In James v. Richman, 465 F.Supp.2d 395 (M.D.Pa. 2006), aff’d, 547 F.3d 214 (3rd Cir. 2008), an institutionalized spouse who was a nursing home resident brought a lawsuit against the Pennsylvania Department of Public Welfare (DPW) alleging that the DPW’s decision to deny his eligibility for Medicaid benefits violated the federal regulations governing annuities under the Medicaid Act. The DPW based its denial of benefits on the grounds that the annuity purchased by the institutional spouse’s wife who was living in the community in an amount exceeding the community spouse’s resource allowance permitted under the Medicaid program was an available resource to be counted in determining the institutionalized spouse’s Medicaid eligibility. The parties filed cross-motions for summary judgment. The federal district court held, among other things, that the institutionalized spouse showed (1) the likelihood of success on merits of his claim, supporting his motion to permanently enjoin the denial of Medicaid benefits; and (2) that it was in the public interest to permanently enjoin the denial of Medicaid benefits. As a result, plaintiff institutional spouse’s motion was granted in part and denied in part, and the DPW’s motion was denied.

The DPW filed an appeal. On appeal, the United States Court of Appeals for the Third Judicial Circuit affirmed the decision of the district court. The appellate court ruled that an annuity, purchased by the institutional spouse’s wife in an amount exceeding the wife’s resource allowance allowed under the Medicaid law, may not be treated by the DPW as an available resource in calculating the institutional spouse’s eligibility for Medicaid benefits.

New Jersey, like Pennsylvania, is within the Third Judicial Circuit. Also like Pennsylvania, New Jersey has enacted state regulations which effectively outlaw annuities as a method of preserving the assets of a married couple for the healthy spouse living in the community when the other spouse is in a nursing home. As a result, the James v. Richman case appears to significantly change the law in New Jersey concerning the use of annuities to help elderly residents of New Jersey remain in their homes. It now appears that annuities may be a new estate planning tool which may be used by married New Jersey residents to achieve Medicaid eligibility. Moreover, the court reached the right result in view of the economic realities faced by the spouse of a nursing home resident who is living in the community. In New Jersey, nursing homes cost an average of $10,000 per month. That’s a whopping $120,000 per year. New Jersey’s median property tax is $6,082, which is 7% of the average New Jersey homeowner’s income. That is the highest in the country. As a result, the community spouse simply cannot afford to stay in his or her home after the institutional spouse is admitted to a nursing home since he or she must live on the meager resource allowance permitted under the Medicaid rules. The Third Circuit understood that the purpose of the annuity is to protect the community spouse from impoverishment.

District Court opinion – james-v-richmond-district-court

Third Circuit Court of Appeals opinion – james-v-richman