when the client is otherwise eligible for MA-LTC. An uncompensated transfer could occur as an annuity is annuitized. 51

52. REMEMBER – side trip 52

53. Annuity Transfer Evaluations Two Possible Methods of Evaluation – Consider Both: The annuity is annuitized, so there is no access to the principal. It is an income stream. The annuity in the accumulation phase is an available asset, not a transfer. Annuity must not be assignable or revocable. 53

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55. 55 IF at any point you cannot answer “YES”, an uncompensated transfer period will need to be determined using the total amount of annuitized funds, less any compensation already received.

56. Annuity Transfer Evaluation : Method One 1. Annuity was purchased with the funds of the LTC client. 2. The LTC client is the payee. 3. An annuity transaction occurred in the lookback period. 4. The annuity is not an IRA account. HCPM 19.25.30.15 56

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58. Annuity Transfer Evaluation : Method Two 1. Annuity was purchased with funds of LTC client or their spouse. 2. Annuity was annuitized during lookback period or while client was an MA-LTC enrollee and not evaluated under Method 1. 3. Annuity provides for equal monthly payments and these are not deferred. 4. Actuarially sound. HCPM 19.25.30.15: Evaluation of Annuities under Transfer Policy 58

59. Actuarially Sound HCPM Definition: An annuity is actuarially sound if the cash value on the date of annuitization is expected to pay out in full within the expected lifetime of the person requesting MA-LTC services or of their spouse. 59

60. Actuarially Sound Determination 1. Annuity’s cash value on date of annuitization. 2. Total annuity payout. a) Annual payment amount. b) Appropriate SSA Life Table or term- certain length. (who is the annuitant/payee) c) Multiply a. by b. 60

61. Determination – continued 3. Compare the total annuity payout (2) to the annuitized cash value (1). If the total annuity payout is greater than or equal to the annuitized cash value the annuity is actuarially sound. If the total annuity payout is LESS than the annuitized cash value the annuity is not actuarially sound and an uncompensated asset transfer has occurred. 61

62. James Kingfield Settlement Agreement Immediate Annuity with Trivento Financial. James is 59 and making application for MA-LTC (CADI waiver). Screened for CADI, and referred to SSA and SMRT. He has no other income but annuity income and he has no other assets. 62

63. James Annuity Data Worksheet Is James eligible for MA-LTC through the CADI program? Assets? Income? Annuity Disclosure? Does DHS need to be named PRB? Evaluation of annuity as a transfer? 63

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65. 65 James must cooperate in naming DHS as PRB before approval of MA-LTC services (CADI program) by completing and signing a DHS-5036. Referral for SSI/ RSDI would be required, as assets are $0 and income is currently below the SSI standard.

66. Playing with Annuities We have rolled the dice and learned about all the players in this game of annuities. Issuer Owner Payee Beneficiary We have explored different types of annuities. We have evaluated two annuities as an asset for MA. We have determined the effect of annuitization on basic MA and the MA payment of LTC Services. We have reviewed the Transfer Evaluation Flowcharts and determined if an annuity was actuarially sound. 66

67. Annuities: Start to Finish Annuities… Nothing to be afraid of! One step at a time! 67