NJ Supreme Court Strikes Down Medicaid Expansion Regulation

In G.C. v. Division of Medical Assistance and Health Services (A-35/36/37-20) (084417) (Decided November 18, 2021), the Supreme Court struck down N.J.A.C. 10:72-4.4(d)(1) as inconsistent with its state enabling legislation and contrary to legislative intent. The court also expressed grave concerns that the regulation’s method of operation is also inconsistent with the federal Medicaid law.

Facts of G.C. v. Division of Medical Assistance and Health Services

New Jersey participates in the Medicaid program by virtue of its adoption of the New Jersey Medical Assistance and Health Services Act (the New Jersey Act), N.J.S.A. 30:4D-1 to -19.5. Of relevance to the case, New Jersey amended the New Jersey Act in 1987 to expand coverage and create a new category of eligible persons under the state’s optional categorically needy program. The expansion was authorized under an amendment to the federal Medicaid law that gave states the option to extend Medicaid coverage to certain individuals who are aged, blind, or disabled and whose income is not greater than 100% of the federal poverty guidelines “applicable to a family of the size involved.” The law allows participating states discretion to choose the percentage of the federal poverty guideline up to which coverage will be available. New Jersey has chosen to use the maximum, 100% limit of the federal poverty guideline.

The suit challenged one of the State’s regulations, N.J.A.C. 10:72-4.4(d)(1) (the Regulation), which implements the expansion of New Jersey’s Medicaid Program, arguing that it is inconsistent with the language and intent of the enabling state and federal legislative amendments that authorized the expansion. Two applicants, one who resided with his spouse and one who resided with her husband and two children, filed for benefits under this Medicaid program, known as the NJ Medicaid — Aged, Blind, and Disabled Program (ABD program).

The Division of Medical Assistance and Health Services (DMAHS) dismissed the claims on the basis that the applicant’s income — as an individual and irrespective of his or her family size — exceeded the maximum income permitted under the federal poverty guideline for a single individual because N.J.A.C. 10:72-4.4(d)(1) provides in relevant part that, “[i]f the countable income . . . of the aged, blind, or disabled individual exceeds the poverty income guideline for one person he or she is ineligible for benefits.” (emphasis added). New Jersey’s regulatory calculation does not adjust the individual’s income based on family size when comparing that income to the federal poverty guideline. Rather, the Regulation compares the applicant’s individual income against the federal poverty guideline at the 100% limit for an individual. If the applicant’s income exceeds that limit by even one dollar, the analysis stops there. He or she is excluded from the ABD program at that first step. There is no adjustment for family size.

In a consolidated opinion, the Appellate Division reversed DMAHS’s determination in each of the cases, concluding that the Regulation violated the state statutory law enabling the ABD program. However, the appellate court did not find that the Regulation was also invalid under federal Medicaid law.

NJ Supreme Court’s Decision in G.C. v. Division of Medical Assistance and Health Services

The New Jersey Supreme Court affirmed and modified the Appellate Division’s decision invaliding the challenged Regulation. “We agree that the Regulation is contrary to the plain language and evident legislative intent of the state law amendment that authorized this Medicaid extension for New Jersey’s Medicaid State Plan,” Justice Jaynee LaVecchia wrote. “We modify because, although we need not reach the question, we have grave concerns that the Regulation’s method of operation is also inconsistent with the federal Medicaid law that enabled this expansion of Medicaid eligibility. Accordingly, for the reasons expressed, we vacate that portion of the Appellate Division’s analysis that rejected the federal-law argument by cross-petitioners.”

In reaching its decision, the New Jersey Supreme Court first found that the interpretation adopted and implemented through the Regulation is at odds with the plain language adopted by the Legislature in enacting this Medicaid expansion for New Jersey. “[T]he Regulation contravenes the plain language and legislative intent of the New Jersey Act, which requires that the income of prospective ABD beneficiaries be compared against the FPL as adjusted for family size,” Justice LaVecchia wrote. “The Regulation may not, consistent with the state statutory language, find an applicant ineligible without making the proper adjustment for family size.”

The New Jersey Supreme Court next turned to DMAHS’s argument that the broader federal Medicaid scheme justifies the Regulation. According to the court, reliance on the fact that eligible candidates under 42 U.S.C. § 1396a(m)(1)(A) must have their income determined under SSI income methodology conflates two different concepts: determining income and determining eligibility. The court further emphasized that although 42 U.S.C. § 1396a(m)(1)(B) requires income to be determined based on SSI methodology, the statutory provision also makes clear that Medicaid eligibility is determined by comparing the calculated income to a state’s chosen percentage of the FPL adjusted for family size.

The New Jersey Supreme Court next turned to the Appellate Division’s conclusion that the Regulation’s operation is not inconsistent with federal law. It ultimately concluded that the lower court’s conclusion was erroneous. As Justice LaVecchia explained:

The federal Medicaid Act is clear for this specific program: states may choose a percentage, “not more than 100 percent,” of the FPL “applicable to a family of the size involved,” by which to compare an applicant’s income to determine Medicaid eligibility. The Regulation does not do that. Rather, it indiscriminately compares any applicant’s income, regardless of his or her family size, against the FPL for one person. Although that benchmark may necessarily amount to a percentage less than 100% of the appropriate FPL, that result is reached under a

procedure that ignores Congress’s chosen approach. We believe Congress would not have chosen the respective language requiring adjustment for family size if it did not care that states did exactly the opposite.

Because the New Jersey Supreme Court invalidated the Regulation on state law grounds, it did not need to reach the federal law issue. Nonetheless, it expressed “grave concerns” that the Regulation’s method of operation is inconsistent with the Medicaid Act.

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