The Superior Court of New Jersey, Appellate Division, affirmed a decision of the Director of New Jersey Medicaid reversing a ruling of an Administrative Law Judge (ALJ) who reduced C.W.’s Medicaid ineligibility penalty previously assessed for transferring assets for less than fair market value. C.W. v. Divison of Medical Assistance and Health Services, Docket No. A-2352-13T2 (App. Div., August 31,2015)

C.W. is a 90 year old widow. She began residing in a nursing home in 2007. One year later, in 2008, C.W. gifted $539,352.25 in cash to her 3 children along with her home, then valued at $324,582.86. A few days later, C.W. applied for Medicaid benefits with the Union County Division of Social Services (UCDSS). As a result of the $863,935.11 gift, C.W. was denied benefits for a period of 10 years, 4 months and 13 days. She did not appeal the denial of Medicaid benefits or the length of the penalty period.

After receiving the denial, C.W.’s children returned the home to C.W. The home was subsequently sold with net sale proceeds of $252,272.79. Although these proceeds were deposited into a savings account in the names of two of her children, the children entered into a written agreement providing that the $252,272.79 was not owned by the children, and that C.W. would have unlimited access to the funds. In addition, the children returned $234,600 of the total cash gift of $539,352.25 to C.W., who used the returned finds to pay the outstanding nursing home bill. Thus, of the total gift of a home and cash of $539,352.25 made to her children before C.W. filed the first Medicaid application, the children returned the home and cash of $234,600 to C.W. The children retained cash totaling $304,752.25.

In 2013, C.W. applied for Medicaid again. UCDSS denied the application, referencing her prior 2008 application, denied because she gifted assets for less than fair market value for the purpose of qualifying for Medicaid. UCDSS also noted not all of the assets C.W. previously gifted to her children were returned. C.W. filed an appeal.

After conducting a hearing, the ALJ ruled in favor of C.W., concluding that (1) the proceeds from the home’s sale were C.W.’s assets because the parties so stipulated in their agreement and the sales proceeds were used solely to pay C.W.’s nursing home expenses, and (2) UCDSS should reduce the penalty period to reflect only the unreturned cash totaling $304,752.25.

The ALJ’s decision was reviewed by the Director of the Division of Medical Assistance and Health Services (DMAHS), the State Medicaid agency. The Director rejected the ALJ’s decision, and reinstated the original penalty of 10 years, 4 months and 13 days. The Director concluded that (1) Medicaid regulations do not provide for the “reopening” of an existing penalty period through the submission of a later application; (2) under federal law a Medicaid penalty period could not be reduced when only some of the gifted assets are returned. Rather, a penalty period could only be eliminated when all of the previously transferred assets were returned to the applicant; and (3) continued enforcement of the original penalty period was justified because C.W. had the opportunity to appeal UCDSS’ initial imposition of the penalty in 2008 but did not appeal.

C.W. then appealed to the Superior Court of New Jersey, Appellate Division. The appeals court affirmed, finding “no reason to disturb DMAHS’ decision.” The appellate division held as follows:

C.W. … applied for benefits in 2008, was denied, had a penalty imposed for improperly transferring assets during the look-back period and elected not to challenge that determination. C.W. points to no regulation or other authority, nor are we able to locate any, supporting the proposition she should be able to re-litigate a previously adjudicated and finalized penalty through a subsequent and wholly independent reapplication.

The case is attached here – C.W. v. Divison of Medical Assistance and Health Services

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