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10/17/2011 The Game of Annuities : Start to Finish. Melody Sanders Health Care Education Unit Health Care Eligibility and Access Sept 28-29, 2011 Roll The Dice and Advance 2 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 1 10/17/2011 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 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 Investing for the future 6 2 10/17/2011 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 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 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 3 10/17/2011 Stages of an annuity Purchase the Immediate: the annuity by setting periodic payments up a contract with begin within one the issuer. payment interval of the purchase. Deferred: periodic payments begin in the future. A deferred annuity has two phases. 10 Deferred Annuity Accumulation 1. The contract is phase purchased. 2. The principal accumulates funds. Annuitization 1. Settlement phase (payout option is chosen. phase) 2. Defines payments and time period. 11 Annuity Stage - Annuitization Payments Begin • Immediate or deferred Nature of Payments • Fixed or variable So Many Questions !!!! How do I find the answers? Period of payments Do I really need to know the answers for MA eligibility • Term Certain or Life determination? 12 4 10/17/2011 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 Annuity Verification Policy Burial, Retirement, Investment. Issuer. Immediate or Deferred. CurrentCash value. Owner, payee, beneficiary. Has annuitization occurred. Annuitant. 14 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 5 10/17/2011 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 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 Program Area- continued MinnesotaCare: Verificationof annuity is not required as an asset if counted assets are within the asset limit. If income source, verify payments. 18 6 10/17/2011 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 Annuity Data Worksheet General Information: Annuity Issuer Identifier – contract number Date of purchase. Purchase price. Annuity Owner Isthere an annuity payee? Beneficiary 20 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 7 10/17/2011 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 Mary Jefferson Annuity Owner Mary Jefferson • Found on the Contract Specification Page. Issuer Transamerica Life Insurance Company • Found throughout the contract: front page, also specification page. Payee Mary Jefferson • Found on Contract Specification Page as the Proposed annuitant. 23 Mary Jefferson – MA Relative Caretaker basis. 1. Annuity Issuer: 1. Transamerica Life Insurance Co. 2. Owner: 2. Mary Jefferson 3. Identifier: 3. A102-SJ 4. Date of Purchase: 4. 3/1/10- n/a 5. Purchase price: 5. $1,000 – n/a 6. Payee: 6. Proposed – Mary 7. Beneficiary: 7. JoAnn Larson 24 8 10/17/2011 MA Considerations - Asset and/or Income Immediate – Deferred – Revocable, Accumulation phase- Assignable – cash value – asset. determine as an asset Revocable/Assignable Annuitized – - available as an asset. determine as Income stream after income stream annuitization. 25 26 27 9 10/17/2011 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 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 Definitions Annuity transaction: Definition: • Purchase of an annuity. • Conversion of another A qualified action taken type of asset to an by an annuity owner on annuity. an annuity. • Conversion of annuity to Occurred within the another type of annuity. lookback period- 60 • Exercising an annuity months. election: annuitization, Or occurred while the contributing additional client is an MA-LTC enrollee. funds, additional withdrawals, changing distribution or changing any of the parties. 30 10 10/17/2011 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 Sinclair Jefferson Requesting LTC services (CADI waiver). Married to Mary Jefferson. Mary Jefferson owns an annuity. as an asset with CSV for Evaluated Mary’s MA request. Additional requirements for LTC. 32 33 11 10/17/2011 34 MA-LTC Information 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. 35 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 12 10/17/2011 Flowchart 3 37 DHS-5036A - spouse 38 39 13 10/17/2011 DHS-5037 40 41 DHS-5037 – continued. 42 14 10/17/2011 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. 43 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 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 15 10/17/2011 46 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 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 220.127.116.11. Send documentation and release with a HealthQuest if necessary. Client must be cooperating. 48 16 10/17/2011 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 50 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 17 10/17/2011 REMEMBER – side trip 52 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 54 18 10/17/2011 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. 55 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 18.104.22.168 56 57 19 10/17/2011 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 22.214.171.124: Evaluation of Annuities under Transfer Policy 58 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 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 20 10/17/2011 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 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 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 21 10/17/2011 64 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. 65 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 22 10/17/2011 Annuities: Start to Finish Annuities… Nothing to be afraid of! One step at a time! 67 23 ANNUITY VERIFICATION POLICY Medical Assistance (MA) The following information must be verified when verification of an annuity is required: o Type of annuity. o Cash value – current and at annuitization. o Commuted cash value. o Name of annuitant(s), beneficiaries, payees and owners. o The settlement option details, if the annuity is annuitized. o Free look period. o Conditions under which the annuity can be sold, cashed in or assigned to someone else. o Type of annuity issuer (commercial or private). • Method A Verify an annuity if it is a counted or unavailable asset when a client has an asset test. • Method B Annuities must always be verified, regardless of whether they are counted, excluded or are unavailable. • Payment of Long-Term Care (LTC) Annuities must always be verified. In addition to MA verifications, verify the following information, as needed, regarding an annuity: o How the annuity was funded. (Client statement only using DHS-5143). o Whether an annuity transaction has occurred. (Client statement only using DHS-5143). o Date of purchase. o Date of annuitization. o Cash value on date of annuitization. o Current cash value, if revocable. o Current market value, if assignable. MinnesotaCare (MCRE) Verification of an annuity is not required for MCRE eligibility if counted assets are within the MCRE asset limit for a person with an asset test. Verification of income from an annuity is required. MFWCAA Annuities presentation Handout 1 9/28/11 – Health Care Training Blank Page Clear Form Data FILLABLE FORM DHS-5143-ENG 6-09 Case number: Case name: Worker name: Minnesota Health Care Programs Worker phone number: Required Annuity Fax number: Information Agency name: Agency address: Date: To: Annuity contract number: ANNUITY OWNER’S FULL NAME (1) ANNUITY OWNER’S FULL NAME (2) SOCIAL SECURITY NUMBER DATE OF BIRTH SOCIAL SECURITY NUMBER DATE OF BIRTH Client Instructions This form is used to get information about an annuity you or your spouse own. Follow these steps: 1. Read, complete and sign the form. 2. Return this form to your worker by . DATE You may not get coverage or your coverage may end if we do not get the information by the due date. Call your worker if you have questions or need help getting any of the information. 1. How did you fund the annuity listed above? Check all that apply. l Savings or checking account l Individual Retirement Account (Traditional IRA) l Court-ordered settlement l Proceeds from an employer-based retirement savings plan l Simplified Employee Pension (SEP) IRA l Savings Incentive Match Plan for Employees (SIMPLE) IRA l Roth IRA l Purchased by employer or union as part of a defined-benefit pension plan l Deemed IRA under a qualified employer plan l An account or a trust established by an employer, employee association or union that is not listed above. l Other: l I do not remember. Page 1 of 3 2. Have any transactions been made on this annuity on or after February 8, 2006? Check all that apply. l Added to the principal of the annuity. Check this box if funds were added to the annuity or if funds were rolled over from another source into the annuity. l Elective withdrawals made. “Elective withdrawals” means getting money out of the annuity that is not part of the regular payout schedule. l Changed the way money is paid out of the annuity. List the change and the date it was made. . CHANGE DATE OF CHANGE l Changed the annuity owner, payee or death beneficiary, including the transfer of ownership in whole or in part to a trust. Note: DO NOT check this box if the only change made to the annuity on or after February 8, 2006, was naming the Minnesota Department of Human Services a death beneficiary. . ACTION DATE OF ACTION l No transactions have been made on or after February 8, 2006. I declare that, under penalty of perjury, the information I have provided is true and correct to the best of my knowledge. I understand what happens to people convicted of perjury (not telling the truth). They may be sentenced to prison for up to five years, a fine up to $10,000, or both. All of the following people must sign below: Adults age 18 or older who are applying Parents, caretakers and guardians applying for children under the age of 21 Children under age 18 who are applying on their own behalf and not living with a parent, caretaker or guardian The person who you have chosen to act on your behalf as an authorized representative. You must sign this application even if you are authorizing someone to act on your behalf. If an applicant is unable to sign, provide copies of legal documents of conservatorship or power of attorney. YOUR SIGNATURE DATE SIGNATURE OF SPOUSE OR PARENT/GUARDIAN DATE SIGNATURE OF AUTHORIZED REPRESENTATIVE DATE ADDRESS OF AUTHORIZED REPRESENTATIVE CITY STATE ZIP CODE Page 2 of 3 ANNUITY TRANSACTIONS Definition An MA-LTC annuity transaction is a qualified action taken on an annuity, by an annuity owner, that occurs within the lookback period or while the client is an MA- LTC enrollee. Qualified Actions The following actions are “qualified actions”: • Purchase of an annuity • Conversion of another type of asset to an annuity • Conversion of an annuity to another type of annuity • Exercise an annuity election including: o Annuitizing an annuity o Contributing to the annuity at an unscheduled time o Electing to make withdrawals that are in addition to scheduled disbursements o Changing the distribution o Changing ownership, payee or beneficiary. Non-Qualified Actions The following actions are not annuity transactions regardless of the date they were taken: • Request to name DHS a preferred remainder beneficiary • Provide updated contact information • Notification of beneficiary’s death • Automatic changes based on terms of contract • Uncontrollable changes based on law, operational changes or other court judgments MFWCAA Annuities presentation 9/28/11- Health Care Training Handout 2 Blank Page ACTUARIALLY SOUND DETERMINATION Follow these steps to determine if an annuity is actuarially sound: 1. Determine the annuity’s cash value on the date of annuitization. Do not consider funds contributed by someone other than the client or the client’s spouse. 2. Determine the total annuity payout. Follow these steps to determine the total annuity payout: a. Determine the annual payment amount. b. Determine the appropriate SSA Period Life Table life expectancy figure using the age and gender of the appropriate person on the date the annuity was annuitized. Note: When determining for a term-certain annuity, determine the length of the term in years. Compare the length of the term figure to the life expectancy figure. Use the smaller of the two figures in Step 2c. Use the chart below to determine whose life expectancy should be used: Payee Life Expectancy To Use Method 1 Method 2 Client Client Client Client’s Spouse N/A Client’s Spouse Client and Longer of the two life Longer of the two life Client’s Spouse expectancies expectancies Other Party Only N/A – determine N/A – determine amount transferred to amount transferred to other party. other party. c. Multiply the annual payment amount by the life expectancy figure (or for a term-certain annuity, the remaining length of the term if shorter than the life expectancy figure). 3. Compare the total annuity payout (Step 2) to the annuitized cash value (Step 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. The amount of the uncompensated transfer is the annuitized cash value minus the total annuity payout. MFWCAA Presentation Handout 3 09/28/11 – Health Care Training Blank Page
"The Game of Annuities Start to Finish Roll The Dice and Advance"