MCAs help spouses avoid impoverishment and convert assets into protected income streams.
ALTOONA, Iowa — A growing number of Iowa couples are seeking specialized Medicaid planning tools known as Medicaid Compliant Annuities (MCAs) to protect their assets while qualifying for government assistance with nursing home costs, according to Medicaid advocates across the state.
The immediate annuity products, which convert countable assets into protected income streams, have seen a 40% increase in usage over the past year, as nursing home costs in Iowa range from $8,000 to $10,000 per month.
“We’re seeing three to four couples per week exploring this option, compared to one or two per month just five years ago,” said Tyler Smith, a Medicaid planning attorney based in Altoona who has worked with hundreds of families. “The rising cost of care combined with longer life expectancies makes this strategy increasingly attractive."
Financial Product Gains Traction Among Aging Population
MCAs, also known as Single Premium Immediate Annuities (SPIAs), enable married couples to convert excess assets into monthly income payments for the healthy spouse while the ill spouse qualifies for Medicaid coverage. The strategy exploits a provision in federal law that treats income and assets differently for eligibility purposes.
Under current regulations, both spouses’ assets count toward Medicaid’s strict asset limits, but only the applicant spouse’s income affects eligibility. The distinction creates an opportunity for legitimate asset protection through carefully structured financial products.
“The federal Deficit Reduction Act of 2005 established specific requirements for these annuities,” explained Smith. “When properly structured, MCAs are completely legal and provide critical protection for the spouse who remains in the community.”
The Iowa Department of Human Services (HHS) confirmed that properly executed annuities meeting federal requirements do not violate Medicaid eligibility rules. Public records indicate that the HHS processes approximately 200 applications per month involving annuity disclosures, up from 75 in 2020.
Rising Demand Driven by Demographics and Costs
Iowa’s aging population drives much of the increased interest. The state’s population over 65 is expected to grow by 25% by 2030, according to the Iowa Data Center. Simultaneously, nursing home costs have increased by 35% over the past five years, outpacing inflation and the growth of retirement savings.
The 2025 Community Spouse Resource Allowance (CSRA) in Iowa stands at $157,920, representing the maximum assets a healthy spouse can retain when their partner enters a nursing home. For couples with assets exceeding this amount plus the $2,000 individual allowance, the excess typically must be spent on care before Medicaid coverage begins.
“A couple with $300,000 in savings faces spending $140,080 before qualifying for assistance,” Smith says. “That represents decades of careful saving wiped out in less than 18 months at current care costs.”
The annuity strategy offers an alternative. By purchasing a Medicaid-compliant annuity with the excess $140,080, that same couple converts those assets into monthly income for the healthy spouse, preserving financial security while achieving immediate Medicaid eligibility for the spouse requiring care.
Complex Requirements Demand Professional Guidance
Not all annuities qualify for Medicaid planning purposes. Federal regulations mandate six specific requirements that distinguish compliant products from standard annuities offered by insurance companies.
The annuity must begin payments immediately, within one year of purchase. The contract must be irrevocable, meaning purchasers cannot cancel or modify terms after signing. Payment terms cannot exceed the purchaser’s life expectancy, as determined by the Social Security Administration's actuarial tables.
Additionally, annuities must be non-assignable, which prevents their sale or transfer to third parties. Payments must remain equal throughout the term, with no balloon payments or variations. Most significantly, the drafter must name the state Medicaid agency as the primary beneficiary for amounts equal to any Medicaid benefits paid.
“We’ve seen families purchase the wrong type of annuity and face devastating consequences,” warned IowaMedicaidHelp. “One client sought a deferred annuity online, thinking it would help, but it remained a countable asset. The client faced a 14-month penalty period during which Medicaid wouldn’t pay for care."
Medicaid planning specialists acknowledge the complexity. “We train our professionals specifically on Medicaid-compliant products,” said IowaMedicaidHelp. “These aren’t typical estate planning instruments — they’re specialized Medicaid planning tools requiring extensive knowledge of both insurance and government regulations.”
Timing Proves Critical in Implementation
The timing of annuity purchases significantly impacts their effectiveness. Most purchases occur during “crisis planning” — the period immediately following a health event requiring nursing home placement.
According to attorney Tyler Smith, “Approximately 70% of his annuity work happens within 90 days of someone entering a facility.” Yet, “Ideally, families would plan years in advance, but reality rarely allows such foresight."
The institutionalization date triggers what planners refer to as the “snapshot date” for asset calculations. This date, typically the first day of a continuous institutional stay exceeding 30 days, establishes the baseline for determining spousal resource allowances.
Purchasing an annuity before the snapshot date can result in incorrect calculations. Waiting too long means paying privately for care while depleting assets. The narrow window for optimal timing adds pressure to already stressful situations.
“Families dealing with a loved one’s sudden illness face enormous emotional strain,” Smith observed. “Adding complex financial decisions to that burden often proves overwhelming without professional help."
Benefits Extend Beyond Asset Protection
For community spouses, the income stream from a Medicaid-compliant annuity provides more than financial security. The guaranteed payments maintain independence and quality of life during difficult transitions.
A 74-year-old Iowa MedicaidHelp client from Des Moines used the strategy after doctors admitted her husband to a nursing home in 2023. Without the MCA income, she would have lost her savings and possibly her home. Instead, the professionals at the law firm helped her receive $2,200 per month, which, combined with her Social Security benefits, allowed her to remain independent.
The protection extends to preserving dignity and reducing family burden. Adult children often express relief when parents can maintain financial independence rather than requiring support.
“We see the weight lifted from families’ shoulders when they realize Mom won’t need to move in with them or depend on their financial help,” IowaMedicaidHelp noted. “The annuity strategy preserves both assets and family relationships.”
Risks and Limitations Require Careful Consideration
Despite benefits, MCAs carry significant limitations. The irrevocable nature means that beneficiaries cannot access funds for emergencies once the trust has been executed and funded.
The most significant drawback involves beneficiary restrictions. If the community spouse passes away before receiving all payments, the remaining funds are allocated to the state for Medicaid reimbursement rather than being distributed to heirs.
Alternative strategies may be more suitable for certain situations. Couples might spend excess assets on home improvements, prepay funeral expenses, or purchase exempt assets. Each option carries different implications requiring individual analysis.
State-Specific Variations Complicate Planning
Iowa’s interpretation of federal Medicaid rules creates state-specific considerations. The Iowa HHS maintains detailed policies governing annuity treatment, application procedures, and estate recovery processes.
Estate recovery also poses particular concerns in Iowa. The state aggressively pursues reimbursement from the estates of deceased Medicaid recipients, including any remaining annuity payments that may be due. While federal law mandates naming the state as beneficiary, Iowa's specific procedures affect planning decisions.
Neighboring states handle MCAs differently, creating complications for residents along the border. Illinois permits certain structures that Iowa prohibits, while Missouri calculates spousal allowances using different methods.
Recent legislative proposals in Iowa focus on tightening asset protection strategies. House Files, introduced in the 2024 session but not passed, would have limited annuity terms to three years regardless of life expectancy.
Professional Industry Emerges Around Complex Rules
The complexity of Medicaid-compliant annuities has given rise to a specialized industry of Medicaid planning law firms, attorneys, and professionals.
Medicaid planning isn’t something general practice attorneys or standard financial advisors typically handle. The rules change frequently, and mistakes have severe consequences.
Professional fees for implementing annuity strategies typically range from $1,500 to $5,500, depending on complexity. While substantial, these costs often pale compared to the potential asset protection achieved.
The professionals at IowaMedicaidHelp stress the importance of working with qualified specialists. “We see heartbreaking situations where families have tried to save money by going it alone.” Smith says, “One mistake can cost hundreds of thousands in lost assets or months of Medicaid ineligibility.”
Future Outlook of Medicaid Planning in Iowa
As Iowa's population ages and long-term care costs continue to escalate, demand for asset protection strategies grows. MCAs represent one tool within comprehensive planning approaches, offering legitimate methods for preserving spousal financial security.
Success requires understanding complex interactions between federal requirements and Iowa-specific rules. The strategy of converting countable assets into income streams through properly structured immediate annuities can protect community spouses from impoverishment while ensuring access to care for spouses residing in institutions.
Professional expertise proves invaluable throughout the process.
Those seeking information about Medicaid planning options can find resources through the Iowa HHS, Medicaid.gov, or from personal consultation at specialized Medicaid planning firms.
Remember that early consultation, even before care needs arise, often provides the most options and best outcomes for families tackling the intersection of healthcare needs and financial security.