May 15, 2009
DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES AND SOMERSET COUNTY BOARD OF SOCIAL SERVICES, RESPONDENTS-RESPONDENTS.
On appeal from the Department of Human Services, Division of Medical Assistance and Health Services, Docket No. HMA-929-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted April 21, 2009
Before Judges Skillman and Grall.
Appellant M.M. appeals from a final decision of the Director of the Division of Medical Assistance and Health Services (DMAHS), which upheld respondent Somerset County Board of Social Services' determination that she was subject to a "transfer penalty" that postponed her eligibility for full Medicaid benefits from November 1, 2007 until September 30, 2008.*fn1
M.M. is a ninety-two-year-old female who has been a resident of nursing home facilities since January 2006. Nine months before becoming a nursing home resident, M.M. executed a power of attorney authorizing her children and granddaughter, M.H., to manage her finances, including the making of deposits and withdrawals from her bank accounts.
According to M.H., while M.M. was being treated in a hospital, she directed M.H. to write four checks on her behalf, totaling $24,000, to M.M.'s children and their spouses, which were dated December 25, 2005. Shortly after M.M. became a nursing home resident, she directed M.H. to write four additional checks to these recipients totaling $48,000, which were dated January 20, 2006.
When M.H. wrote these checks, there were insufficient funds in M.M.'s checking account to cover them. Consequently, she asked her children and their spouses to delay cashing the checks and directed M.H. to liquidate her certificates of deposit and transfer the proceeds into her checking account.
According to M.H., officials at the bank in which M.M. maintained the CDs informed M.H. that they were required to forward the power of attorney authorizing her to liquidate the CDs "for legal review" before she would be permitted to complete the requested transaction. M.H. heard nothing further from the bank until February 11, 2006, when she was told that the power of attorney had been approved. On February 13, 2008, she deposited $67,227.44 from the CDs into M.M.'s checking account, increasing the balance in that account to $80,168.85.
After M.H. deposited sufficient funds in M.M.'s checking account to cover the $72,000 in checks previously written to her children and their spouses, four of the checks were cashed on February 17, 2006 and the remaining four were cashed on February 21, 2006. During the period between when M.H. wrote the eight checks and when the checks were cashed,*fn2 significant amendments to the federal statutory provisions governing the Medicaid program were enacted as part of the Deficit Reduction Act of 2005 (DRA), 109 P.L. 171; see generally, N.M. v. Div. of Med. Assistance & Health Servs., 405 N.J. Super. 353, 362-63 (App. Div. 2009), which became effective on February 8, 2006. One of those amendments changed the beginning date of the "transfer penalty" period imposed upon an applicant for Medicaid benefits who transfers assets for less than fair market value.
Under prior law, the penalty period began when an applicant for Medicaid benefits made a transfer of assets for less than fair market value. M.M. did not apply for Medicaid benefits until November 1, 2007, which was more than a year-and-a-half after she made the $72,000 in gifts to her children and their spouses. Consequently, under prior law, the penalty period imposed based on her gifts, which was eleven months, would have expired before she applied for Medicaid benefits.
However, under the DRA, the transfer penalty period imposed on an applicant who has transferred assets for less than fair market value on or after the effective date of this legislation begins on either the date of the transfer or the date on which the applicant would otherwise become eligible for Medicaid benefits, whichever is later. 42 U.S.C.A. § 1396p(c)(1)(D) (ii). M.M. did not become eligible for Medicaid benefits until November 1, 2007. Consequently, under the DRA, the eleven month penalty period would not begin until that date, which would postpone her eligibility for benefits until September 30, 2008. Therefore, the dispositive issue in this case is whether M.M. transferred the $72,000 represented by her eight checks to her children and their spouses when M.H. wrote the checks, which was before the February 8, 2006 effective date of the DRA, or when the recipients cashed the checks, which was after that date.
M.M. appealed the Somerset County Board of Social Services' determination that the penalty period during which she was ineligible for full Medicaid benefits began on November 1, 2007 to the DMAHS, which transmitted the matter to the Office of Administrative Law as a contested case. A hearing was conducted before an Administrative Law Judge (ALJ) at which testimony was presented regarding the facts previously set forth.
The ALJ concluded that the amount in M.M.'s CDs was not "available" to her between January 23, 2006, when M.H. attempted to cash the CDs and deposit the proceeds into M.M.'s checking account, and February 11, 2006, when those funds were released to M.H. and deposited in the checking account, and therefore, those funds should not be treated as a resource in determining M.M.'s Medicaid eligibility. For that reason, the ALJ concluded that the Somerset County Board of Social Services erred in determining that M.M. did not become eligible for full Medicaid benefits until September 2008.
The Director of the DMAHS rejected the ALJ's recommended initial decision, stating that the ALJ had confused the question of whether a Medicaid applicant satisfies the resource standard for Medicaid eligibility and the determination of the beginning of the penalty period that applies when an applicant has transferred assets for less than fair market value. We affirm the Director's decision.
Under 42 U.S.C.A. § 1396p(c)(1)(A), a state's Medicaid program must provide that if an institutionalized individual disposes of assets for less than fair market value on or after the look-back date specified in subparagraph (B)(i), the individual is ineligible for medical assistance for services described in subparagraph (C)(i) . . . during the period beginning on the date specified in sub-paragraph (D) and equal to the number of months specified in subparagraph (E).
The specified "look-back period" begins thirty-six months before "the first date as of which [an] individual both is an institutionalized individual and has applied for medical assistance under the State plan." 42 U.S.C.A. § 1396p(c)(1)(B).
It is undisputed that M.M. made $72,000 in gifts during the thirty-six month look-back period prior to her application for Medicaid benefits. Therefore, under 42 U.S.C.A. § 1396p(c)(1)(C), she was ineligible to receive assistance for nursing facility services during the penalty period determined in accordance with the formula set forth in 42 U.S.C.A. § 1396p(c)(1)(E)*fn3 even though she was otherwise eligible for such benefits.
The statutory beginning date for this penalty period was changed by the DRA. This change is codified in 42 U.S.C.A. § 1396p(c)(1)(D), which provides that the beginning date of the transfer penalty period depends on whether a transfer of assets for less than fair market value was made before or after the enactment of the DRA on February 8, 2006:
(i) In the case of a transfer of asset made before [February 8, 2006], the date specified in this subparagraph is the first day of the first month during or after which assets have been transferred for less than fair market value . . . .
(ii) In the case of a transfer of asset made after [February 8, 2006], the date specified in this subparagraph is the first day of a month during or after which assets have been transferred for less than fair market value, or the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care described in subparagraph (C) based on an approved application for such care but for the application of the penalty period, whichever is later . . . .
[42 U.S.C.A. § 1396p(c)(1)(D).]
As a result, the issue in this case is whether M.M. made the $72,000 in gifts to her children and their spouses before or after February 8, 2006.
New Jersey law on the subject of when a gift by check is considered complete is well-established. As the court in Straut v. Hollinger, 139 N.J. Eq. 206, 209 (Ch. 1947) stated, a check that has not been presented to a bank for payment is not a completed gift, and is "subject to the control and dominion of the maker [of the gift] during his life." In Provident Inst. for Sav. in Jersey City. v. Sisters of St. Francis, 87 N.J. Eq. 424, 429 (Ch. 1916), aff'd sub nom. Provident Inst. for Sav. in Jersey City v. Mead, 88 N.J. Eq. 349 (E. & A. 1917), the court explained the reason behind this principle in more detail:
[U]ntil the check is cashed the drawer may stop payment. In such a case the donative purpose may be absolute when the check is given, and ten minutes, or ten hours, or ten days later, at any time before the check has been cashed, such donative purpose may be wholly changed and abrogated.
This idea was echoed later in Silver Creations Ltd. v. United Parcel Serv., 133 N.J. Super. 543, 552 (Law Div. 1975), where the court stated that "[a] check merely constitutes a promise to pay, and conceivably it is always subject to dishonor."
Under this well-established law, it is clear that M.M.'s gifts of $72,000 to her children and their spouses were made on February 17 and 21, 2006. At any time during the period between when M.H. attempted to cash the CDs and when the bank allowed her to complete this transaction, M.M. could have changed her mind about transferring that money into her checking accounts and instead directed M.H. not to cash the CDs. Moreover, even after M.H. cashed the CDs and deposited the proceeds into M.M.'s checking account, M.M. could have stopped payment on the checks. N.J.S.A. 12A:4-303. The holder of a check does not have a right against the bank unless the bank has "accepted, certified or finally paid a particular item." N.J.S.A. 12A:4-303, Uniform Commercial Code Comment 7.
In arguing that she made her gifts prior to February 8, 2006, M.M. relies on N.J.A.C. 10:71-4.4, which lists resources that are "excludable" and "shall not be considered . . . in the determination of eligibility for participation in the Medicaid Only Program." N.J.A.C. 10:71-4.4(a). Specifically, she relies upon the exclusion for "[t]he value of resources which are not accessible to an individual through no fault of his or her own." N.J.A.C. 10:71-4.4(b)(6).
However, as noted by the Director, this regulation is not relevant to the determination of the beginning date of the penalty period mandated by 42 U.S.C.A. § 1396p(c)(1). N.J.A.C. 10:71-4.4(a) specifically states that it is a list of resources that must be excluded when determining "eligibility for participation in the Medicaid Only Program." This initial eligibility determination, during which a County board examines an applicant's resources and income and compares them to the eligibility standards set forth in N.J.A.C. 10:71-4.5 and -5.6, is separate from the determination whether a transfer penalty must be imposed and the period of that penalty. This is indicated by New Jersey's asset transfer regulations, which track the federal penalty statute and provide that "[r]esources, for the purpose of asset transfer, shall include all resources, both included and excluded," N.J.A.C. 10:71-4.10(b)(4), and that the penalty provision "shall apply whether or not [an] asset would have been considered excluded or exempt at the time of its disposal or transfer." N.J.A.C. 10:71-4.10(d).
Similarly, our decision in I.L. v. N.J. Dep't of Human Servs., 389 N.J. Super. 354, 362-66 (App. Div. 2006), upon which M.M. relies, was concerned solely with whether the cash surrender value of a life insurance was an excludable resource within the intent of N.J.A.C. 10:71-4.4(b)(6). I.L. did not involve the determination of the penalty period mandated by 42 U.S.C.A. § 1396p(c)(1) when a Medicaid applicant has transferred assets for less than fair market value during the look-back period.
Therefore, the Director of the DMAHS correctly determined that M.M. did not transfer the $72,000 in assets represented by the eight checks she wrote to her children and their spouses until after the February 8, 2006 effective date of the DRA and for that reason the beginning date of M.M.'s penalty period under 42 U.S.C.A. § 1396p(c)(1)(D)(ii) was November 1, 2007, that is, the date on which she would otherwise have been eligible to receive full Medicaid benefits.