gavel resting on open book in library

Federal Victory in New Jersey: Annuity Upheld as Irrevocable

Many elder law attorneys are aware of what has become known as the “MM” decision originating out of New Jersey. In that case, the New Jersey Division of Medical Assistance and Health Services (DMAHS), through its Director, affirmed the decision of an administrative law judge determining that a Medicaid Compliant Annuity (MCA) was a resource. The MM decision was based on the case-specific factual background in conjunction with language in the annuity contract indicating only the president, secretary, or treasurer of the insurance company were permitted to make a change to the contract or waive any of its rights or requirements (the “Amendment Provision”). DMAHS concluded that this rendered the annuity “revocable,” and therefore available to the annuitant in that case.


As a result of the MM decision, DMAHS adopted a policy of counting MCAs written with that same carrier as an available resource to the annuitant. Denials relying on the MM decision and the amendment provision, despite an express irrevocability provision, became common place. The MM decision and resulting policy shift was concerning for several reasons, the most important being that many Medicaid applicants were being denied benefits to which they would otherwise be entitled.


The effect from the MM decision resulted in the initiation of a lawsuit against the Assistant Commissioner of the DMAHS in the United States District Court for the District of New Jersey (D.N.J.). That case was recently decided on summary judgment in favor of the Plaintiff/Medicaid applicant. The Plaintiff in the case had been denied Medicaid benefits based on the State’s policy resulting from the MM decision. A copy of the decision is available here. While the State may appeal the D.N.J.’s decision, no appeal notice has been filed as of the date of this post.


While the Court’s decision in this case is of obvious benefit to Medicaid applicants utilizing MCAs in New Jersey, specifically those written through the carrier impacted by the decision, what is most interesting is the Court’s analysis.


First, the D.N.J. addressed the State’s assertion that its decision should be afforded deference in its decision to deny the Plaintiff’s Medicaid application. The Court quickly dispensed with the State’s position, noting that the State offered no analysis or even reference to the appropriate level of deference,  and that the case the State cited in requesting deference in fact stated that courts are “in no way bound by the agency’s interpretation of a statute or its determination of a strictly legal issue.”


Second, the D.N.J. then turned to the interpretation of the annuity contract itself. The Court recognized the federal MCA requirements identified at 42 U.S.C. 1396p(c)(1)(G)(ii). The Court also focused on two particular cannons of construction under New Jersey contract law: (1) that contracts should not be interpreted as to render its terms meaningless; an (2) that when general and specific terms conflict with one another, the specific clause shall govern.  In applying these principles, the D.N.J. determined that the MCA contract’s specific language regarding the irrevocability of the agreement superseded the language regarding the powers of the officers. Specifically, the D.N.J. determined that to allow the amendment language to supersede the express irrevocability language would render that language meaningless. The Court ruled that “the Annuity contract, as clearly drafted, is irrevocable.”


The D.N.J. dedicated significant time analyzing the third point – the impact of the MM decision. The Court was unambiguous on its position in this regard, discussing the issue under the heading “The Prior Agency Decision Does Not Mandate Otherwise.” The D.N.J. noted the DMAHS’ heavy reliance on the MM decision in their court filings and summarized the decision briefly. Following the summary, the D.N.J. quickly dispensed with its applicability to the case before it, stating “[t]here are many reasons not to blindly apply M.M. to the case at bar.” Specifically, the D.N.J. explained: (1) the Plaintiff to the action before the Court was not a party to the MM case and could not intervene; (2) the cases were factually distinct; (3) the Plaintiff had no power to make any adjustment to the contract under the Amendment Provision; (4) adopting DMAHS’ interpretation would render the contract misleading (citing the fact that the New Jersey Division of Insurance reviewed the contract to ensure it was not misleading); and (5) the MM decision relied on an interpretation under the trust rules found in 42 U.S.C. 1382b(e)(3)(B) when such rules were not applicable to annuities, concluding “the [MM] decision erroneously relies on an inapplicable law.”


The impact of this decision will be far reaching. The D.N.J. issued an order enjoining the Defendants from continuing to enforce, or directing their employees, subordinates, attorneys, and assigns to enforce:

A policy that an annuity contract issued by [the Carrier], which is subject to a provision that the “National President or Secretary/Treasurer of [the Carrier] may, in writing, make or change a contract or waive any of its rights or requirements,” be counted as an available resource, due to the presence of that term.

A copy of the order can be found here. Not only does this decision explain that the DMAHS was wrong, but it outlines the several ways in which they were wrong. The D.N.J.’s decision further solidifies well-established cannons of construction. However, the most impactful section of the decision is that which explains the MM decision was decided on an erroneous application of the law. This not only undercuts the DMAHS’ reliance on the MM decision in this case, but should effectively foreclose DMAHS’ reliance on the case in subsequent cases as a Federal Court has concluded the legal basis was inapplicable.


This decision is much bigger than the case before the Court; it should arm New Jersey attorneys to rectify denials based on an erroneous fair hearing decision and policy adoption by the DMAHS.