Federal Court Enjoins New Jersey From Counting Annuity Owned By Medicaid Applicant’s Spouse As An Available Resource

A federal district court judge in New Jersey granted a Medicaid applicant’s motion for a preliminary injunction, thereby enjoining the State from counting an annuity owned by her husband as an available resource in determining her eligibility for Medicaid. Flamini v. Velez, Civil No. 1:12-cv-07304 (D.N.J. July 19, 2013)

Elizabeth Flamini entered a skilled nursing care facility in Cherry Hill, NJ for various medical conditions. When she entered the facility, Mrs. Flamini and her husband owned assets which included two IRAs and a tax-qualified savings account, all owned by applicant’s husband.

Mr. Flamini liquidated these accounts and used the proceeds to purchase an individual retirement annuity for $215,256.51. The annuity was issued in Mr. Flamini’s name and called for monthly income payments of $3,596.35 for a term of five years. The annuity listed the State of New Jersey as the primary remainder beneficiary up to the full amount of medical payments made on behalf of Mrs. Flamini. The annuity contained an endorsement which indicated that: (1) all provisions of the annuity should be interpreted in accordance with the requirements of Internal Revenue Code (IRC) §408(b), requiring that annuities are non-transferable and irrevocable; and (2) the annuity was non-transferable, non-forfeitable, and could not be sold or assigned.

Mrs. Flamini applied for Medicaid at the Camden County Welfare Agency (CWA). The CWA determined that Mrs. Flamini was not eligible for Medicaid based on her resources. The denial stated that the annuity owned by the applicant’s husband was being counted as an available asset. There is no dispute that, if the annuity was not counted, Mrs. Flamini would have been eligible for Medicaid.

Mrs. Flamini filed a lawsuit in federal district court in Camden and moved for a preliminary injunction enjoining the State of New Jersey from (1) treating the annuity as a disposal of assets for less than fair market value; and (2) considering the annuity in its asset calculation. The court denied plaintiff’s application for an injunction preventing the state from treating the annuity as a disposal of assets for less than fair market value, finding judicial review, at the time of the decision, to be “plainly premature.”

However, the court granted plaintiff’s application and enjoined defendant from considering the annuity in its calculation of countable resources. The court found that “courts have consistently held that an irrevocable, non-assignable annuity does not fit the statutory definition of an available resource.” The court also found that the annuity was intended to be interpreted to be in accord IRC § 408(b) which specifically bars forfeitability and assignability. In addition, the court found that the annuity, purchased with proceeds from the husband’s tax-qualified retirement accounts, was irrevocable, non-assignable, actuarially sound, and provided for equal payments with no balloon payments, thus meeting an  exception outlined in the Medicaid rules pertaining to countable resources.

Significantly, the court noted, and disputed, defendant’s argument that, in granting Medicaid eligibility, the court was acting against the public interest because it inappropriately allowed plaintiff, and others that are similarly situated, to “circumvent the Medicaid eligibility rules.” The court held that defendant’s “argument presupposes that the Flaminis’ structuring of their financial assets represents a circumvention of the law. In fact, the law appears expressly designed to permit this specific type of structuring without threatening to compromise Medicaid eligibility.”

The case is annexed here – Flamini v. Velez

Updated on August 2, 2013: Although the federal court judge in the Flamini case issued a preliminary injunction preventing the State of New Jersey from treating an IRA annuity owned by Mrs. Flamini’s spouse as a countable resource, the court also dismissed Mrs. Flamini’s application to enjoin the State of New Jersey from treating the annuity as a transfer of assets for less than fair market value as premature because the State was not arguing that point at the time of the court action. My colleague, Jerold E. Rothkoff, Esq., who represents Mrs. Flamini, recently reported that he received an eligibility determination from the Camden County Welfare Agency assessing a 27 month penalty on the purchase of Mr. Flamini’s annuity, thereby treating the annuity as an uncompensated transfer of assets.  Jerry confirmed that he will be filing another lawsuit against the New Jersey’s most recent action in this case.