OBRA ‘93 Annuity

Properly Annuitized

An OBRA ‘93 annuity which is not properly annuitized can result in:

A Period of Ineligibility (POI), or
Ineligibility due to excess property.

An OBRA ‘93 Annuity is properly annuitized when all the following apply:

The annuity provides fixed, equal, monthly payments to the individual or spouse, and
The final annuity payment may be for an amount less than the previously fixed payments in order to fully exhaust benefits under the annuity.
The annuity payments are to be paid over a number of years equal to or less than the annuitant’s life expectancy as indicated on the life expectancy tables.
The annuity payments will exhaust any balance remaining in the annuity, at or before the end of the annuitant’s life expectancy.
The annuity may provide a reasonable increase for an annual cost of living adjustment (COLA) (i.e., Up to 5% annually).

Determining Life Expectancy

The life expectancy of an annuitant is determined by using the life expectancy tables at the end of this chapter which were compiled by the Actuary of the Social Security Administration. To determine the life expectancy of an annuitant use the age of the annuitant as of:

The date the annuity was purchased, OR
The date the payment plan was established, whichever is most recent.

The table will provide the years of life expectancy of the annuitant.

Treatment of a Properly Annuitized Annuity

Income

Actual disbursements from the annuity are treated as gross unearned income.

Property

The balance of an annuity purchased on or after 8/11/93 is considered unavailable property only when:

The annuity is properly annuitized, or
The individual/spouse takes steps to properly annuitize an annuity.

ExampleExample

Treatment of an Annuity Not Properly Annuitized

When an annuity purchased on or after 8/11/93 is not properly annuitized, refer the individual back to the company the annuity was purchased from, to have the annuity restructured. Provide the annuitant with the correct life expectancy figure based on the annuitant’s current age. The annuity must be restructured to that time period or less so that the balance can be treated as unavailable property. The balance of the annuity is considered unavailable while the annuitant is cooperating and taking steps to restructure the annuity.

Deferred Annuity

Payments are considered deferred if:

The annuity has not been properly annuitized, or
The payments being received are of interest only, or
The payments are stopped at any time.

If payments are deferred, excess property may exist or there may be a transfer of property for less than adequate consideration. Follow the chart below to determine the necessary action.

If the individual or spouse is...	And the payments...	Then...
Not in Long Term Care (LTC),	Extend beyond the individual’s life expectancy,	Count the cash surrender value (CSV) of the annuity in the property reserve.
Not in Long Term Care (LTC),	Do Not extend beyond the individual’s life expectancy,
In Long Term Care (LTC),	Extend beyond the individual’s life expectancy,	Evaluate for a period of ineligibility (POI), and do not count the CSV in the property reserveperiod of ineligibility (POI), and do not count the CSV in the property reserveIf a Period of Ineligibility (POI) is not actually being applied in an LTC case (i.e. 30 months of POI have already been applied), count the CSV in the property reserve.
In Long Term Care (LTC),	Do Not extend beyond the individual’s life expectancy,	Count the CSV in the property reserve until steps are taken to properly annuitize the annuity.

When an Annuity Cannot be Restructured

If the annuity cannot be restructured, only the payments made beyond the life expectancy of the annuitant and/or any specified cash refund/death benefit are considered a transfer of property (from the purchase date of the annuity) for less than adequate consideration. The percentage of the purchase price used to fund the payments to be made beyond the life expectancy of the annuitant is the amount considered transferred for less than fair market value.

Follow the steps below to determine the amount that was transferred for less than adequate considerations:

Amount Transferred was for Less than Adequate Considerations

Determine the Life Expectancy of the annuitant based on the life expectancy tables at the end of this chapter.
Determine the original purchase price of the annuity. (Review the original annuity document for the purchase price.)
Determine the sum of all the annuity payments that will be paid. (Add all annuity payments together.)
Determine the sum of all the annuity payments that will be paid beyond the life expectancy. (Add all annuity payments scheduled to be paid beyond the number of life expectancy years together.)
Determine the percentage of payments that will be paid beyond the life expectancy. (Step 4 divided by Step 3.)
Determine the amount of the original annuity purchase price that will be considered a transfer for less than adequate consideration. (Step 2 times the percent determined in Step 5.)
Use the amount determined in Step 6 to establish a period of ineligibility (POI), if the individual/spouse is in LTC.

ExampleExample

Mrs. Jones purchased a lifetime annuity with a period certain on 4/1/96 when she was 75 years old. The annuity company based the annuity on a lifetime expectancy of 13 years and 1 month. The period certain (or guarantee period) was also established at 13 years and 1 month. She is unable to have the annuity restructured.

Based on the life expectancy table compiled by the Actuary of the Social Security Administration, Mrs. Jones’ life expectancy is determined to be 12.05 years (12 years and 0.6 months). Since the life expectancy determined by the Actuary’s table takes the annuitant into the 13th year, first month, the last year of payments are considered to be a transfer of property.

The steps in the chart above must be followed to determine how much of the original annuity investment is to be considered an inadequate transfer of property.

Undue Hardship

Undue hardship automatically exists when an OBRA ‘93 annuity:

Is purchased between 8/11/93 and 2/29/96, and
Cannot be restructured, and
There is written verification from the agent or the company that issued the annuity that the annuity cannot be restructured.

Note: Prior to establishing a POI for LTC services due to a transfer of property, undue hardship must be considered if the annuity was purchased between 8/11/93 and 2/29/96

If Undue Hardship...	Then...
Is found to apply,	No POI exists and the annuity is evaluated as an Other Annuity.
Is found not to apply,	Evaluate as an OBRA ‘93 Annuity, Establish a POI, if necessary, The notice of action must state that undue hardship provisions were considered and found not to apply.

Undue hardship status may not be granted to any annuity purchased on or after 3/1/96.