By Laura L. Ergood, Esq.
A review of Geston v. Anderson, a September 10, 2013 Eighth Circuit Court of Appeals decision, indicates they are. Prior to the Deficit Reduction Act (DRA) of 2005, New Jersey courts permitted the purchase of Medicaid compliant commercial annuities as a method married couples could employ to convert resources into an income stream for the community spouse. This reduced the community spouse’s resource allowance (CSRA) within limits allowing Medicaid eligibility for the nursing home bound spouse. Likewise, the Third Circuit Court of Appeals in James v. Richman, 547 F.3rd. 214 (3rd Cir. 2008), held that pursuant to federal law a non-revocable, non-transferrable, commercial annuity’s income stream could not be treated as a resource of the couple’s as the PA Dept. of Public Welfare argued and the nursing home spouse could not be denied Medicaid eligibility on that basis. The PA DPW had argued that the annuity’s income stream could be sold and thus constituted a resource. The 3rd Circuit disagreed that the income stream could be legally sold based on the terms of the annuity.
However, following the enactment of the DRA, the New Jersey Appellate Division decided in N.M. v. DMAHS, 405 N.J. Super 353 (App. Div. 2009), that the DRA had changed the law with regard to the use of annuities in Medicaid planning. The Court, relying on the Center for Medicaid and Medicare Services’ (CMS) interpretation of the DRA, held that because the commercial annuity’s income stream could be sold on the secondary market the value of the income stream constituted a resource of the couples’ and to the extent the value of the income stream exceeded the CSRA, the nursing home spouse could be denied Medicaid. In this case, the parties had stipulated that the income stream could be sold on the secondary market. N.M. had relied upon James v. Richman, but the Court distinguished James finding the Medicaid application in that case was made prior to the enactment of the DRA.
Geston v. Anderson, interprets the federal law consistently with the 3rd. Circuit in James v. Richman. The North Dakota Dept. of Human Services denied Mr. Geston’s Medicaid application finding that he and his wife’s assets exceeded resource eligibility limits because his wife owned an annuity. Mr. Geston entered a nursing home in July, 2010. Before he applied for Medicaid, Mrs. Geston purchased a commercial annuity paying her a monthly income stream. The annuity contract provided that it was irrevocable, non-transferrable, non-assignable and could not be surrendered or commuted during Mrs. Geston’s life nor could she revoke the recipient of the payment stream. The Dept., relying upon North Dakota’s Medicaid statute, decided the corpus of the annuity constituted a countable resource that brought the couple’s combined resources above the permissible Medicaid eligibility limit. The North Dakota statute stated, “annuity payments received by a community spouse will be treated as income only if they do not raise the community spouse’s total income over a certain threshold.” Since Mrs. Geston’s income including the annuity income exceeded that threshold, the Department deemed the annuity a countable resource causing Mr. Geston to be denied Medicaid.
The Eighth Circuit reiterated that when a State accepts federal funding for its Medicaid program, the State must comply with federal statutes and regulations as to eligibility for care…and “that the state methodologies for determining eligibility must be ‘not more restrictive’ than federal methodology that would be employed under the supplemental security income program. 42 U.S.C. 1396a(1)(10)(c)(i)” Geston, Id. The Court explained that the resources of both spouses must be considered when one is applying for Medicaid for nursing home care but that the Medicare Catastrophic Coverage Act of 1988, 42 U.S.C. 1396 et. seq. allows the community spouse to keep a certain amount of assets in order to avoid impoverishment, known as the community spouse resource allowance (CSRA). The Court stated that, “the Act excludes, however, the community spouse’s income from eligibility determinations: ‘during any month in which an institutionalized spouse is in the institution,… Id. 1396r-5(b)(1)”. Geston, Id. The Court highlighted how this distinction between an asset as a resource versus income of the community spouse impacts the institutionalized spouse’s eligibility for Medicaid.
The Geston Court held that, “because Mrs. Geston had no legal right, authority or power to liquidate the annuity,  the annuity benefits are not a resource, but rather are income as indicated by the statute defining ‘unearned income.’” The Court found that North Dakota was utilizing a more restrictive methodology for determining eligibility than federal methodology because the Dept. had misclassified the annuity income stream as a resource rather than the community spouse’s income which would have placed the couple’s resources within Medicaid eligibility limits.
In support of its position, the North Dakota Dept. cited to the section of the DRA that the NJ Appellate Division relied upon in N.M., Id., which provides: “Nothing in this subsection shall be construed as preventing a State from denying eligibility for medical assistance for an individual based on the income or resources derived from an annuity described in paragraph (1).” 42 U.S.C. 1396p(e)(4). Unconvinced, the Eighth Circuit found that this paragraph of the DRA did not change the eligibility criteria of whether an annuity benefit constitutes income or a resource. Rather, the Court explained that it merely clarifies that the DRA does not prevent a State from denying eligibility on other grounds such as that an annuity was not actuarial sound, was revocable, or failed to name the State as primary remainder beneficiary.
In conclusion, the federal courts have consistently held that States may not employ Medicaid eligibility requirements that are more restrictive than federal requirements. Further, the federal courts have held that otherwise Medicaid compliant annuities paying an income stream to the community spouse should not be treated as a resource of either spouse based upon the current federal Medicaid statutes and regulations. 
 United States Court of Appeals for the Eighth Circuit, No. 12-2224, September 10, 2013
 Effective February 2006
 20 C.F.R. 416.1201(a)(1)
 42 U.S.C. 1382a(a)(2)(B)
 42 U.S.C. 1396p(e)(1) (disclosure provision pertaining to annuities)
 See also, Flamini v. Velez, Civil No. 1:12-cv-07304, 2013 U.S. Dist. LEXIS 101182 (D.N.J. July 19, 2013) and Carlini v. Velez, No. 12-7290, 2013 U.S. Dist. LEXIS 78160 (D.N.J. June 4, 2013)