Plaintiffs were a group of couples with one spouse in the nursing home and other spouse still in the community. In each case, the Community Spouse was the beneficiary of a Community Spouse Annuity Trust (“CSAT”). Some institutionalized spouses had been denied Medicaid, while others had applications pending. The Plaintiffs challenged the State’s treatment of the CSATs as countable resources when determining Medicaid eligibility. The Plaintiffs were given the option of converting their private annuitized trusts into commercial annuities naming the State as the first remainder beneficiary, but they declined that option. The court adopted the reasoning in Johnson v. Guhl, 91 F.Supp.2d 754, 779 (D. NJ 2000) (Johnson I), finding the CSAT to be countable because it was an asset in which the Community Spouse had an ownership interest at the time of the resource “snapshot.” The Court rejected Plaintiff’s argument that its hardship waiver procedure was defective for failure to include a time limit on determinations. The Court then considered Plaintiff’s argument that requiring that the State be named as the first remainder beneficiary is more restrictive than and therefore violates federal law. Plaintiffs’ made the following three arguments: “(1) Defendants’ failure to remove the requirement that the state be named first beneficiary is violative of Judge Bassler’s finding and of federal law; (2) interspousal transfers for the “sole benefit of” one of the spouses are exempt from the transfer provisions and related penalties; and (3) the absence of federal legislation on point demonstrates the legislature’s intent to implicitly preempt the states from promulgating rules or regulations to this effect.” The Court rejected each argument finding: (1) federal law is not so restrictive that it prevents the State from requiring that it be named as first remainder beneficiary; (2) the transfer was not for the sole benefit of the spouse because the trust corpus could be paid to the community spouse; and (3) the federal does not preempt State regulation and the absence of any mention of payback in the federal statute has no preemptive effect. This case supports State regulation on matters not expressly preempted by federal law.

Johnson v. Guhl, 166 F. Supp.2d 42 (D. NJ 2001)