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L.M. v. State

June 7, 1995


On certification to the Superior Court, Appellate Division.

The opinion of the Court was delivered by Stein, J. Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, Garibaldi, and Coleman join in Justice Stein's opinion.

The opinion of the court was delivered by: Stein

(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 $1,441.17. 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 (AU) 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 include 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.



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 cutoff 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 ...

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