Robert and Josephine James were married when Robert went to the nursing home. A resource assessment was done and Medicaid determined they had $278,343 in available resources. To reduce their assets, Josephine purchased a $250,000 single premium immediate irrevocable annuity from General Electric Assurance Company. She then purchased a new vehicle for $8,550 and filed a Medicaid application. The application was denied after the caseworker determined Robert did not receive fair consideration when Josephine purchased the annuity. The notice of denial found that Robert had excess assets due to the annuity and determined the annuity’s value was $185,000; the Department tendered the declaration of J.G. Wentworth’s CEO that his company would purchase the annuity despite its non-assignment language. Plaintiff’s appealed the denial and filed a complaint in district court; the administrative appeal was still pending when the district court ruled. In district court, Plaintiff’s sought a temporary restraining order and an injunction preventing the Department from denying Medicaid eligibility. Because the State relied exclusively on federal law in denying the application, the court found the question presented was one of federal law, thus vesting the court with jurisdiction. The Department contended the denial was proper because (1) the purchase of the annuity was a transfer and (2) because even if there was no transfer penalty, the annuity was a countable asset. The Court found that CMS, in HCFA 64, indicates there can be no penalty on an annuity that is irrevocable and actuarially sound where it is purchased for the sole benefit of a community spouse. The Court then found that counting the market value of the Community Spouse’s income stream would undermine that portion of federal law that exempt the Community Spouse’s income when determining the institutionalized spouse’s eligibility. Consistent with the Court’s findings, the Court granted Plaintiff’s request for a permanent injunction and enjoined the Department from denying eligibility based on the annuity purchased.