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K.L v. Division of Medical Assistance and Health Services and Passaic County


March 9, 2012


On appeal the Division of Medical Assistance and Health Services, Docket No. 5328-10.

Per curiam.



Argued February 27, 2012

Before Judges Sabatino and Fasciale.

Petitioner K.L., through his wife B.L., appeals from a final agency decision of the Division of Medical Assistance and Health Services (DMAHS) finding that B.L.'s monthly expenses do not rise to the level of exceptional circumstances warranting an increase in her minimum monthly maintenance needs allowance (MMMNA).*fn1 We affirm without prejudice to allow reconsideration of whether unreimbursed flood damages warrant an adjustment to the MMMNA.

In 2009, K.L. entered a nursing care facility and became eligible for Medicaid benefits. B.L. continued to reside in their marital home of fifty years. The Passaic County Board of Social Services (PCBOSS) determined that B.L. was entitled to receive $1,637.95 from K.L.'s monthly income. B.L. received that amount plus her own income of $660 per month, for a total MMMNA of $2,298.45. The nursing facility received $599.87 per month, the amount left over from K.L.'s income after B.L. received her share.

K.L. filed an administrative appeal contending that the amount of the MMMNA was insufficient to cover B.L.'s expenses related to medical and psychological costs, flood-repair costs, transportation costs, life insurance policy expenses, and attorney expenses. As a result, K.L. argued that based on these categories of expenses, there existed exceptional circumstances resulting in financial distress that warranted an increase in B.L.'s MMMNA. The DMAHS transmitted the matter to the Office of Administrative Law for a hearing before an administrative law judge (ALJ).

The ALJ conducted a nonconsecutive two-day hearing and issued an eleven-page written opinion dated December 10, 2010. The ALJ found:

[K.L.] has submitted proof of exceptional circumstances that require expenditure of funds by [B.L.] for: medical and psychological services, health insurance, and pharmacy bills - $370.80 monthly, shelter expenses - $1,867.41 averaged monthly, transportation - $178.00 monthly, other costs for food, clothes, internet, phone, newspaper, life insurance, legal fees, beauty and hygiene costs - $1,112.38 monthly, and all totaling $3,528.59[.] [B.L.'s] expenses exceed the spousal allowance by $1,890.64[.] . . . . [B.L.] is experiencing exceptional and extraordinary circumstances, which are causing physical stress, financial duress, and a current hardship.

The ALJ then ordered that the community spouse monthly income allowance, a component of the MMMNA, be "increased to allow [B.L.] to retain all of the resources available at the time

[K.L] applied for Medicaid benefits in 2009." The ALJ also ordered that the PCBOSS recalculate resources when the flood-repair costs and attorney fees are paid.

The PCBOSS appealed from the ALJ's initial decision, and the Director of the DMAHS (the Director) conducted an independent review of the record and issued a five-page final agency decision. On January 20, 2011, the Director concluded that K.L. did not demonstrate exceptional circumstances resulting in financial duress, determined that there was no basis to increase B.L.'s MMMNA, and reversed the initial decision of the ALJ. This appeal followed.

On appeal, B.L. argues that the Director's final agency opinion was arbitrary and violated her property rights to marital support and the legislative policies of avoidance of spousal impoverishment. She argues that the Director ignored factual evidence and erred by reaching a conclusion that is unreasonable. We disagree.

We only disturb a final administrative agency determination if it was arbitrary and capricious. In re Holy Name Hosp., 301 N.J. Super. 282, 295 (App. Div. 1997) (citing Worthington v. Fauver, 88 N.J. 183, 204 (1982)). The arbitrary and capricious standard is essentially a rational-basis analysis. Worthington, supra, 88 N.J. at 204. That is, "'[a]rbitrary and capricious action of administrative bodies means willful and unreasoning action, without consideration and in disregard of circumstances.'" Ibid. (quoting Bayshore Sewerage Co. v. Dep't Envtl. Prot., 122 N.J. Super. 184, 199 (Ch. Div. 1973), aff'd o.b., 131 N.J. Super. 37 (App. Div. 1974)). A "determination predicated on unsupported findings is the essence of arbitrary and capricious action." In re Boardwalk Regency Corp., 180 N.J. Super. 324, 334 (App. Div. 1981), modified by 90 N.J. 361, appeal dismissed sub nom. Perlman v. Att'y Gen. of N.J., 459 U.S. 1081, 103 S. Ct. 562, 74 L. Ed. 2d 927 (1982).

Where the Legislature has "'delegated a great amount of discretion to the administrative experts, deference must be accorded to the administrative agency's expertise and experience in its domain.'" In re The Harborage, 300 N.J. Super. 363, 379 (App. Div. 1997) (quoting Riverside Gen. Hosp. v. N.J. Hosp. Rate Setting Comm'n, 98 N.J. 458, 469 (1985)). Thus, there is a strong presumption of the agency's reasonableness. In re Holy Name Hosp., supra, 301 N.J. Super. at 295. The burden of showing that an agency determination was arbitrary and capricious is on the party challenging it. Ibid.

Congress created Medicaid*fn2 "to provide medical assistance to the poor at the expense of the public." Mistrick v. Div. of Med. Assistance & Health Servs., 154 N.J. 158, 165 (1998) (citing Atkins v. Rivera, 477 U.S. 154, 106 S. Ct. 2456, 91 L. Ed. 2d 131 (1986); L.M. v. Div. of Med. Assistance & Health Servs., 140 N.J. 480, 484 (1995)). To qualify, a person's income cannot exceed certain limits. Cleary v. Waldman, 167 F.3d 801, 805 (3d Cir.), cert. denied, 528 U.S. 870, 120 S. Ct. 170, 145 L. Ed. 2d 144 (1999). Thus, those "seeking eligibility for Medicaid benefits must 'spend down' their available assets to the prescribed limits before becoming eligible." Ibid. Prior to the 1988 passage of the Medicare Catastrophic Coverage Act (MCCA), 42 U.S.C.A. § 1396r-5, these eligibility rules forced spouses to "spend down" the entirety of their assets so that one of them could qualify for Medicaid, resulting in "the virtual impoverishment of the spouse who remained in the community." Ibid. Thus, the goal of the MCCA was "'to end the pauperization of the community spouse by allowing that spouse to protect a sufficient, but not excessive, amount of income and resources to meet his or her own needs while the institutionalized spouse was in a nursing home at Medicaid expense.'" N.M. v. Div. of Med. Assistance and Health Servs., 405 N.J. Super. 353, 360 (App. Div.) (quoting Mistrick, supra, 154 N.J. at 170), certif. denied, 199 N.J. 517 (2009).

The MCCA contains provisions that govern the attribution of income to the community and institutionalized spouse. 42 U.S.C.A. § 1396r-5(b). In general, a community spouse's income is not available to the institutionalized spouse, and vice versa, 42 U.S.C.A. § 1396r-5(b)(2)(A), except to the extent that the institutionalized spouse's income is utilized to provide the community spouse's MMMNA. 42 U.S.C.A. § 1396r-5(d). If the allowable MMMNA increases, the institutionalized spouse's contribution decreases accordingly, whereby Medicaid must then make up the difference.

The MCCA also guarantees a fair hearing for either spouse who is dissatisfied with a determination of the community spouse's MMMNA. 42 U.S.C.A. § 1396r-5(e)(2). Relevant here, the statute provides:

If either such spouse establishes that the community spouse needs income, above the level otherwise provided by the [MMMNA], due to exceptional circumstances resulting in significant financial duress, there shall be substituted, for the [MMMNA] . . ., an amount adequate to provide such additional income as is necessary.

[42 U.S.C.A. § 13964-5(e)(2)(B)(emphasis added).]

See also N.J.A.C. 10:71-5.7(e) (requiring proof of "exceptional circumstances resulting in financial duress").

The issue in this case is whether B.L. has satisfied the dual statutory requirements of exceptional circumstances and financial duress. See M.E.F. v. A.B.F., 393 N.J. Super. 543, 559 (App. Div.), certif. denied, 192 N.J. 479 (2007) (recognizing separate requirements). In our view, she has not. In reversing the ALJ's initial decision, the Director stated, in part:

It is clear that Congress did not intend for every expense to be covered. The federal statute intended only to prevent the impoverishment of a community spouse and not to guarantee the amenities of the current lifestyle. . . . Congress set forth the exceptional circumstance resulting in financial duress standard for any increases above the calculated allowance.

Ordinary and regular expenses have been rejected as a basis to meet the exceptional circumstance threshold. . . . Merely having financial duress is not sufficient to warrant additional money from the institutionalized spouse.

The Director reviewed each category of increased expenses and explained that, contrary to the ALJ's assessment, none constituted exceptional circumstances.

We agree with the Director that "the issues surrounding the flood damage must be resolved with [B.L.'s] homeowner's insurance and the extent [to which] they will reimburse her for repairs. . . . [B.L.'s] certification [was] noticeably silent on the status of [her] claim and how much she has received." We further agree that although flood damage "could be an exceptional circumstance resulting in financial duress, the dispute with the insurers must be resolved first as it may result in payment of the damage."*fn3

B.L. also sought an increase in her MMMNA to pay premiums on at least four life insurance policies. However, the payment of life insurance premiums is not an exceptional circumstance. If it were, a community spouse could increase his or her MMMNA by taking out a larger policy, thereby decreasing the institutionalized spouse's contribution to nursing care, necessitating Medicaid to cover the deficiency, and creating, in effect, a windfall in the value of the life insurance at the expense of Medicaid.

Finally, the Director acknowledged that "[l]egal fees to file a Medicaid application, expenses for cell phones, internet service, newspapers or beauty are not extraordinary circumstances." We agree here also.

Although it is clear that B.L. suffers from a degree of financial duress, the record does not reflect the "exceptional circumstances" that the statutory scheme also demands. In reaching this conclusion, we follow the direction of the statute in holding that the circumstance, without regard to the expense, must be exceptional. Here, our review of the record discloses no exceptional circumstances, only B.L's financial duress. We will not conflate the two separate requirements of the statute to find exceptional circumstances. There is no legal or grammatical justification for doing so.

We acknowledge that B.L. has suggested that she suffers from medical and dental problems, and we note that the community spouse's medical condition is among the more frequent bases for finding exceptional circumstances. However, the statute requires a causal connection between the exceptional circumstances and the financial duress, i.e., "exceptional circumstances resulting in financial duress." 42 U.S.C.A. § 13964-5(e)(2)(B) (emphasis added). Here, B.L. has not satisfied the dual statutory requirements because she has not shown that her circumstances are exceptional.

Our review of the record, therefore, satisfies us that, in denying an increase in B.L.'s MMMNA, the Director's decision was neither arbitrary nor unreasonable as that standard has been interpreted. In re Musick, 143 N.J. 206, 216 (1996); Campbell v. Dept. of Civil Serv., 39 N.J. 556, 562 (1963).

Affirmed without prejudice as to any reconsideration by the Director of a potential adjustment to the MMMNA concerning unreimbursed flood expenses.

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