In the event of a Medicaid denial as a result of an unauthorized transfer or gift to a third party, one avenue of redress that may be available to a Medicaid applicant is to seek a waiver of the penalty based upon the “undue hardship” exception in the Medicaid regulations. The standards under which a Medicaid applicant can prevail on a claim for an “undue hardship” exception to the imposition of a Medicaid ineligibility period resulting from an asset transfer, or gift, follow.

The United States Code provides for states to make determinations that the denial of Medicaid eligibility “would work an undue hardship….” 42 U.S.C. §1396p(c)(2)(D). See 20 C.F.R. §416.1246; see also HCFA Transmittal No. 64, §3258.10(C)(4), 5. (“When application of the transfer of assets provisions … would work an undue hardship, those provisions do not apply…. Undue hardship exists when application of the transfer of assets provisions would deprive the individual of medical care such that his/her health or his/her life would be endangered. Undue hardship also exists when application of the transfer of assets provisions would deprive the individual of food, clothing, shelter, or other necessities of life.”)

Again, by way of example, under the New Jersey hardship exception regulation:

Upon imposition of a period of ineligibility for long-term care level services because of an asset transfer,…an applicant may apply for an exception to the transfer of asset penalty if he or she can show that the penalty will cause an undue hardship to him or herself.

N.J.A.C. 10:71-4.10(q). Undue hardship will be found to exist if the Medicaid penalty “would deprive the applicant/beneficiary of medical care such that his or her health or his or her life would be endangered,” or “would deprive the individual of food, clothing, shelter, or other necessities of life.” Id. (emphasis supplied).

In order to prevail in a hardship exception request, the applicant must demonstrate that,

the transferred assets are beyond his or her control and that the assets cannot be recovered. The applicant/beneficiary shall demonstrate that he or she has made good faith efforts, including exhaustion of remedies available at law or in equity, to recover the assets transferred.

Id. (emphasis supplied).

The hardship exception thus places the burden on the applicant to pursue litigation if necessary to recover the transferred assets.

The limited reported New Jersey case law on the hardship waiver demonstrates that the requirements for entitlement to the hardship exception are stringently applied. See K.C. v. DMAHS, 2002 WL 31954976 (OAK Dkt. No. HMA 1291-02), rev’d, 2002 WL 32593033 (N.J. Admin. 2002) (reversing the Administrative Law initial decision that the petitioner qualified for a hardship waiver); E.P. v. DMAHS, 2002 WL 31098144 (OAL Dkt. No. HMA 063-02), rev’d, 2002 WL 32552608 (2002) (reversing the Administrative Law initial decision that the petitioner qualified for a hardship waiver); C.P. v. DMAHS, 2003 WL 22700943 (OAK Dkt. No. HMA 6728-03), adopted, 2003 WL 23643608 (2003) (adopting the Administrative Law initial decision that the petitioner did not qualify for a hardship waiver).