When an Asset Becomes Income

Last week, in the case entitled J.G. v. Division of Medical Assistance and Health Services and the Morris County Board of Social Services, the Appellate Division of the Superior Court ruled that monthly payments from an annuity are considered solely as income for purposes of determining the rights of a Community Spouse to receive a portion of the income from the Institutionalized Spouse.    In doing so, the Court stated that the purchase of an annuity from what is known as the Community Spouse Resource Allowance (CSRA) does not render the annuity an exchange of one asset for another.  By deeming the payments from the annuity as income, the Court exemplifies the difference in how various forms of law treat the same issue.

In this case, J.G. and M.G. were married in 1959.  Due to the effects of Alzheimer’s disease and diabetes, J.G. entered an assisted living facility in December 2008, then a nursing home in April 2011.  In September 2011, a Medicaid application was submitted on behalf of J.G.  The application was approved.  In the approval, the agency awarded M.G. a portion of J.G.’s monthly income.  It did so to allow her to meet her Minimum Monthly Maintenance Needs Allowance (MMMNA) which is a spousal impoverishment protection to insure that a spouse residing at home will receive enough income to stay in that home.  In this case, M.G.’s monthly income was $1,345 and her MMMNA was calculated by the Medicaid office to be $2,484.60.  So they allowed her to receive the difference, $1,139.60 from J.G.’s income before the rest of J.G,’s income was paid over to the nursing home.

M.G., who had retained $113,640 in assets as her approved Community Spouse Resource Allowance, (CSRA), purchased an annuity, in the amount of $196,729.27, with these assets and money which she received as a gift from her children.  The annuity was for a term of ten years and was set to provide a monthly distribution of $1,824.38.  It had been purchased but not disclosed at the time of the Medicaid application.  When it was discovered one year later, the Medicaid office discontinued the monthly payment from J.G.’s income to M.G.

M.G. filed for a fair hearing.  At the hearing, the Administrative Law Judge (ALJ( agreed with her position that the income payment was mostly a return of principal and that only the taxable income from the annuity should be treated as income for Medicaid purposes.  After the agency rejected this decision, the Appellate Division made its determination that the ALJ was indeed incorrect.

Specifically, the Court cited 42 U.S.C.A. Section 1382a(a)(2)(B) which explicitly provides that income includes “any payments received as an annuity, pension retirement or disability benefit.”  In all, M.G. was left worse by the purchase of her annuity.  She could have conceivably purchased an annuity with resources that otherwise would have to be spent down prior to her husband receiving Medicaid benefits.  Instead by using her CSRA to buy the annuity, she was left with no assets as the assets she had were now considered income.