(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued January 30, 1995 -- Decided June 7, 1995
STEIN, J., writing for a unanimous Court.
In February 1992, L.M., a seventy-five-year-old man, suffered a debilitating stroke. He currently
resides in a nursing home. 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 L.M.'s monthly income exceeded the eligibility limit or "income cap" of $1,266. According to the
Board, L.M.'s monthly income totalled $1441,17. He received $783.80 per month from Social Security and
$657.37 per month in pension benefits from Union Carbide Corporation (Union Carbide).
Thereafter, L.M.'s wife of over sixty years filed for and obtained a divorce from bed and board. As
part of the property settlement, L.M.'s pension was equitably distributed to his wife. This had the effect of
reducing L.M.'s income below the "income cap." Therefore, L.M. reapplied for Medicaid benefits, which the
Board denied, reasoning that this type of diversion of income was not recognized under prevailing Medicaid
regulations. At L.M.'s request, the matter was heard before an Administrative Law Judge (ALJ) in March
1993. In April 1993, the ALJ reversed the Board's decision to deny Medicaid benefits, finding L.M.'s pension
unavailable for consideration as income. The Director of the Department of Human Services, Division of
Medical Assistance and Health Services (DHS-DMAHS) reversed the ALJ's determination, concluding that
the Board had properly included L.M.'s pension as available income in assessing his Medicaid eligibility. The
Director reasoned that reducing L.M.'s countable gross income as a result of the property settlement would
effectively eliminate the meaning of the Medicaid eligibility standard for those who could similarly divest
themselves of income.
The Appellate Division affirmed the decision of the Director, noting that to hold otherwise would
encourage parties to obtain divorces in order to establish Medicaid eligibility.
The Supreme Court granted certification.
HELD: The Union Carbide pension is owned by L.M.'s spouse pursuant to equitable distribution of marital
assets; therefore, those pension benefits cannot constitute available income to L.M. under the federal
and New Jersey regulations that define income in assessing eligibility for Medicaid benefits.
1. The Medicaid program, enacted in 1965 as part of the Social Security Act, provides medical assistance to
persons whose income and resources are insufficient to meet the costs of necessary care and services. The
program is a cooperative state and federal effort. Participating states such as New Jersey must provide
coverage to the "categorically needy," which includes persons eligible to receive benefits under Aid to
Families with Dependent Children (AFDC) or Supplemental Security Income for the Aged, Blind and
Disabled (SSI). The Medicaid program also offers participating states the option of providing Medicaid
assistance to the "optional categorically needy." Participating states such as New Jersey provide "optional
categorically needy" coverage to persons receiving long-term care in a medical institution, such as a nursing
home, who satisfy certain resource requirements and whose income does not exceed a statutory limitation.
(pp. 6-9)
2. The Secretary of Health and Human Services has defined income under SSI to includes anything received
in cash or in kind used to meet clothing, food and shelter needs. Unearned income, such as pensions, also
count toward eligibility. DHS-DMAHS also has adopted a regulation defining income as that which is
available. While this definition appears at odds with the federal statute, states are permitted to adopt an
income methodology for the optional category that is less restrictive than the SSI methodology. (pp. 9-10)
3. States also have the option of offering assistance to the "medically needy," that is, persons who meet the
nonfinancial eligibility requirements for cash assistance under AFDC or SSI, but whose income or resources
exceed the financial eligibility standards for those programs. While New Jersey does provide assistance to
the "medically needy," that program does not extend coverage to persons requiring long-term nursing-home
care. However, as part of the Omnibus Budget Reconciliation Act of 1993 (OBRA '93), Congress expressly
provides for the creation of "Miller Trusts," that prevent persons requiring long-term nursing-home care from
becoming caught in the "Medicaid Gap" by permitting persons in income cap states whose fixed incomes
places them over the income limit nevertheless to qualify for Medicaid benefits. In addition, the Governor,
in her budget has recommended authorizing DHS-DMAHS to provide coverage for nursing-home care
through New Jersey's medically needy program. (pp. 10-13)
4. The issue of ownership is relevant to the determination of Medicaid eligibility of the equitable distribution
of a pension in connection with a divorce from bed and board. Federal and State regulations provide that a
pension constitutes unearned income for Medicaid-eligibility purposes; however, nothing in the Medicaid
statute or regulations addresses the ownership of that income. Therefore, the Court looks to state law to
define the property interests involved. To effect the equitable distribution of marital assets, L.M.'s wife
received his pension monies and became the sole owner of the pension. Because L.M. does not own the
pension, that monthly income cannot be considered as income that is available to L.M. for Medicaid
eligibility purposes. (pp.13-25)
5. Despite the deference generally accorded agency decisions, the decision of the Director of DHS-DMAHS
to attribute the pension income to L.M. after the pension was equitably distributed to his wife must be
reversed because it is inconsistent with this State's law of equitable distribution. Furthermore, the operative
principles of New Jersey's family-property law do not conflict with the express terms of the Medicaid law, do
not inflict major damage to the clear and substantial federal interests of the Medicaid program, and do not
frustrate the clear objectives of the program. (pp. 25-27)
6. The Court shares the Attorney General's concern that today's holding may encourage couples to divorce
to protect assets for the spouse of a nursing-home resident. However, it is assumed that the modifications to
Medicaid-eligibility requirements, including the Miller Trusts and the Governor's recommendations, will
make it unnecessary for families to resort to the extreme steps taken by L.M. and his wife to become
Medicaid-eligible. (pp. 27-29)
Judgment of the Appellate Division is REVERSED, and the matter is REMANDED to DHS-DMAHS for further proceedings consistent with this opinion.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI and
COLEMAN join in JUSTICE STEIN'S opinion.
SUPREME COURT OF NEW JERSEY
A-84 September Term 1994
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.
Argued January 30, 1995 -- Decided June 7, 1995
On certification to the Superior Court,
Appellate Division.
Kathryn A. Brock argued the cause for
appellant.
John K. Worthington, Deputy Attorney General,
argued the cause for respondent (Deborah T.
Poritz, Attorney General of New Jersey,
attorney; Joseph L. Yannotti, Assistant
Attorney General, of counsel).
Leighton A. Holness argued the cause 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 sixty 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 (1994).
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
1929, 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."
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, 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 subsection (ii). The groups
specified in these sections are collectively referred to . . .
as the 'categorically needy.'").
Specifically,
42 U.S.C.A.
§1396a(a)(10)(A)(ii)(V) permits
states to provide "optional categorically needy" coverage to
persons receiving long-term care in a medical institution, such
as a nursing home, who satisfy certain resource requirements and
whose income does not exceed the limitation provided in
42 U.S.C.A.
§1396b(f)(4)(C), which sets the ceiling at 300 percent
of the benefit rate established by SSI. Significantly,
42 U.S.C.A.
§1396a(a)(10)(A)(ii)(V) imposes "an income cap on these
individuals." New Mexico Dep't of Human Servs. v. Department of
Health & Human Servs. Health Care Fin. Admin.,
4 F.3d 882, 883
(10th Cir. 1993). That means that persons whose income exceeds
the limitation "are not allowed to pay as much as they can, and
have Medicaid pay the balance, but instead are totally
disqualified for any Medicaid assistance." Miller v. Ibarra,
746 F. Supp 19, 20 (D. Colo. 1990). New Jersey has chosen to
provide coverage to "optional categorically needy" persons. See
N.J.S.A. 30:4D-3i(7) (defining "qualified applicant" as person
who "[m]eets the standard of need applicable to his circumstances
under a categorical assistance program . . . but is not receiving
such assistance and applies for medical assistance only");
N.J.A.C. 10:71-3.14, -4.8 (establishing eligibility requirements
for persons in medical institutions applying for Medicaid only).
At the time that L.M. applied for benefits, the income cap for
persons receiving long-term nursing-home care was $1,266.00.
24 N.J.R. 652 (Feb. 18, 1992).
In determining whether income is excessive, Congress has
required the states to adopt a methodology that takes "into
account only such income . . . as [is], as determined in
accordance with standards prescribed by the Secretary, available
to the applicant."
42 U.S.C.A.
§1396a(a)(17)(B). Because of
that delegation of authority, the Supreme Court has stated that
the Secretary's definition of available income "is entitled to
'legislative effect' because, '[i]n a situation of this kind,
Congress entrusts to the Secretary, rather than to the courts,
the primary responsibility for interpreting the statutory term.'"
Gray Panthers, supra, 453 U.S. at 44, 101 S. Ct. at 2640, 69 L.
Ed.
2d at 470 (quoting Batterton v. Francis,
432 U.S. 416, 425,
97 S. Ct. 2399, 2405,
53 L. Ed.2d 448, 456 (1977)). The
Secretary has defined "income" under SSI to include "anything you
receive in cash or in kind that you can use to meet your needs
for food, clothing, and shelter. Sometimes income also includes
more or less than you actually receive." 20 C.F.R. § 416.1102
(citations omitted). Specifically, unearned income, such as
private-pension benefits, 20 C.F.R. § 416.1121(a), counts toward
eligibility "[w]hen you receive it or when it is credited to your
account or set aside for your use," 20 C.F.R. § 416.1123(a),
"includ[ing] more than you actually receive if amounts are
withheld from unearned income because of a garnishment, or to pay
a debt or other legal obligation." 20 C.F.R. § 416.1123(b)(2).
DHS-DMAHS also has adopted a regulation that defines income,
which states in part: "In order to be considered in the
determination of eligibility, income must be 'available.' Income
shall be considered available to an individual when . . . the
individual actually receives the income." N.J.A.C. 10:71-5.1(b)1.i. Although that standard appears to be in tension with
the controlling federal regulations,
42 U.S.C.A.
§1396a(r)(2)(A)(i) permits a state to adopt an income methodology
for the optional categorically needy that is "less restrictive"
than the SSI methodology. See Georgia, Dep't of Medical
Assistance v. Shalala,
8 F.3d 1565, 1568-69 (11th Cir. 1993).
Under a less-restrictive methodology, "additional individuals may
be eligible for medical assistance and no individuals who are
otherwise eligible are made ineligible for such assistance."
42 U.S.C.A.
§1396a(r)(2)(B).
The Medicaid program also provides states with the option of
offering assistance "to the 'medically needy,' that is, persons
who meet the nonfinancial eligibility requirements for cash
assistance under AFDC or SSI, but whose income or resources
exceed the financial eligibility standards of those programs."
Rivera, supra, 477 U.S. at 157, 106 S. Ct. at 2459, 91 L. Ed.
2d
at 137; see
42 U.S.C.A.
§1396a(a)(10)(C). The medically needy
may qualify for assistance if they incur medical expenses "in an
amount that effectively reduces their income to the eligibility
level. Only when they 'spenddown' the amount by which their
income exceeds that level, are they in roughly the same position
as persons eligible for AFDC or SSI . . . ." Id. at 158, 106 S.
Ct. at 2459, 91 L. Ed.
2d at 137-38; see
42 U.S.C.A.
§1396a(a)(17) (creating spend-down mechanism). New Jersey has
chosen to provide assistance to the medically needy. See
N.J.S.A. 30:4D-3i(8); N.J.A.C. 10:70-1.1 to -7.3. Unlike other
states, however, New Jersey's medically needy program does not
extend coverage to persons requiring long-term nursing-home care.
We note that as part of the Omnibus Budget Reconciliation
Act of 1993 (OBRA '93), Pub. L. No. 103-66, Congress expressly
provided for the creation of so-called "Miller Trusts," which
permit "persons in income cap states whose fixed income places
them over the income limit . . . nevertheless [to] qualify for
Medicaid nursing home benefits." Sanford J. Schlesinger &
Barbara J. Scheiner, OBRA '93 Makes Sweeping Changes in Medicaid
Rules,
21 Est. Plan. 74, 80 (1994). (Those trusts are so named
because a precursor to the current codified version, involving
the judicial creation of trusts for incompetent persons, was
initially accepted in Miller, supra,
746 F. Supp. 19, as a method
of excluding income for eligibility purposes, thereby avoiding
the income cap.) Presently, in a state such as New Jersey, which
provides for nursing-home coverage under
42 U.S.C.A.
§1396a(a)(10)(A)(ii)(V) but does not provide such coverage under
the medically needy program, a trust containing "pension, Social
Security, and other income to the individual" can be established
under federal law to exclude that income from a Medicaid
eligibility determination.
42 U.S.C.A.
§1396p(d)(4)(B)(i).
That trust, however, must provide that "the State will receive
all amounts remaining in the trust upon the death of such
individual up to an amount equal to the total medical assistance
paid on behalf of the individual under a State plan."
42 U.S.C.A.
§1396p(d)(4)(B)(ii). Accordingly, those trusts provide
a mechanism that prevents persons requiring long-term nursing-home care from becoming caught in the "Medicaid Gap," and also
helps to preserve the financial integrity of the Medicaid
program.
We further recognize that the Governor, in her budget
proposal for fiscal year 1996, recommends authorizing DHS-DMAHS
to provide coverage for nursing-home services through New
Jersey's medically needy program. Governor Christine Todd
Whitman, State of New Jersey [Proposed] Budget Fiscal Year 1995-96, at E-15 (Jan. 23, 1995). That change would eliminate the
"Medicaid Gap" problem by allowing persons to spend down their
income on the costs of their care to qualify for coverage. New
Jersey would then fall in line with the national trend: the
overwhelming majority of states with a medically needy program
provide long-term nursing-home coverage through that program.
See Quadagno, supra, 31 The Gerontologist at 521.
Both Congress's codification of Miller Trusts and the
Governor's proposal to cover nursing-home care through the
medically needy program are measures that are responsive to the
"Medicaid Gap" problem. Unfortunately, L.M. encountered a more
rigid Medicaid system when he sought benefits. He faced the
income cap imposed by
42 U.S.C.A.
§1396a(a)(10)(A)(ii)(V) prior
to the Congressional authorization of Miller Trusts in 1993. In
that context, L.M. and his wife of sixty-three years divorced,
presumably motivated wholly or in part by a desire to enable L.M.
to receive Medicaid benefits. We now turn to the issues raised
by L.M.'s appeal, to determine whether the Board properly denied
his application for benefits when he applied under the system in
place in 1992.
Generally, we will not reverse the decision of an administrative agency unless it is arbitrary, capricious, or unreasonable or is not supported by substantial credible evidence in the record as a whole. Dennery v. Board of Educ., 131 N.J. 626, 641 (1993). An "agency's interpretation of the operative law is entitled to prevail, so long as it is not plainly unreasonable." Metromedia, Inc. v. Director, Div. of Taxation, 97 N.J. 313, 327 (1984). "When an agency's decision is manifestly mistaken, however, the interests of justice authorize a reviewing court to shed its traditional deference to agency
decisions." P.F. v. New Jersey Div. of Developmental
Disabilities, __ N.J. __, __ (1995) (slip op. at 10).
In affirming the decision of the Director of DHS-DMAHS to
deny L.M.'s application for Medicaid benefits, the Appellate
Division relied solely on Estate of G.E. v. Division of Medical
Assistance & Health Services,
271 N.J. Super. 229 (App. Div.
1994). In that case, G.E., who suffered from Alzheimer's
disease, was admitted into a nursing home in November 1991. At
that time he was receiving a pension of $1,012.67 per month and
Social Security benefits of $895 per month. Id. at 230. Because
the cost of the nursing-home care left V.E., G.E.'s wife, unable
to meet her own financial needs, she filed an action in the
Chancery Division seeking spousal support. In January 1992, the
court entered a QDRO that directed the administrator of G.E.'s
pension fund to pay V.E. the entire monthly pension benefit as
support. "Although G.E.'s pension administrator continued to
draw checks in the name of G.E., V.E. cashed the checks and
applied the proceeds to her own living expenses." Id. at 231.
That same month, V.E. applied for Medicaid benefits on behalf of
her husband.
The Appellate Division affirmed the decision of the Director
of DHS-DMAHS that the court-ordered transfer of G.E.'s pension
benefits to support V.E. did not render them unavailable to G.E.
for the purpose of determining his monthly income, and that G.E.
was ineligible for Medicaid due to excessive income. Initially,
the court determined that "the Secretary's position, now
formalized in 20 C.F.R. [§] 416.1123(b)(2), that amounts paid to
satisfy support orders constitute 'available income' for Medicaid
eligibility purposes," was a valid exercise of regulatory
authority under
42 U.S.C.A.
§1396a(a)(17)(B). Estate of G.E.,
supra, 271 N.J. Super. at 235. That conclusion was supported by
a considerable number of federal and state authorities. See,
e.g., Himes v. Shalala,
999 F.2d 684, 688-91 (2d Cir. 1993);
Peura ex rel. Herman v. Mala,
977 F.2d 484, 492 (9th Cir. 1992);
Emerson v. Steffen,
959 F.2d 119, 124 (8th Cir. 1992); Clark v.
Commissioner of Income Maintenance,
551 A.2d 729, 736 (Conn.
1988).
Next, the Estate of G.E. court addressed whether N.J.A.C.
10:71-5.1(b)1.i, which describes income as available if "the
individual actually receives the income," provides a "less
restrictive income eligibility standard[] for Medicaid applicants
by excluding payments under a spousal support order from an
applicant's countable income," pursuant to
42 U.S.C.A.
§1396a(r)(2)(A)(i). 271 N.J. Super. at 237. The court noted that
the New Jersey regulation initially had been adopted in 1976,
more than eleven years before Congress had authorized the states
to establish income methodologies that were less restrictive than
the federal standard. In fact, the Director previously indicated
that the regulation "establish[es] a uniform system of
determining eligibility for all applicants under the same
criteria established by the Federal government for eligibility
determinations in the [SSI] program."
15 N.J.R. 1000 (June 20,
1983). However, when the regulation was proposed for further
readoption in 1990, the Director noted that "except where
Federally required or where the Federal statute authorizes
exceptions to the SSI policy, these rules follow the SSI
eligibility process."
22 N.J.R. 3357 (Nov. 5, 1990). Although
the court acknowledged that the Director's 1990 statement "could
be read to suggest that New Jersey has adopted broader
eligibility standards than are mandated by the Federal Medicaid
Act," it rejected the conclusion that "the oblique 'actually
receives' language of N.J.A.C. 10:71-5.1(b)(1)(i) can be
reasonably construed as an affirmative expression of an intent to
adopt more liberal state Medicaid eligibility standards." Estate
of G.E., supra, 271 N.J. Super. at 238. Accordingly, the court
found that G.E.'s application for Medicaid benefits had been
properly rejected.
L.M. argues that Estate of G.E. is distinguishable and
presents a fundamentally different legal issue. Estate of G.E.
involved whether G.E.'s pension could be considered available
income for Medicaid eligibility purposes despite G.E.'s spousal
support obligation. In this case, L.M. and his spouse divorced,
with his spouse receiving his pension through equitable
distribution. Accordingly, L.M. contends that the Court first
must determine whether L.M. or his spouse is the owner of the
pension: if the Court determines that L.M.'s spouse now owns the
pension, then the pension cannot be considered in assessing
L.M.'s Medicaid eligibility because pension benefits owned by
L.M's spouse cannot constitute available income to L.M. under
either the federal or New Jersey regulations that define income.
In response, the Attorney General argues that the issue in this
case is "identical" to that addressed by the Appellate Division
in Estate of G.E., asserting that there is "no valid distinction"
between the support obligation in Estate of G.E. and the
equitable distribution of the pension in this case.
We agree that we must initially address the issue of
ownership of the pension. "While the Medicaid statute provides a
detailed definition of income for purposes of th[e] [income] cap,
it does not specify rules for determining ownership of that
income, particularly as between spouses." New Mexico, supra, 4
F.
3d at 883; accord Purser v. Rahm,
702 P.2d 1196, 1201 (Wash.
1985) ("Nothing in the Medicaid statute or regulations
establishes federal criteria for determining ownership of
income."), cert. dismissed,
478 U.S. 1029,
107 S. Ct. 8,
92 L.
Ed.2d 763 (1986). The Medicaid statute's lack of attention to
ownership "may be explained by the limited context in which it
arises. So long as a husband and wife reside together, their
income and assets are counted together and 'deemed' available to
each other for the purposes of determining eligibility for, and
the amount of, Medicaid benefits." Purser, supra, 702 P.
2d at
1200 (citing Herwig, supra, 455 U.S. at 265, 102 S. Ct. at 1059,
71 L. Ed.
2d at 137; Gray Panthers, supra, 453 U.S. at 39, 101 S.
Ct. at 2638, 69 L. Ed.
2d at 460). Accordingly, "the question of
ownership does not ordinarily arise in determining eligibility."
Purser, supra, 702 P.
2d at 1200.
When one spouse enters a nursing home, however, the issue of
ownership becomes relevant. Under federal law, when "the
applicant enters a nursing home, the spouse's income continues to
be deemed 'available' during the first month of separation[]
[but] [t]hereafter, mutual consideration of spousal income ceases
unless the spouse's income is actually contributed." Washington,
Dep't of Social & Health Servs. v. Bowen,
815 F.2d 549, 553 (9th
Cir. 1987) (citation omitted). In the context of determining
ownership of income between a person in a nursing home and his or
her spouse, several courts have addressed whether the so-called
"name-on-the-check" rule adopted by the Secretary, which
attributes to each spouse the income earned in his or her own
name, may be supplanted by a state's community-property
principles, under which one-half of the couple's combined income
is attributed to each spouse. (The name-on-the-check rule "has
no explicit basis in either the Medicaid statute or Medicaid
regulations," ibid., but instead represents the Secretary's
administrative interpretation of the Medicaid regulations.)
For example, in New Mexico, supra, the New Mexico Department
of Human Services, along with a class of aged, blind, and
disabled married persons needing nursing-home care, challenged
the Secretary's decision to disapprove of New Mexico's Medicaid
plan because it had supplanted the name-on-the-check rule with
community-property principles. The class members alleged that
because the bulk of the income supporting them and their
respective spouses had happened to be paid in their name, the
Secretary's rule disqualified them from Medicaid although their
true personal income under New Mexico community-property law fell
under the income cap. New Mexico, supra, 4 F.
3d at 884.
Addressing that claim, the Court of Appeals for the Tenth
Circuit initially acknowledged that the Secretary possesses broad
discretion, but emphasized that the exercise of that discretion
must be evaluated within "the structure of the Medicaid program
and the nature of the legal landscape in which it is located" to
resolve whether the Secretary's decision was consistent with
Congressional intent. New Mexico, supra, 4 F.
3d at 885. The
court noted that "'"Congress acts . . . against the background of
the total corpus juris of the states."'" Ibid. (quoting Wallis
v. Pan Am. Petroleum Corp.,
384 U.S. 63, 68,
86 S. Ct. 1301,
1304,
16 L. Ed.2d 369, 373 (1966) (quoting Henry M. Hart Jr. &
Herbert Wechsler, The Federal Courts and the Federal System 435
(1953))). By way of example, the New Mexico court noted that in
the tax area, if the federal statutory provisions define income
but fail to define what ownership entails, state law determines
the owner of the income. 4 F.
3d at 885; see also United States
v. Mitchell,
403 U.S. 190, 197,
91 S. Ct. 1763, 1768,
29 L. Ed.2d 406, 412 (1971) ("In the determination of ownership [of
income], state law controls."); Poe v. Seaborn,
282 U.S. 101,
109-10,
51 S. Ct. 58, 58-59,
75 L. Ed. 239, 243 (1930) (noting
that term "income of" in federal tax statute indicates ownership
as defined under state law).
Next, the New Mexico court emphasized that "the particular
area of state law with which we are concerned, dealing with
matters of family relations ordinarily reserved from federal
encroachment, weighs heavily in favor of honoring the state's
policy choices." 4 F.
3d at 885. In fact, the Supreme Court has
stated that state family-property law is not to be displaced by
federal legislation absent an affirmative expression of such
Congressional intent and a compelling federal need:
Insofar as marriage is within temporal
control, the States lay on the guiding hand. The
whole subject of the domestic relations of husband
and wife, parent and child, belongs to the laws of
the States and not to the laws of the United
States. Federal courts repeatedly have declined
to assert jurisdiction over divorces that
presented no federal question. On the rare
occasion when state family law has come into
conflict with a federal statute, this Court has
limited review under the Supremacy Clause to a
determination whether Congress has positively
required by direct enactment that state law be
pre-empted. A mere conflict in words is not
sufficient. State family and family-property law
must do major damage to clear and substantial
federal interests before the Supremacy Clause will
demand that state law be overridden.
[Hisquierdo v. Hisquierdo,
439 U.S. 572, 581,
99 S. Ct. 802, 808,
59 L. Ed.2d 1, 10-11
(1979) (internal citations and quotation
marks omitted).]
See also Mansell v. Mansell,
490 U.S. 581, 587,
109 S. Ct. 2023,
2028,
104 L. Ed.2d 675, 684 (1989) ("Because domestic relations
are preeminently matters of state law, we have consistently
recognized that Congress, when it passes general legislation,
rarely intends to displace state authority in this area."). The
Supreme Court has further noted that when analyzing programs like
Medicaid, "[w]here coordinate state and federal efforts exist
within a complementary administrative framework, and in the
pursuit of common purposes, the case for federal pre-emption
becomes a less persuasive one." New York State Dep't of Social
Servs. v. Dublino,
413 U.S. 405, 421,
93 S. Ct. 2507, 2517,
37 L.
Ed.2d 688, 699 (1973).
In that context, the New Mexico court noted Congress's
silence on the issue of ownership of income and concluded that
express preemption was lacking. Furthermore, it rejected the
notion that application of New Mexico's community-property laws
to determine whether the income cap is exceeded "does major
damage to the objectives of the Medicaid program." 4 F.
3d at
886. Accordingly, the court concluded that "Congress intended to
rely on, rather than supplant, state family property law and that
imposition of the Secretary's name-on-the-check rule . . .
contrary to state community property law is therefore
inconsistent with the Medicaid statute." Ibid.; accord
Department of Health Servs. of California v. Secretary of Health
& Human Servs.,
823 F.2d 323, 324 (9th Cir. 1987) (reversing
Secretary's disapproval of state plan proposing to use California
community-property law instead of name-on-the-check rule); Bowen,
supra, 815 F.
2d at 557 (reversing Secretary's disapproval of
state plan proposing to use Washington community-property law
instead of name-on-the-check rule); Purser, supra, 702 P.2d at
1206 (requiring state Medicaid administrator to apply community-property law in determining eligibility for benefits instead of
name-on-the-check rule). But see In re Hamner,
427 So.2d 1188
(La. 1983) (reversing lower court decision requiring state
Medicaid agency to determine eligibility under community-property
law).
The effect on Medicaid eligibility of the equitable
distribution of a pension in connection with a divorce from bed
and board presents another instance in which the issue of
ownership of income becomes relevant. Although the federal and
New Jersey regulations provide that a pension constitutes
unearned income for Medicaid-eligibility purposes, see 20 C.F.R.
§ 416.1121(a); N.J.A.C. 10:71-5.4(a)3, nothing in the Medicaid
statute or regulations addresses the ownership of that income.
"Since the Medicaid statute or regulations provide no criteria
for determining whether income in a particular form or from a
particular source is the income of a particular individual, one
'must turn to state law to define the property interests
involved.'" Purser, supra, 702 P.
2d at 1203 (quoting United
States v. Overman,
424 F.2d 1142, 1146 (9th Cir. 1970)).
N.J.S.A. 2A:34-23 provides that "where a judgment of . . .
divorce from bed and board is entered the court may make such
award or awards to the parties . . . to effectuate an equitable
distribution of the property, both real and personal, which was
legally and beneficially acquired by them or either of them
during the marriage." The general purpose of that provision is
to empower courts "to allocate marital assets between the
spouses, regardless of ownership." Painter v. Painter,
65 N.J. 196, 213 (1974). That a pension is considered "property subject
to equitable distribution" under that statute is well settled.
Kruger v. Kruger,
73 N.J. 464, 471 (1977); see also Marx v. Marx,
265 N.J. Super. 418, 425 (Ch. Div. 1993) ("Under New Jersey law,
pensions are clearly subject to equitable distribution."); Ryan
v. Ryan,
261 N.J. Super. 689, 695 (Ch. Div. 1992) ("In New
Jersey, pensions are regularly subject to equitable distribution
as a form of deferred compensation."). A pension "is the result
of direct or indirect efforts expended by one or both the parties
to the marriage--it is additional compensation for services
rendered for the employer and a right acquired during the
marriage." Kikkert v. Kikkert,
177 N.J. Super. 471, 476 (App.
Div.), aff'd o.b.,
88 N.J. 4 (1981).
The purpose of equitable distribution differs from that of
support obligations:
Alimony and child support can help maintain
the income of both parties at a certain level
over time by using one party's income to
support the other. However, the primary
purpose of marital property distribution laws
is not to compensate for changes in the
parties' fortunes after they have separated,
but to achieve a fair distribution of what
the parties 'lawfully and beneficially
acquired' while they were together.
[Kikkert, supra, 88 N.J. at 9 (Pashman, J.,
concurring).]
See also Mendell v. Mendell,
162 N.J. Super. 469, 475-76 (App.
Div. 1978) (noting "that alimony is awarded to defray the
expenses of supporting a spouse post divorce, whereas,
fundamentally, equitable distribution is awarded for recognized
contributions that each spouse has made toward the accumulation
of property during the time span of the viable coverture").
In this case, to effectuate the equitable distribution of
assets the QDRO directed the administrator of the Union Carbide
pension to pay L.M.'s wife "the benefits of the plan as if she
were the employee pension beneficiary." Specifically, the
administrator must pay L.M.'s wife "$657.37 per month plus all
increases to which the participant may have been entitled." L.M.
retained no interest in the pension. Therefore, pursuant to New
Jersey law, L.M.'s wife is the sole owner of the pension asset.
We note that if L.M. were required to pay his wife $657.37 per
month in alimony, but retained his pension through equitable
distribution, he would remain the owner of the pension asset
because "[t]he allowance of alimony does not confer upon the
receiving spouse any interest in the assets of the paying
spouse." Mendell, supra, 162 N.J. Super. at 475.
Because L.M. does not own the pension, we hold that the
monthly pension income cannot be considered as income that is
available to L.M. for Medicaid eligibility purposes. Pursuant to
42 U.S.C.A.
§1396a(a)(17)(D), the Secretary has promulgated
"deeming" rules that provide that "[e]xcept for a spouse of an
individual or a parent for a child who is under age 21 or blind
or disabled, the agency must not consider income and resources of
any relative as available to an individual." 42 C.F.R. §
435.602(a)(1). Moreover, "[w]hen a couple ceases to live
together, the agency must count only the income of the individual
spouse in determining his or her eligibility, beginning the first
month following the month the couple ceases to live together."
42 C.F.R. § 435.602(a)(3); see also New Mexico, supra, 4 F.
3d at
885 n.3 ("The Medicaid regulations do take up the analytically
subsequent issue of when income concededly owned by an
applicant's spouse may nevertheless be deemed available to the
applicant, but they expressly reject any presumption of spousal
support . . . where institutionalization of the applicant
physically separates the couple."). Because L.M. and his spouse
are divorced, as well as physically separated, the pension
benefits owned by L.M.'s spouse cannot under existing regulations
be considered as income that is available to L.M.
Despite the deference we generally accord to an agency's
interpretation of the operative law, the decision by the Director
of DHS-DMAHS to attribute the pension income to L.M. after the
pension was equitably distributed to his wife cannot stand. That
decision is inconsistent with New Jersey's law of equitable
distribution. Furthermore, the operative principles of New
Jersey's family-property law do not conflict with the express
terms of the Medicaid law, see Bowen, supra, 815 F.
2d at 556
("The Medicaid statute does not expressly provide for the
preemption of state family property law."); nor do they inflict
"'major damage' to 'clear and substantial' federal interests" in
the Medicaid program. Hisquierdo, supra, 439 U.S. at 581, 99 S.
Ct. at 808, 59 L. Ed.
2d at 11 (quoting United States v. Yazell,
382 U.S. 341, 352,
86 S. Ct. 500, 507,
15 L. Ed.2d 404, 410
(1966)); cf. New Mexico, supra, 4 F.
3d at 886 (rejecting notion
"that a state legal scheme effecting a fair and reasonable
distribution of marital income between husband and wife somehow
does major damage to the objectives of the Medicaid program");
Purser, supra, 702 P.
2d at 1204 (holding that "the equitable
treatment of married people under community property law does no
'major damage' to the 'clear and substantial' objectives of the
Medicaid law").
Through enactment of the Medicaid program, Congress intended
to confer "broad discretion on the States to adopt standards for
determining the extent of medical assistance, requiring only that
such standards be 'reasonable' and 'consistent with the
objectives' of the Act." Beal v. Doe,
432 U.S. 438, 444,
97 S.
Ct. 2366, 2370,
53 L. Ed.2d 464, 472 (1977); see also Bowen,
supra, 815 F.
2d at 557 (noting that Medicaid program is
"'characterized by State diversity and independence in
determining eligibility, services provided, and reimbursement
levels'") (quoting Medicaid and Nursing Home Care at 6).
Although portions of the Medicaid statute are oriented toward
national uniformity because they are directed at "specific
program-related ends [such] as the provision of an essential
minimum of coverage and the quality and efficient utilization of
care, . . . '[n]o comparable purpose exists for uniformity when
determining the income ownership of an institutionalized
applicant for Medicaid eligibility purposes.'" New Mexico,
supra, 4 F.
3d at 886 (quoting Purser, supra, 702 P.
2d at 1204).
Moreover, New Jersey's rule that treats pension benefits as an
asset appropriate for equitable distribution during divorce
proceedings cannot plausibly be regarded as inconsistent with
federal Medicaid-eligibility standards: the principal
application of our rule focuses on the fair division of pension
assets between divorcing parties, and only incidentally affects
Medicaid eligibility. Although the rule's collateral impact on
Medicaid may justify regulatory action, infra at ___ (slip op. at
28-29), its predominant relationship to equitable distribution of
marital assets demonstrates that the rule cannot fairly be
regarded as one that frustrates the objectives of the Medicaid
program.
Because the pension is owned by L.M.'s spouse, the pension
benefits cannot constitute available income to L.M. under the
federal and New Jersey regulations that define income.
Finally, we note the Attorney General's concern that a disposition of this appeal in a manner favorable to L.M. might encourage persons to divorce to protect assets for the spouse of the nursing-home resident. That incentive, the Attorney General points out, might persist even if the Governor's proposal to cover nursing-home services through the medically needy program becomes law because persons could seek to transfer assets such as
pensions through equitable distribution instead of spending down
their income on their care. That would unfairly place a further
burden on the limited financial resources of the State.
We share the Attorney General's concern. We also infer that
government is equally concerned about federal and state Medicaid
policies that are so restrictive that they encourage married
couples, like L.M. and his wife, to seek judicial authorization
to sever the bonds of a sixty-three-year-old marriage that they
would otherwise preserve at all costs. As noted, that cruel
dilemma confronted by L.M. and his spouse has been partially
alleviated by Congress's authorization of "Miller Trusts" and by
the prospect of legislative approval of Governor Whitman's
proposal to cover nursing-home services through the medically
needy program. Supra at __ (slip op. at 11-12). We assume that
such modifications of the Medicaid eligibility requirements will
make it unnecessary for families in the future to resort to the
extreme steps taken by L.M. and his spouse to become Medicaid
eligible.
In that connection, we note that the Governor's budget
proposal also recommends that DHS-DMAHS implement policies to
prevent persons from evading the rules of the Medicaid system to
avoid paying their appropriate share for long-term care. Either
the Secretary or DHS-DMAHS might further that objective by
considering adoption of a regulation that addresses the effect on
available income of the transfer of pension benefits by equitable
distribution primarily for the purpose of achieving Medicaid
eligibility.
The judgment of the Appellate Division is reversed, and the
matter remanded to DHS-DMAHS for further proceedings consistent
with this opinion.
Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, Garibaldi, and Coleman join in Justice Stein's opinion.
NO. A-84 SEPTEMBER TERM 1994
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
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.
DECIDED June 7, 1995
Chief Justice Wilentz PRESIDING
OPINION BY Justice Stein
CONCURRING OPINION BY
DISSENTING OPINION BY