In a case of major importance in the Medicaid estate planning area, the Appellate Division of the New Jersey Superior Court held, in N.M. v. Division of Medical Assistance and Health Services, 405 N.J. Super. 353  (App. Div. 2009), certif. den., 199 N.J. 517 (2009), released yesterday, that the value of an annuity purchased for the sole benefit of the community spouse may be considered in determining whether the resources of the institutionalized spouse exceed the resource limit for Medicaid eligibility.

The Medicaid applicant, N.M., entered a nursing home in 2004. N.M.’s husband, A.M., remained in the couple’s home. At that time she entered the nursing home, N.M. paid the nursing home bills privately from the couple’s savings, which were valued at approximately $311, 051.83. Two years later, in 2006, A.M. used $131,500 of the couple’s savings to purchase a commercial annuity, under which he was entitled to receive monthly payments of $2,917 for forty-eight months. A.M. was the sole beneficiary of the annuity. The annuity was non-assignable and non-transferable. The State of New Jersey was the first remainder beneficiary of the annuity to the extent of Medicaid benefits paid on N.M.’s behalf. Two weeks after purchasing the annuity, N.M. applied for nursing home Medicaid benefits.

The county welfare board and the Division of Medical Assistance and Health Services (DMAHS) (hereafter collectively referred to as the “Medicaid agency”) denied the Medicaid application, finding that N.M. and her husband had resources that exceeded the resource limit under the Medicaid program. To make that determination, the Medicaid agency took into account the income stream from the annuity purchased by A.M.

N.M. filed an administrative appeal. The parties stipulated that the income stream from A.M.’s annuity could be sold on a secondary market for annuities, and was valued at $90,203 based on an offer from an annuity company to purchase the income stream for that amount. As a result, the administrative law judge held that the value of the income stream form the annuity purchased by A.M. could be considered as an available resource in determining N.M.’s eligibility for Medicaid because it could be sold on the open market. N.M. filed an appeal of this decision to the Superior Court, Appellate Division.

On appeal, the court held that the income stream for the annuity was countable under 42 U.S.C. §1396p(e)(4), a statutory provision in the federal Medicaid program enacted as part of the Deficit Reduction Act of 2005 (DRA). 42 U.S.C. §1396p(e)(4) states that “[n]othing in this subsection shall be construed as preventing a State from denying eligibility for medical assistance for an individual based on the income or resources derived from an annuity … .” Based on this statute, the court held that the Medicaid agency was authorized to hold the income stream for A.M.’s annuity countable since the parties stipulated that it could be sold on the open market.

The holding in N.M. case is contrary to the holdings in two recent federal cases, James v. Richman, 465 F.Supp. 2d 395 (M.D. Pa. 2006), aff’d., 547 F.3d 214 (3d Cir. 2008) and Weatherbee v. Richman, No. 07-134, 2009 U.S. Dist. Lexis 4402 (W.D. Pa Jan. 22, 2009), which both held that an annuity purchased for the sole benefit of the community spouse is not countable in determining the institutionalized spouse’s eligibility for Medicaid benefits. I blogged about the James v. Richman and Weatherbee v. Richman cases here and here. The appellate court in N.M. distinguished both of these cases by holding, first, that James v. Richman involved a Medicaid application filed before the DRA was enacted and, second, that Weatherbee v. Richman was not precedential because it was not approved for publication.

The N.M. vs. DMAHS case is annexed here – nm-v-division-of-medical-assistance-and-health-services

8/6/09 UPDATE: The court in Vieth v. Ohio Department of Job & Family Services, Docket No. O8AP-635 (App. Ct., July 30, 2009), a recent appellate court case from the Tenth Appellate District of Ohio, in a Medicaid eligibility case involving annuities, refused to follow New Jersey’s N.M. case, instead finding “more reasonable the interpretation and analysis” of the applicable federal statute set forth in the federal district court case entitled Weatherbee v. Richman, 595 F. Supp. 2d 607 (W.D. PA 2009), which I blogged about here. This is an interesting development which appears to call into doubt the strength of the analysis in the N.M. case. The Vieth v. Ohio Department of Job & Family Services case is annexed here – Vieth v. Ohio Dept of Job & Family Svcs.