A New Jersey appeals court ruled that payments to the spouse of a Medicaid recipient from an annuity purchased with the spouse’s “resource allowance” were properly considered “income” to the spouse under the Medicaid rules. J.G. v. Division of Medical Assistance and Health Services

J.G., who was married to M.G. for 67 years, suffered from Alzheimer’s disease and diabetes. He moved into an assisted living facility in 2008. By 2011, he needed long-term nursing care, moved into a nursing home and submitted an application for Medicaid.

In the Medicaid application, J.G. revealed that his gross monthly income was $3,513.41 (comprising of pension and Social Security income) and M.G.’s gross monthly income was $1,345 (consisting solely of Social Security income). The couple’s resources totaled $301,752.06.

Before J.G. submitted his Medicaid application, M.G. purchased a single premium immediate annuity for $196,729.27. M.G. paid for the annuity with her “resource allowance,” at that time $113,640, which is the maximum amount of resources the spouse of a Medicaid applicant is allowed to retain, and gifts of $83,089.27 from the couple’s children. The annuity provided M.G. with $1,824.38 per month for ten years. The annuity income received by M.G. was not disclosed on J.G.’s application for Medicaid benefits.

J.G. was found eligible for Medicaid as of September 1, 2011.  Because M.G. did not disclose her annuity income to Medicaid, and because her own monthly income of $1,345 was below the minimum monthly spousal income of $2,484.60 permitted at the time under the Medicaid program, J.G. was required to give M.G. $1,139.60 per month out of his monthly income to bring M.G.’s monthly income up to the monthly minimum under the Medicaid law. If J.G. had not been required to to give M.G. $1,139.60 per month, the money instead would have been paid to the nursing home.

In September 2012 the Medicaid agency conducted a review of J.G.’s continuing eligibility. At the review, M.G. revealed for the first time that she received a “monthly stipend” of $1,824.38 from the annuity. Concluding that M.G. received the minimum monthly spousal income when her Social Security benefits were combined with the annuity income, the Medicaid agency discontinued J.G.’s payment of $1,139.60 per month to M.G. The nursing home then demanded $14,142.16 in funds M.G. had received from J.G.’s monthly income, claiming this sum would have been paid to the nursing home but for the fact that the annuity income had been concealed from the Medicaid agency.

J.G. filed an administrative appeal and the case was heard by an administrative law judge (ALJ). After a hearing, the ALJ ruled that M.G.’s monthly annuity income was comprised of taxable interest income of $45.60, but that the remainder of the annuity income represented a return of principal on M.G.’s “resource allowance” and thus was not income. The ALJ concluded the Board’s decision to discontinue J.G.’s payment of $1,139.60 per month to M.G., thus compelling M.G. to resort to the principal of her “resource allowance” for her support, was arbitrary and capricious. The Director of Medicaid issued a final agency decision rejecting the ALJ’s decision and finding that the annuity payments constituted income.

J.G. filed an appeal, but died during the pendency of the appeal. J.G.’s wife, M.G., pursued the appeal as the Executrix of J.G.’s estate.

On appeal, the Estate of J.G. presented the same argument that had prevailed before the ALJ, that is, that the annuity payments, with the exception of $45.60 in interest income, were not income but merely a return of principal on M.G.’s “resource allowance,” which M.G. was entitled to retain. Therefore, according to the estate, J.G.’s payment of $1,139.60 per month to M.G. should not have been discontinued.

The Superior Court of New Jersey, Appellate Division, rejected the estate’s argument, relying on the definition of “income” set forth in the federal Medicaid statute. In that regard, 42 U.S.C.A. § 1382a(a)(2)(B) provides that income includes “any payments received as an annuity, pension, retirement, or disability benefit.” (emphasis added) Since the annuity payments to M.G. were income under the Medicaid rules, the Court ruled that the Medicaid agency properly discontinued J.G.’s payment of $1,139.60 per month to M.G.

The case is annexed here – J.G. v. Division of Medical Assistance and Health Services

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