L.M. v. State, Div. of Medical Assistance & Health Services

• Citation: 659 A.2d 450,140 N.J. 480
• Parties: , Medicare & Medicaid Guide P 43,667 L.M., Petitioner-Appellant, v. STATE of New Jersey, DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES, Respondent-Respondent, and Middlesex County Board of Social Services, Respondent.
• Decision Date: 07 June 1995
• Court: United States State Supreme Court (New Jersey)

Page 480

140 N.J. 480

659 A.2d 450, Medicare & Medicaid Guide P 43,667

L.M., Petitioner-Appellant, v. STATE of New Jersey, DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES, Respondent-Respondent and Middlesex County Board of Social Services, Respondent.

Supreme Court of New Jersey.

Argued Jan. 30, 1995.

Decided June 7, 1995.

Kathryn A. Brock, Summit, for appellant.

John K. Worthington, Deputy Atty. Gen., for respondent (Deborah T. Poritz, Atty. Gen. attorney; Joseph L. Yannotti, Asst. Atty. Gen., of counsel).

Leighton A. Holness, Edison, for amicus curiae Legal Services of New Jersey, Inc. (Melville D. Miller, Jr., President, attorney; Mr. Miller, Mr. Holness, and John H. Fitzgerald, on the brief).

The opinion of the Court was delivered by

STEIN, J.

The issue in this appeal arises from an elderly couple's attempt to avoid the so-called "Medicaid Gap," a term used to describe a level of income that is "just above the Medicaid cut-off yet too low to cover the cost of nursing home care." Jill Quadagno et al., Falling into the Medicaid Gap: The Hidden Long-Term Care Dilemma, 31 The Gerontologist 521, 521 (1991). That is the quandary that confronted petitioner when he applied for Medicaid benefits to cover the cost of his nursing-home care. L.M.'s initial application for Medicaid benefits was denied because his combined income from Social Security and his private pension placed him above the "income cap" for eligibility. Thereafter, L.M. and his wife of over fifty years divorced, and the Chancery Division equitably distributed L.M.'s pension to his wife, reducing L.M.'s income below the "income cap." When L.M. reapplied for benefits, the Department of Human Services, Division of Medical Assistance and Health Services (DHS-DMAHS) continued to include L.M.'s pension as available income in assessing his Medicaid eligibility, and again denied his application for benefits. In an unreported opinion, the Appellate Division affirmed. We granted certification, 138 N.J. 265, 649 A.2d 1286 (1994).

I

The facts in this matter are undisputed. In February 1992, L.M., a seventy-five-year-old man, suffered a stroke and was admitted to the Somerset Medical Center. He was later transferred to the Veterans Memorial Home in Paramus, New Jersey, where he continues to reside.

In March 1992, L.M. applied for Medicaid benefits to pay for his nursing-home care. The Middlesex County Board of Social Services (Board) denied L.M.'s application in April 1992 because his monthly income exceeded the eligibility limit set forth in N.J.A.C. 10:71-5.6, which at that time was $1,266.00. The Board concluded that L.M.'s monthly income totaled $1,441.17. He received $783.80 per month in Social Security and $657.37 per month in pension benefits from Union Carbide Corporation (Union Carbide).

In July 1992, the Chancery Division declared L.M. a mental incompetent. Based on supporting certifications from examining physicians, the court found that he was "incapable of governing himself and managing his affairs." The court appointed L.M.'s daughter as his guardian.

Thereafter, L.M.'s wife, to whom he had been married since 1939, filed a complaint for divorce from bed and board pursuant to N.J.S.A. 2A:34-3. (A divorce from bed and board "does not dissolve the marital bond but merely decrees a judicial separation." 1 Gary N. Skoloff & Laurence J. Cutler, New Jersey Family Law Practice § 2.6, at 2-27 (5th ed. 1984) (citation omitted). However, "all property rights of the parties are treated as though a judgment of absolute divorce has been entered." Id. at 2-28.) In October 1992, the Chancery Division entered a judgment of divorce from bed and board. That judgment adopted a separation-and-property-settlement agreement that had been executed earlier by L.M.'s wife and his guardian. Concerning equitable distribution of marital property, the agreement provided that L.M.'s wife was to receive all of L.M.'s interest in his Union Carbide pension plan.

On that same date, the court entered a Qualified Domestic Relations Order (QDRO) that reflected the provisions of the agreement. The QDRO directed the administrator of the Union Carbide pension plan to pay to the "alternate payee," L.M.'s wife, "the benefits of the plan as if she were the employee pension beneficiary" starting in November 1992. Specifically, it ordered the administrator to pay L.M.'s wife "$657.37 per month plus all increases to which the participant may have been entitled."

Shortly before the court entered the judgment of divorce from bed and board, L.M.'s guardian again applied for Medicaid benefits. She included in the application copies of the soon-to-be-filed judgment of divorce from bed and board and the QDRO. In November 1992, the Board denied that application because of excessive monthly income. Discussing the QDRO's treatment of L.M.'s Union Carbide pension, the Board reasoned that "[t]his diversion of income is not recognized under prevailing Medicaid regulations." Accordingly, the Board concluded that L.M.'s monthly income remained at $1,441.17, which exceeded the income cap of $1,266.00 established by N.J.A.C. 10:71-5.6.

Thereafter, L.M.'s guardian requested a hearing, which was held in March 1993. In April 1993, an Administrative Law Judge (ALJ) reversed the Board's decision to deny Medicaid benefits to L.M., reasoning that under the Medicaid regulations only "available" income is considered in determining eligibility. Available income is defined under N.J.A.C. 10:71-5.1(b)1.i as income that a person actually receives. Based on the QDRO, the ALJ concluded that the pension payment of $657.37 per month from Union Carbide was no longer available to L.M. as income. Accordingly, L.M.'s monthly income, which consisted solely of his Social Security payments of $783.80, fell below the income cap of $1,266.00, thereby entitling him to Medicaid benefits.

The Director of the DHS-DMAHS reversed the ALJ's determination, holding that the Board had properly considered L.M.'s pension income in denying his application. The Director reasoned that "[r]educing L.M.'s countable gross income as a result of a [QDRO] would effectively eliminate the meaning of the Medicaid income eligibility standard for those who would divest themselves of pension or other income through that vehicle."

The Appellate Division affirmed, concluding that "the Director's decision that L.M.'s pension was income which was available to him, even though being paid to his former spouse pursuant to a QDRO, and thus includable when determining L.M.'s Medicaid eligibility, was correct." The court further noted that "[t]o reverse the Director on the present record could have the result of encouraging parties to secure divorces in order to establish Medicaid eligibility."

II

The Medicaid program, enacted in 1965 as Title XIX of the Social Security Act, "is designed to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary care and services." Atkins v. Rivera, 477 U.S. 154, 156, 106 S.Ct. 2456, 2458, 91 L.Ed.2d 131, 137 (1986). The program is a cooperative federal-state endeavor in which the federal government provides "financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons." Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784, 794 (1980). "In return, participating States are to comply with requirements imposed by the [program] and by the Secretary of Health and Human Services." Atkins, supra, 477 U.S. at 157, 106 S.Ct. at 2458, 91 L.Ed.2d at 137. Each state must develop a plan that includes "reasonable standards ... for determining eligibility for and the extent of medical assistance ... [that is] consistent with the objectives" of the Medicaid program. 42 U.S.C.A. § 1396a(a)(17)(A). An applicant is entitled to Medicaid benefits "if he fulfills the criteria established by the State in which he lives." Schweiker v. Gray Panthers, 453 U.S. 34, 36-37, 101 S.Ct. 2633, 2636, 69 L.Ed.2d 460, 465 (1981). By enacting the New Jersey Medical Assistance and Health Services Act, N.J.S.A. 30:4D-1 to -19.1, New Jersey has elected to participate in the Medicaid program. The Department of Human Services is the agency responsible for administering the Medicaid program in New Jersey. See N.J.S.A. 30:4D-3c.

States that participate in the Medicaid program must provide coverage to the "categorically needy," which includes persons eligible to receive benefits under Aid to Families with Dependent Children (AFDC), 42 U.S.C.A. §§ 601-617, or Supplemental Security Income for the Aged, Blind, and Disabled under Title XVI of the Social Security Act (SSI), 42 U.S.C.A. §§ 1381-1383d. See 42 U.S.C.A. § 1396a(a)(10)(A)(i). The categorically needy are "persons whom Congress considered especially deserving of public assistance because of family circumstances, age, or disability." Gray Panthers, supra, 453 U.S. at 37, 101 S.Ct. at 2636-37, 69 L.Ed.2d at 465-66 (footnote omitted); see also Schweiker v. Hogan, 457 U.S. 569, 572-73, 102 S.Ct. 2597, 2601, 73 L.Ed.2d 227, 231-32 (1982) (noting that categorically needy are " 'the most needy in the country and it is appropriate for medical care costs to be met, first, for these people' ") (quoting H.R.Rep. No. 213, 89th Cong., 1st Sess. 66 (1965)).

The Medicaid program further "offers participating States the option of providing Medicaid assistance to certain other groups of individuals, one of which is the 'optional categorically needy.' " Herweg v. Ray, 455 U.S. 265, 268-69, 102 S.Ct. 1059, 1063, 71 L.Ed.2d 137, 142 (1982) (citation omitted). The optional categorically needy are statutorily defined at 42 U.S.C.A. § 1396a(a)(10)(A)(ii). See Skandalis v. Rowe, 14 F.3d 173, 175 (2d Cir.1994) ("The line between mandatory and optional coverage is primarily drawn in § 1396a(a): mandatory coverage is specified in § 1396a(a)(10)(A)(i), and the state options are set forth in subs...