As I reported here and here, federal district and appellate courts in Pennsylvania have ruled that an annuity purchased with a couple’s excess resources and payable to the community spouse is not countable in determining the institutionalized spouse’s eligibility for nursing home Medicaid benefits. Recently,  an administrative court, for the first time, reached the same result in a case involving a retirement annuity owned by a community spouse in New Jersey.

In jl-v-dmahs, OAL DKT. NO. HMA 3790-08 (Union County, January 28, 2009), the petitioner J.L. appealed the denial of nursing home Medicaid benefits by respondents Division of Medical Assistance and Health Services (DMAHS) and the Union County Board of Social Services (Board). J.L. entered a nursing facility on May 10, 2007. At that time he and his wife, P.L., had resources totaling $469,509.44. On September 13, 2007, P,L. purchased a single premium immediate annuity in the amount of $249,688, using funds withdrawn from her Fideiity Management 401 (k) Plan. The annuity paid $1,624.53 per month to P.L. for 240 months. The State of New Jersey was named as the primary beneficiary of the policy up to the amount of benefits paid for J.L. The annuity was irrevocable, non-assignable, actuarially sound, and provided for payments in equal amounts over P.L.’s lifetime. J.L. applied for Medicaid benefits, through his wife P.L., at the Board on September 28. 2007. At the time of J.L.’s application for Medicaid benefits, the Board evaluated J.L. and P.L.’s resources and found them to total $359,614. The Board included P.L.’s annuity in the resource total. On March 7, 2008, the Board denied Medicaid eligibility for J.L. due to excess resources. On March 18, 2008, the petitioner appealed the denial of benefits, requesting a fair hearing. The parties then filed cross-motions for summary judgment in lieu of a hearing.

Administrative Law Judge Walter W. Braswell relied upon james-v-richman in concluding that “payments from an annuity owned by the community spouse are income of the community spouse under 42 U.S.C.5 1396r-5 [the federal Medicaid statute] and the State could not compel the community spouse to attempt to sell the income stream.” Summary judgment was, therefore, granted in favor of the petitioner, and the Board’s decision denying Medicaid eligibility was reversed.

The jl-v-dmahs case is subject to plenary review by the Director of Medicaid, who can affirm, modify or reverse the administrative judge’s decision. However, the case is tremendously exciting. If affimed, the case will open new planning strategies to assist couples when one spouse is facing the catastrophic costs of nursing home care and the other spouse must continue to live, and support him/herself, in the community.

UPDATED ON MAY 5, 2009: The Director of Medicaid recently issued a decision reversing ALJ Braswell’s initial  decision. The Director ruled that the Medicaid applicant’s annuity, payable to the community spouse,  “must be considered in determining … eligibility.” The Director then remanded the case back to the Office of Administrative Law “to determine the effect of this annuity on [p]etitioner’s eligibility.” The Director held that the “[p]etitioner and his spouse must take steps necessary to liquidate an otherwise available resource.” The remand was ordered to determine whether the annuity could be sold on the secondary market and, if so, the value of the annuity. There is a question whether a retirment annuity like the one in this case purchased with retirement funds can be sold on the secondary market, and that is apparently the issue which the Director wants answered on remand.  The Director’s decision can be found here – jl-vs-dmahs-directors-decision