In our previous explorations of the so-called annuity puzzle (where retirees were not annuitizing their wealth upon retirement as predicted by Yaari (1965)), we found that a major factor producing the "puzzle" among U.S. retired seniors is the fear of health shocks and of the high cost of any resulting long term care services and supports. Although traditional Medicare covers most of a U.S. retired senior's medical care, Medicare does not ordinarily pay for long term care services and supports. On the other hand, Medicaid, which is a means-tested program geared to lower income Americans, does pay for long term care services and supports and is often seen as the primary long term care option for many U.S. retirees. However, to qualify for Medicaid, many retirees are required to take drastic steps such as spending down and/or transferring their income and/or assets. Nevertheless, with astute eldercare planning, retired seniors can avoid taking these drastic steps and still qualify for Medicaid by purchasing a so­ called Medicaid compliant annuity. Although a Medicaid compliant annuity is generally a good vehicle for quickly sheltering assets to facilitate access to Medicaid, this annuity has several inherent deficiencies that make them unattractive options except in emergency situations where expeditious access to Medicaid is required. When access to long term care is not urgent and long term planning is an option, States have developed so-called Partnership for Long Term Care Program insurance policies that provide access to Medicaid services while sheltering some or all of a retiree's assets. We propose a new hybrid annuity product called a doubly enhanced Medicaid Partnership annuity (DEMPAN) that combines a Medicaid compliant annuity with a long term care rider that is integrated within the framework of a qualified Partnership policy. We believe that the combination of annuity income with long term care protection through a qualified Partnership policy can make DEMPANs serve as an important part of eldercare planning for retired seniors in the Medicaid penumbra by sheltering their assets and have Medicaid assist with paying their long term services and supports in a predictable manner.

This is a joint work with Victor I. Oguledo