NJ Resident Found Eligible For Medicaid Despite Making A Gift And Owning An $80,000 Annuity

For the first time, the Division of Medical Assistance and Health Services (DMAHS), New Jersey’s  Medicaid agency, held that an applicant for nursing home Medicaid was eligible for benefits despite the fact that she made a substantial gift within the look-back period and owned an $80,000 annuity. M.W. v. Division of Medical Assistance and Health Services, OAL Docket No. 2998-2013 (January 28, 2014).

Mary Willow (M.W.), an 87 year old woman unable to care for herself as a result of a stroke, has resided in the Clark Nursing Home in Clark, NJ since 2006. M.W. applied for Nursing Home Medicaid in November 2012. In her application for Medicaid benefits, M.W. disclosed that she purchased an annuity in September 2012, just two months before she applied for benefits. The annuity, valued at $80,010.58, was irrevocable, non-assignable and actuarially sound. The annuity began to pay benefits immediately, in September 2012, and provided for eleven payments of $7280.97 each month thereafter. The State of New Jersey was named the first remainder beneficiary of the annuity, and M.W.’s son was the secondary beneficiary.

In addition to purchasing the annuity in September 2012, M.W. also made a gift of $43,190.53 to her son. This “gift-annuity” plan is often used to attain Medicaid eligibility while preserving assets for family members. The gift results in a penalty, or period of ineligibility for Medicaid, while the annuity provides the income which, when combined with the applicant’s other income, is used to pay the cost of nursing home care for each month that the applicant is ineligible for Medicaid as a result of the gift.

DMAHS denied M.W.’s application for Medicaid based upon excess resources, holding that, because she made $80,010.58 inaccessible by purchasing an annuity when the funds could have been used to pay for nursing home costs, the annuity was a countable resource which exceeded the Medicaid resource limit of $2,000.00.

M.S. appealed the denial by filing for a Fair Hearing. At the hearing, the administrative law judge (ALJ) reversed the decision denying Medicaid eligibility made by DMAHS.  The ALJ held that the annuity could not be considered a countable resource because, under federal law, any annuity which is irrevocable, non-assignable, actuarially sound with the State named as the first remainder beneficiary, is exempt.

The ALJ’s decision was reviewed by the Director of DMAHS. The Director bluntly condemned the gift-annuity plan M.W. used to obtain Medicaid eligibility:

[M.W.] is engaging in legal and financial gamesmanship in order to make herself Medicaid eligible, by having someone else hold funds that could be used for her care and arguing they are excluded from the resource eligibility determination.

However, the Director grudgingly affirmed the ALJ’s decision as follows: “[I] am constrained to adopt the Initial Decision finding that petitioner’s annuity cannot be considered a countable resource at this time.”

The ALJ Decision is attached here – M.W. v. Division of Medical Assistance and Health Services

The Final Agency Decision is attached here – M.W. v. Division of Medical Assistance and Health Services – Final Agency Decision

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