NJ Federal Judge Finds Annuity Purchased By Spouse Of Medicaid Applicant With Couple’s Excess Resources Is An Exempt Asset

A federal district court in New Jersey holds that an annuity purchased by the spouse of a Medicaid applicant with the couple’s countable resources which exceeded the resource limit under Medicaid is not a transfer for less than fair market value for purposes of Medicaid eligibility. Carlini v. Velez (U.S. Dist. Ct., D.N.J., No. 12-7290 (JEI/KMW), June 4, 2013).

Nursing home resident James Carlini’s wife purchased an annuity in the amount of $310,000. The annuity called for equal monthly payments in the amount of $8,617.75 to Mrs. Carlini for a period of thirty-six months. Mrs. Carlini’s life expectancy at the time she purchased the annuity was 10.03 years, and thus the annuity was actuarially sound. Additionally, the annuity was permanently irrevocable, and nontransferrable. The annuity also named the State of New Jersey as the first remainder beneficiary, However, the annuity included a provision stating that the annuity company reserved the right to require that a representative from the state and a representative from the estate of the owner or secondary beneficiary agree to the amount to be paid to the state.

Mr. Carlini applied for Medicaid benefits. The state denied Mr. Carlini’s application for benefits, finding that the annuity purchased by Mrs. Carlini was an available and countable asset in excess of the Community Spouse Resource Allowance. As a result, Mr. Carlini sued the state in federal court and asked for a preliminary injunction. The state then issued a revised eligibility determination, finding Mr. Carlini eligible for Medicaid, but subject to a thirty-nine month and twenty-nine day penalty period because the annuity was found to be a transfer of assets for less than fair market value. Specifically, the state argued that because of the provision requiring the owner or beneficiary of the annuity to consent to the amount to be paid to the state, the annuity did not properly name the state as the remainder beneficiary. Mr. Carlini argued that he would waive the authority to consent.

The U.S. District Court for the District of New Jersey granted the preliminary injunction. The Court held that the provision in the annuity was merely a verification provision, not an authority to consent, so the annuity is not a transfer for less than fair market value. The court noted that although the state did not contest whether the annuity was a countable asset, exempting an annuity purchased by a community spouse from countable assets “creates a potentially large loophole in the Medicaid laws by allowing a Medicaid applicant to turn a countable asset into income for the community spouse, which is not deemed available to the institutionalized spouse.”

The Court’s Order is attached here – Order granting preliminary injunction

The Court’s decision is attached here – Opinion by Judge Irenas granting preliminary injunction