NJ Medicaid is now denying eligibility if the applicant engages in Medicaid estate planning with the intent of achieving eligibility for benefits, holding that the motivation of the applicant determines whether the applicant is or is not eligible. This ruling is plainly contrary to settled NJ law

I recently received a denial notice from the local Medicaid agency in a case in which the applicant’s Medicaid estate plan involved making a loan to a relative. The borrowing relative signed a promissory note agreeing to repay the note each month at a regular payment amount with included a reasonable interest rate. The note and underlying loan was undoubtedly bona fide under the law. Unfortunately, the agency counted the loan as a gift, resulting in the applicant being assessed a Medicaid penalty period of many months, costing hundreds of thousands of additional dollars to private pay for care during the penalty. The reason for the determination that the loan was actually a gift: according to the agency, if the reason for the loan was to qualify the applicant for Medicaid, then the loan is considered to be a gift under the Medicaid rules. Now, apparently, motivation for an action is the principal factor in determining Medicaid eligibility.

The Medicaid agency is plainly wrong on this issue. We have very good cases in NJ that sanction Medicaid estate planning even if the motivation for engaging in the plan is to achieve Medicaid eligibility. In re Keri, 181 N.J. 50 (2004) recognized and, indeed, sanctioned the absolute right of a Medicaid applicant and his/her spouse to preserve assets in the context of planning for Medicaid eligibility. The Court confronted the basic underlying concern with Medicaid planning, namely the financial consequences on public funds, and likened it to tax planning.

[M]edicaid planning is legally permissible under federal and state Medicaid law. Notwithstanding the Appellate Division’s laudable purpose to preserve public monies for those who are in need, Congress has carefully defined and circumscribed Medicaid planning, as has the State of New Jersey. By its actions, Congress has set the public policy for this program and although some might choose a different course, the law has not. Few would suggest that it is improper for taxpayers to maximize their deductions under our tax laws to preserve income for themselves and their families–even though they are, by their actions, reducing the amount of money available to government for its public purposes. 181 N.J. at 69.

Likewise, in hk-v-state-dept-of-human-services-div-of-medical-assistance-and-health-services.doc, 184 N.J. 367 (2005) the New Jersey Supreme Court in a case that examined the transfer of real estate in Medicaid planning, emphasized an individual’s right to transfer assets or purchase exempt assets in contemplation of Medicaid eligibility.

[P]roperty transfer should not be viewed with skepticism and disapproval merely because it may precede Medicaid eligibility. Timely transfer of property, even if done to achieve eligibility status, is permissible. Furthermore, planning for the eventuality that Medicaid assistance may be required one day is not the equivalent of collusion to achieve that to which one is not entitled. Review of an individual’s entitlement should not be burdened with the suspicion of such duplicity. 184 N.J. at 379.

More recently, in wt-v-division-of-medical-assistance-and-health-services.doc, 391 N..J. Super. 25, (App. Div. 2007), citing in-the-matter-of-shah.doc, 694 N.Y.S. 2d 82, 87 (1999), the Appellate Division emphatically chastised state agencies for impugning the motivations of those facing catastrophic long-term health care costs.

[N]o agency of the government has any right to complain about the fact that middle class people confronted with desperate circumstances choose voluntarily to inflict poverty upon themselves when it is the government itself which has established the rule that poverty is a prerequisite to the receipt of government assistance in the defraying of the costs of ruinously expensive, but absolutely essential, medical treatment. 391 N..J. Super. at 37.

For those of you who may face denials of Medicaid applications based on an agency theory that Medicaid estate planning renders the applicant ineligible when the motivation for the planning is to attain Medicaid eligibility, another recent Fair Hearing decision out of NY holds otherwise. In In the Matter of the Appeal of Mary K. ____, the NY Medicaid agency said, in another Medicaid planning case involving a loan, that the loan was a “sham” because the sole reason for making it was Medicaid eligibility. The agency also presented other reasons to deny the loan strategy. The NY Administrative Law Judge held the loan to be valid as it met the legal requirements and the applicant received valuable consideration for the loan.

UPDATED on 7/24/08: I filed an appeal of the denial of Medicaid eligibility referred to above. In New Jersey, an appeal of a Medicaid denial leads to a trial, called a Fair Hearing, before an administrative law judge (ALJ) . While we were waiting for a trial date in the administrative forum, I filed a motion for summary judgment, seeking to have the case resolved before trial. A summary judgment motion can be granted only when there is no dispute as to the facts in the case, and the party seeking summary judgment is entitled to a decision in his favor as a matter of law. In this case, ALJ Joseph Paone agreed with our position, and granted summary judgment in favor of the Medicaid applicant. The judge held that (1) the motivation for the loan was irrelevant in determining its exempt status, and (2) the loan was not a gift under federal law. The ALJ’s decision can be found here: aljs-decision. Unfortunately, however, the decision can be reviewed, and reversed, by the Director of the Medicaid agency within 45 days under the system of administrative appeals in New Jersey. For now, however, the erroneous denial of Medicaid eligibility in this case was corrected by the ALJ.