Modern Half-a-Loaf Strategy Last Updated January 28, 2018

Table of Contents:
  1. Introduction
  2. How It Works
  3. Example
  4. Is It Necessary To Do Both the Gift and the Annuity?
  5. Who Is This For?
  6. What States Can Use This Strategy?
  7. How Can I Employ The Modern Half-a-Loaf?


The Modern Half-a-Loaf strategy is a well-established, legal way of becoming eligible for Medicaid before you’ve spent all of your assets. It does so by reducing your "countable assets" (the assets counted when considering your Medicaid eligibility) by giving a portion to a family member and placing the remainder in a Medicaid Annuity. The ultimate benefit is that your family retains a substantial portion (usually 55 - 60%) of your assets, which otherwise would have been spent on care.

How It Works

Here's how it works. You transfer a certain amount, usually around 55-60%, of your countable assets to a family member (or anyone you choose). At the same time, you purchase a Medicaid Annuity in the amount of your remaining countable assets. A Medicaid Annuity is not considered an asset in most states, so your countable assets are now zero and you can apply for Medicaid. However, you are not yet eligible to receive Medicaid, because any gift you’ve given within the last 5 years subjects you to a Medicaid “penalty period” – a number of months you must wait before receiving Medicaid after applying. During those penalty months when you cannot receive Medicaid, the annuity pays you enough (when combined with any other income) to cover your care.

The Medicaid Annuity will be designed to end just when the penalty period ends. At that time, the annuity no longer counts as income because the payments have ended, and the gift no longer counts as an asset because the penalty period has ended. You are now eligible to receive Medicaid, and the gift to your family member is untouched.

You've saved the entire amount of the gift.


Let's say you are unmarried and about to enter a nursing home that costs $5,000 per month. Let's also say you have $100,000 in "countable assets." Without any Medicaid strategy, you would pay the nursing home out of pocket until you run out of money, which would take 20 months ($5,000 per month until the $100,000 is gone). After those 20 months, you would be eligible for Medicaid, but you would have spent all of your assets, leaving you and your family with almost nothing .

The goal of the Modern Half-a-Loaf strategy is to preserve some of those assets by making you eligible for Medicaid sooner. You give a portion of your $100,000, let’s say $50,000, to a family member. That gift means you will incur a penalty period before you can receive Medicaid. The exact length of the penalty period varies by state and amount given, but let’s assume the period for you is 10 months. That means you must wait 10 months before receiving Medicaid.

Now, with your remaining $50,000, you purchase a 10-month Medicaid Annuity. The annuity does two things: (1) it reduces your countable assets to zero, and (2) it pays you back the $50,000 over a 10-month period, which is exactly the $5,000 per month you need to cover your medical care. It is also the exact duration of your penalty period. So, at the end of those 10 months, the annuity is down to $0 and the penalty period is over. This means your countable assets are now zero and you can begin receiving Medicaid. Why go through all this?

Remember, the gift to your family is still untouched. You’ve saved the entire $50,000 gift amount.

Note that in many cases, the optimal split between the gift and annuity will not be 50/50. Determining the exact gift amount and annuity terms is very complex and involves a careful analysis of your situation. Professional advice is essential.

Is it necessary to do both the Gift and the Annuity?

Yes. The reason you do not only give the gift or only purchase the annuity is due to the Medicaid penalty period. If, in the above example, you gave the full $100,000 to a family member, the penalty period would be 20 months, so it would take 20 months to be eligible for Medicaid. You would have no way of paying for care during that time, so your family member would have to use the entire $100,000 gift to pay for those 20 months. No money would be saved. If instead you put the entire $100,000 into the annuity, it would take 20 months to fully pay out (at $5,000 per month), at which time you would have zero assets, so no money would be saved.

But by using a combination of the gift and annuity, the penalty period runs concurrently with the annuity period, so you save half your assets by becoming eligible for Medicaid in half the time. Your $50,000 gift means a 10-month penalty (not 20), so you only need to be concerned with paying for those 10 months, which the annuity covers. After those 10 months, the penalty period is over and your annuity payments have ended. You will then receive Medicaid and the $50,000 gift to your family is theirs to keep.

Historical Context

The Modern Half-a-Loaf strategy is one kind of “Transfer Strategy” or “Gift Strategy”—Medicaid strategies of retaining assets by transferring a portion to another person or entity. It is a modern variation of the “half-a-loaf” strategy, in which a portion of assets (“half,” for example) are given away and the rest is retained to pay for care. However, a provision in the Deficit Reduction Act of 2005 stated that any remaining assets must be spent down before the gift penalty period begins, so the classic half-a-loaf method is no longer viable. This is why the Medicaid Annuity became necessary, by transforming the remaining assets into income. It effectively creates a “safe harbor” for the amount, excluding it from countable assets while avoiding penalties. The Medicaid Annuity “safe harbor” concept recently faced an important court challenge, but the strategy was vindicated by the U.S. Third Circuit Court of Appeals in the Zahner Opinion.

Who Is This For?

Medicaid rules specific to your state are regularly updated. When determining your eligibility, your Medicaid caseworker will consider, among other things, your “countable assets” (typically, anything that could potentially be used to pay for medical care, including savings, stocks, automobiles beyond one car, etc.), income (both “earned income” such as wages and “unearned income” such as a Medicaid Annuity and pensions), and your “medical qualifications” (for example, if using funds for a nursing home, you must be either disabled, blind, or over 65 and requiring nursing home services). The caseworker will determine the penalty period for transferred assets by using your state’s “penalty divisor,” which is based on the average private pay cost of nursing home care in your state (updated periodically). All assets transferred (e.g., gifts) during the “lookback period” (the 5 years prior to Medicaid application) are subject to a penalty period. Additionally, some states have a “too much income” provision, which means that if total monthly income is too high, the penalty period from gifts given will begin not at the time of the gift, but after the income has been reduced to within the “too much income” threshold, resulting in a significant delay in Medicaid eligibility. Your Medicaid expert and annuity insurance agent will be aware of the relevant rules and caveats.

Which States is Modern Half-a-Loaf a viable option?

The Modern Half-a-Loaf strategy described above works in most states. Oregon, Washington, New York and North Dakota are the only states where a Medicaid application cannot use a short-term annuity, which makes this strategy not possible. In New York State, however, the Modern Half-a-Loaf strategy is possible by using a Promissory Note.

How do I employ the Modern Half-a-Loaf strategy?

Once you understand the basic concept of the Modern Half-a-Loaf strategy, it seems fairly straight-forward. In reality, determining the optimal gift amount and annuity terms can be extremely complex, requiring knowledge not just of your own finances, but of your state’s evolving Medicaid rules, the impact of factors such as age and marriage, and even specific court cases in your federal district.

Professional advice from an expert with Medicaid knowledge and experience is essential. Mistakes can have serious negative consequences, including delay or denial of Medicaid.

State Specific Information

We have gathered a list of all the state specific information to determine how you might use the "Modern Half-a-Loaf".

State Strategy Viable Monthly Care Penalty Divisor
Alabama Yes $5,800
Alaska Yes $5,800
Arizona Yes $5,667
Arkansas Yes $5,277
British Columbia Yes Varies By Facility
California Yes $8,092
Colorado Yes $7,563
Connecticut Yes $12,388
Delaware Yes $8,639
District of Columbia Yes $9,456
Florida Yes $8,994
Georgia Yes $6,175
Hawaii Yes $8,850
Idaho Yes $6,840
Illinois Yes Varies By Facility
Indiana Yes $6,078
Iowa Yes $5,809
Kansas Yes $5,974
Kentucky Yes $6,067
Louisiana Yes $4,000
Maine Yes $8,476
Manitoba Yes Varies By Facility
Maryland Yes $8,684
Massachusetts Yes $10,768
Michigan Yes $8,018
Minnesota Yes $6,280
Mississippi Yes $6,405
Missouri Yes $4,889
Montana Yes $6,818
Nebraska Yes Varies By Facility
Nevada Yes $7,274
New Hampshire Yes $9,964
New Jersey Yes $10,114
New Mexico Yes $7,485
New York Yes Varies By Region

Central $8,768

Northern Metropolitan $11,455

New York City $11,843

Northeastern $9,414

Western $9,442

Long Island $12,390

Rochester $10,660

North Carolina Yes $6,300
North Dakota Yes $7,595
Ohio Yes $6,570
Oklahoma Yes $3,488
Ontario Yes Varies By Facility
Oregon Yes $8,425
Pennsylvania Yes $9,792
Rhode Island Yes $9,113
Saskatchewan Yes Varies By Facility
South Carolina Yes $6,672
South Dakota Yes $6,215
Tennessee Yes $5,472
Texas Yes $4,923
Utah Yes $4,526
Vermont Yes $10,261
Virginia Yes $5,933
Washington Yes $9,038
West Virginia Yes $6,482
Wisconsin Yes $7,880
Wyoming Yes $7,229

Medicaid Modern Half-a-Loaf Calculator

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Your Half A Loaf Breakdown

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This calculation includes all fees associated with implementing this strategy