New Jersey Administrative Judge Finds That A Retirement Annuity Owned By A Medicaid Applicant’s Spouse Is Not Countable

An Opinion and Order was entered on October 20, 2009 by Administrative Law Judge Joseph A. Paone, in the consolidated matter of the Estate of F.L. v. Division of Medical Assistance and Health Services and the Union County Board of Social Services, OAL Docket No. HMA 13756-08.  The ruling in the Estate of F.L. case is important to those Medicaid applicants in New Jersey with spouses who own retirement annuities.

The petitioners in the Estate of F.L. case were married to spouses who purchased annuities with retirement assets.  The annuity contract endorsements stated that the annuities were irrevocable, non-assignable and non-transferable, rendering them non-saleable.  Respondents in the Estate of F.L. case, who were New Jersey’s State Medicaid agency and the local welfare board, directed the petitioners to contact the issuing insurance companies and request that changes be made to the endorsements so that the annuities could be sold.  The petitioners in the Estate of F.L. case refused, asserting that, since the petitioners had a no “right, authority or power to liquidate” the annuities in their present form with the endorsements, that the annuities were unavailable resources, which should not be considered in determining their Medicaid eligibility.  Respondents contended that the petitioners must co-operate in the investigation and liquidation of their resources under the Medicaid rules, and that their refusal to contact the insurance companies issuing the annuities rendered them ineligible for Medicaid.

On petitioners’ motion for summary judgment, Judge Paone concluded that petitioners did not have an obligation to request that the insurance companies change the terms of their annuity contract endorsements, or take any other action to allow for the liquidation of the annuity.  Judge Paone held that:

No legal authority has been advanced in support of the position that an applicant under these circumstances must make a request to the insurance company to change the terms of an annuity contract or take some other action to allow for liquidation of the annuity.  So, therefore, I must CONCLUDE that petitioners have no such obligation.

Accordingly, Judge Paone entered summary judgment in favor of petitioners, reversing the State’s denial of Medicaid eligibility.

Judge Paone’s decision is reviewable by the Director of the State Medicaid agency, who can affirm, modify or reverse his decision. Whatever the ultimate outcome, however, Judge Paone’s ruling is important because it recognizes that there are legitimate limitations on a Medicaid applicant’s responsibility to liquidate assets. Judge Paone found that a Medicaid applicant has no obligation to request that an insurance company which issued an annuity to his or her spouse change the terms of the annuity contract, nor take any other  action to allow for liquidation of the annuity in order to comply with the applicant’s duty to cooperate imposed by N.J.A.C. 10:71-2.2. If the applicant does not have the right, authority, or power to liquidate the annuity in its present form, the annuity is an inaccessible resource according to N.J.A.C. 10:71-4.4(b)(6), and must be excluded from Medicaid’s resource calculation.

As stated by one of the attorneys involved in the the Estate of F.L. case: “The crux of the case is that where there is no market to be found for the annuities as they are written, the applicant does not have to lift a finger to create a market.” ALJ Paone’s Opinion and Order can be found here – Estate of F.L. v. Division of Medical Assistance and Health Services

UPDATED ON 4/25/10 – The Director of the State Medicaid agency reversed ALJ Paone’s Opinion and Order, finding that “[c]ase law supports the proposition that an applicant must take steps to obtain resources.”  As a result, the Director remanded the case for further proceedings on whether the petitioners – regardless of whether they were willing to do so – could change the payee or otherwise make the annuities accessible. I have been informed that, before another administrative hearing was held, the Medicaid agency granted eligibility after petitioners showed that the issuing insurance companies would not consent to making any changes to the endorsements so that the annuities could be sold. The Final Agency Decision can be found here – Estate of F.L. v. Div of Medical Assistance (Final Dec)