NJ Administrative Judge Finds That A Retirement Annuity Owned By A Community Spouse Is Exempt Under Medicaid

In only the second administrative law case of its kind decided in New Jersey, an administrative law judge (ALJ) recently decided that an annuity purchased by a community spouse with retirement assets formerly held in the community spouse’s IRA was exempt in determining the eligibility of the institutional spouse for nursing home Medicaid benefits. I am proud to report that I participated in the case as legal counsel for D.F., who is the community spouse and the executor of the estate of the petitioner, E.F., his former spouse, who is now deceased.

In E.F. v. Division of Medical Assistance and Health Services and the Union County Board of Social Services, OAL DKT. No. HMA-7536-08 (Union County, February 26, 2009), D.F. was appointed as guardian for his wife E.F. in 2006. In January 2007, E.F. was admitted to a nursing home, where she remained until her death. In April 2007, D.F. used the assets in his IRA to purchase a qualified retirement annuity. The annuity met the requirements in the Deficit Reduction Act of 2005 (DRA) in that it was irrevocable, non-assignable and transferable. In May 2007, an application for nursing home benefits was filed on E.F.’s behalf. One year later, in May 2008, the state Medicaid agency denied E.F.’s application for benefits, concluding that the annuity was a countable resource and, as a result, E.F. was ineligible for Medicaid due to excess resources.

In June 2008, E.F. filed an appeal from the denial of nursing home Medicaid benefits and requested a fair hearing in New Jersey’s Office of Administrative Law. On appeal, E.F. alleged that the denial of nursing home Medicaid benefits should be reversed because an annuity purchased by a community spouse with his IRA assets is an exempt resource under the DRA. The parties stipulated that three companies engaged in the business of purchasing annuities advised the parties by letter that they would not purchase a qualified retirement annuity, and that “any purchase of the annuity would not be a purchase of the annuity contract itself, but would, in fact, be a purchase of the payment stream” from the annuity.

While the case was pending, petitioner filed a motion for summary judgment. ALJ Walter M. Braswell, who decided the J.L. v. DMAHS case (which I blogged about here), was also assigned to handle this case, and entered summary judgment in favor of petitioner. Judge Braswell held that D.F.’s qualified annuity could not be liquidated, and therefore was not countable, because (1) the parties stipulated that there was no secondary market for qualified retirement annuities based on the three letters submitted by the annuity companies, and (2) the income from the annuity, payable to the community spouse, was protected by the Medicare Catastrophic Coverage Act which provides that “no income of the community spouse shall be deemed available to the institutional spouse.”

There are now clear conflicts between courts in this state and federal and state courts in this federal judicial circuit on the issue of the includability or countability of annuities owned by the community spouse in determining the eligibility of the institutional spouse for Medicaid benefits. In James ex rel. James v. Richman, 465 F.Supp.2d 395 (M.D.Pa., Nov 21, 2006), aff’d, James v. Richman, — F.3d —- (3rd Cir.(Pa.) Nov 12, 2008) (NO. 06-5092) (which I blogged about here) and Weatherbee v. Richman, ____ F. Supp. _____ (C.A. No. 07-134, January 22, 2009) (which I blogged about here), federal courts in the third judicial circuit 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. Similarly, in this case, E.F. v. DMAHS, and in J.L. v. DMAHS, OAL DKT. NO. HMA 3790-08 (Union County, January 28, 2009) (which I blogged about here), state administrative courts in New Jersey reached that same result as the federal courts. However, in N.M. v. Division of Medical Assistance and Health Services, ____ N.J. Super. ____ (App. Div. 2009), the state’s appellate court ruled that the value of an annuity purchased for the sole benefit of the community spouse may be considered in determining the institutionalized spouse’s resource limit for Medicaid eligibility. (I blogged about the N.M. cases here.)

Clearly, there is a division of authority on the issue of annuities and Medicaid planning which must be resolved in upcoming cases. In the meantime, the E.F. v. DMAHS case now goes to the Director of the state Medicaid agency, who can adopt, reject or modify Judge Braswell’s decision.

The E.F. vs. DMAHS case is annexed here – ef-v-dmahs

UPDATE: As expected, on May 27, 2009 the Director of the New Jersey’s Medicaid agency reversed and remanded the ALJ’s  decision. The Director found that a material issue of fact existed which necessitated a remand of the case to the Office of Administrative law “for further findings regarding the availability and value of the annuity.” I blogged about the Director’s decision here.