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Overcoming Denials and Fair Hearing Support
Overcoming Denials and Fair Hearing Support
Presented by Scott Engstrom, J.D.

Case Discussion: District Court Affirms MCA as Irrevocable

Join us for episode 6 of Industry Insights, an in-depth video series where we discuss the latest from the elder law community!

In this installment, our Corporate Counsel, Scott Engstrom, J.D., discusses a recent case out of New Jersey. After receiving a denial on the basis that a Medicaid Complaint Annuity is considered a countable resource, a Medicaid applicant filed a lawsuit against the state Medicaid agency. In this video, Scott discusses the resulting decision from the United States District Court for the District of New Jersey.

Amy: Hello, I’m Amy Beacham, Communications Director for Krause Financial Services. Welcome to Industry Insights. In this series, we aim to discuss news, updates, and hot discussion topics that affect the elder law space and that are relevant to you as an elder law attorney. Working on hundreds of cases per month and working with attorneys from across the country, we see trends that affect elder law planning, and we want to share some of those insights with you today. Today, we have our Corporate Counsel, Scott Engstrom, to discuss an important update out of New Jersey regarding the treatment of Medicaid Compliant Annuities. Welcome, Scott.

Scott: Thanks for having me, Amy.

Amy: So, to start off, can you give us a little bit of background on this case?

Scott: Sure. So, this actually originated with a fair hearing on an unrelated case that was going through the process last year. And ultimately, what happened was the president of a particular carrier had changed the term of the annuity upon request of the annuitant in that case. In that case, the state had argued that because this language in the annuity contract allowed the president to make that change, that rendered that contract revocable. So, it would not satisfy the requirements of a DRA-compliant annuity. Now, there was a fair hearing in that matter, but the [administrative law judge] did side with the state, and there was no further action on the case, so that decision stood. As a result of that decision standing, the state took its policy and shifted it so that they were denying applications that used an annuity with this particular carrier and said, “Well, because this language is in that contract and this annuity contract is the same one, we’re going to use the same argument even though this case might be factually distinct.” So, even in cases where there was nothing done with the annuity, which is the vast, vast majority of those cases, they were still denying applications where that carrier was used.

Amy: Okay. So, what events then led to this lawsuit?

Scott: Well, obviously this decision had a large impact in the state of New Jersey, and there were a lot of applicants being impacted by this. There was a lot of confusion by elder law attorneys in the state of New Jersey. There was confusion amongst the caseworkers. And ultimately, the policy was sent up to the state, and they basically said that annuities with this carrier are not going to go through. Now, there were some differences in how that was applied on a case-by-case basis, but in general, those were not going through. There were even some sporadic cases where there was miscommunication about which carrier was being used where other carriers were being impacted for a short period of time. But ultimately, those issues were corrected, and it did only impact the one particular carrier that was implicated in that MM decision. And a lawsuit was filed; a federal lawsuit was filed challenging the state’s policy. And that’s based on the decision in MM; that’s based on how the state was applying the policy as a result. So, a federal lawsuit was filed.

Amy: Okay. So then, in this case, what was the district court’s decision?

Scott: So, the district court ultimately sided with the plaintiff in this case and enjoined the state from continuing to enforce or directing any of its employees or subordinates from enforcing that policy–specifically, that policy using the language in that carrier’s contract, which said that an officer of that company could change the contract and saying that that language superseded the irrevocability language, which is in all Medicaid Compliant Annuity contracts. So, that language that would permit the officer, we’ll call that the “amendment clause” or the “amendment language.” So basically, the state was enjoined from continuing to implement that policy.

Amy: Okay. So, the fact that the contract clearly states it’s irrevocable is really what it boiled down to here.

Scott: Correct.

Amy: So, what was the basis for the district court’s decision here?

Scott: This is actually a great case for you attorneys who liked contract law in law school. The phrase “canon of construction” gets tossed around a little bit, so it allows you to nerd-out a little bit if you are a contract law aficionado. So basically, this boiled down to a number of different analysis points. The first point was the level of deference. So, in general, there’s the concept of Chevron deference and deference that’s given to state agencies when they make a decision. Now, the state in the process had made an argument that they were entitled to this deference, but they didn’t let the court know what specific level of deference they should be entitled to. They cited a specific case, which the court then went back and read, and basically said that well, okay, there is generally a level of deference, but it also specifically states that the court does not have to rely on the state agency’s interpretation or application to situations that are purely legal. So basically, the court shot down that argument. And then the court really got into the contract interpretation. And there were really three points that the court got into on contract interpretation. There was ambiguity; there were these two other canons of construction relating to rendering contract terms meaningless; and then the general versus specific language differences. So, from the outset, a court has to make a determination. Is this provision that’s being disputed by these parties ambiguous where we have to weigh in and basically resolve that ambiguity? The court found that this language, specifically this irrevocability language in the contract, was unambiguous and did not need any further analysis. It clearly stated that this contract was irrevocable. So then, the court turned to these other two sort of intertwined canons of construction, the first being that we shouldn’t be interpreting contracts in a way that will render some of its terms meaningless. So, the court looked at that amendment clause and saw that that was a more general, overarching clause allowing the officer to make changes as are needed. And that’s generally interpreted to mean as needed to comply with the law. So, that’s more general. And then, the more specific would be that this is a specifically irrevocable clause. So, the court said that, “If we were to interpret this the way that the state is suggesting, we’re going to render that irrevocability language completely meaningless, and that’s not how we should be interpreting contracts under New Jersey law.” So, that’s that second canon of construction that really ties into this third one as well with respect to the general versus specific language. General versus specific, when those general versus specific terms conflict with one another, we’re going to look at the specific language, and that is what’s going to guide us. We’re not going to let general terms override these more specific terms. So, this general amendment clause that allows the president or officer of this company to make a change is not going to override the specific clause that says, “No, this annuity is irrevocable.”

Amy: So, what is your opinion as to the impact of this decision?

Scott: Well, I think this is going to be pretty impactful, not just for cases that are still pending, but cases that were denied previously based on this. And this actually ties back to what the court said in this federal case regarding the MM decision, tying this all back to where it started. Specifically, the court said that this is, first of all, factually distinct; there was no change made to this annuity. They made the point that the plaintiff who brought the case was not a party to the MM case; they couldn’t intervene; they couldn’t represent their interest in that case. They also said that it was not the plaintiff but actually the company president who held the power under that amendment clause. So, that was another way where that MM case should not be broadly applied. They also indicated that because annuity contracts and insurance contracts have to be submitted to the state for approval so that they’re not misleading, that the state’s suggestion that we interpret this to support their policy, that would render that contract misleading, completely in contravention with what the intent was with submitting it to the state and having it approved. And the court also made a very interesting note with respect to the MM decision itself and specifically as it relates to the administrative law judge’s decision. The administrative law judge, in that case, had cited two trust rules. This is widely understood that, except to the extent that the Secretary to the Department of Health and Human Services says that annuities should be reviewed under these trust rules, which the Secretary has not indicated that, except to that extent, they are not interpreted under these trust rules. So basically, the administrative law judge made an error in how they applied the law to that MM case, so the court in this federal case basically said, “No, this MM decision was erroneous.” So, this is impactful. This is hopefully going to arm attorneys in New Jersey to not just work these cases that are still pending through the system and have a clear case they can point to to help their client, but this should also open the door for arguments that you should be able to go back and apply again and even potentially apply for your original application date if you’re denied on this policy. And even going further, subject to the specific case facts and the law as it applies, but even ask for your retroactive coverage for those 90 days that you’re allowed to get retroactive coverage. So, this case has the potential to have a widespread impact. Now, the state does have the opportunity to appeal. We’re not sure whether, if they’re going to appeal this case. That hasn’t been updated on the case law on PayServ, which I’ve been monitoring. But at this point, I haven’t seen any indication that they will. And hopefully, for all of our attorneys in New Jersey, this case will stand and will have some strong footing to help their clients.

Amy: Perfect. Wow. So, it sounds like this is, of course, like you said, a very impactful decision. You did write a full case analysis for us that is available on the Case Law page of our website at if you want to read everything that Scott has to say about this case. So, thank you, Scott, for being here. For the latest information on strategies, issues, and planning questions in your state, be sure to contact your Benefits Planner. And, if you have a denial you need help with, remember that Scott here and our legal team are here to help. If you have any other questions on how Krause can help you in your practice, just give us a call at 855-552-5893. Thanks for watching.

Watch Next:

Overcoming Denials and Fair Hearing Support
Overcoming Denials and Fair Hearing Support
Presented by Scott Engstrom, J.D.
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