The opinion of the Court was delivered by
Thе issue in this appeal arises from an elderly couple’s attempt to avoid the so-called “Medicaid Gap,” a term used to describe a level of income that is “just above the Medicaid cut-off yet too low to cover the cost of nursing home care.” Jill Quadagno et al.,
Falling into the Medicaid Gap: The Hidden Long-Term Care Dilemma,
31
The Gerontologist
521, 521 (1991). That is the quandary that confronted petitioner when he applied for Medicaid benefits to cover the cost of his nursing-home care. L.M.’s initial application for Medicaid benefits was denied because his combined income from Social Security and his private pension placed him above the “income cap” for eligibility. Thereafter, L.M. and his wife of over fifty years divorced, and the Chancery Division equitably distributed L.M.’s pension to his wife, reducing L.M.’s income below the “income cap.” When L.M. reapplied for benefits, the Department of Human Services, Division of Medical
I
The facts in this matter are undisputed. In February 1992, L.M., a seventy-five-year-old man, suffered a stroke and was admitted to the Somerset Medical Center. He was later transferred to the Veterans Memorial Home in Paramus, New Jersey, where he continues to reside.
In March 1992, L.M. applied for Medicaid benefits to pay for his nursing-home care. The Middlesex County Board of Social Services (Board) denied L.M.’s application in April 1992 because his monthly income exceeded the eligibility limit set forth in N.J.A.C. 10:71-5.6, which at that time was $1,266.00. The Board concluded that L.M.’s monthly income totaled $1,441.17. He received $783.80 per month in Social Security and $657.37 per month in pension benefits from Union Carbide Corporation (Union Carbide).
In July 1992, the Chancery Division declared L.M. a mental incompetent. Based on supporting certifications from examining physicians, the court found that he was “incapable of governing himself and managing his affairs.” The court appointed L.M.’s daughter as his guardian.
Thereafter, L.M.’s wife, to whom he had been married since 1939, filed a comрlaint for divorce from bed and board pursuant to
N.J.S.A.
2A:34-3. (A divorce from bed and board “does not dissolve the marital bond but merely decrees a judicial separation.” 1 Gary N. Skoloff & Laurence J. Cutler,
New Jersey Family Law Practice
§ 2.6, at 2-27 (5th ed. 1984) (citation omitted). However, “all property rights of the parties are treated as though a judgment of absolute divorce has been entered.”
Id.
at 2-28.) In October 1992, the Chancery Division entered a
On that same date, the court entered a Qualified Domestic Relations Order (QDRO) that reflected the provisions of the agreement. The QDRO directed the administrator of the Union Carbide pension plan to pay to the “alternate payee,” L.M.’s wife, “the benefits of the plan as if she were the employee pension beneficiary” starting in November 1992. Specifically, it ordered the administrator to pay L.M.’s wife “$657.37 per month plus all increases to which the participant may have been entitled.”
Shortly before the court entered the judgment of divorce from bed and board, L.M.’s guardian again applied for Medicaid benefits. She included in the application copies of the soon-to-be-filed judgment of divorce from bed and board and the QDRO. In November 1992, the Board denied that application because of excessive monthly income. Discussing the QDRO’s treatment of L.M.’s Union Carbide pension, the Board reasoned that “[t]his diversion of income is not recognized under prevailing Medicaid regulations.” Accordingly, the Board concluded that L.M.’s monthly income remained at $1,441.17, which exceeded the income cap of $1,266.00 established by N.J.AC. 10:71-5.6.
Thereafter, L.M.’s guardian requested a hearing, which was held in March 1993. In April 1993, an Administrative Law Judge (ALJ) reversed the Board’s decision to deny Medicaid benefits to L.M., reasoning that under the Medicaid regulations only “available” income is considered in determining eligibility. Available income is defined under
N.J AC.
10:71 — 5.1(b)l.i as income that a person actually receives. Based on the QDRO, the ALJ concluded that the pension pаyment of $657.37 per month from Union Carbide was no longer available to L.M. as income. Accordingly', L.M.’s monthly income, which consisted solely of his Social Securi
The Director of the DHS-DMAHS reversed the ALJ’s determination, holding that the Board had properly considered L.M.’s pension income in denying his application. The Director reasoned that “[r]educing L.M.’s countable gross income as a result of a [QDRO] would effectively eliminate the meaning of the Medicaid income eligibility standard for those who would divest themselves of pension or other income through that vehicle.”
The Appellate Division affirmed, concluding that “the Director’s decision that L.M.’s pension was income which was available to him, even though being paid to his former spouse pursuant to a QDRO, and thus includable when determining L.M.’s Medicaid eligibility, was correct.” The court further noted that “[t]o reverse the Director on the present record could have the result of encouraging parties to secure divorces in order to establish Medicaid eligibility.”
II
The Medicaid program, enacted in 1965 as Title XIX of the Social Security Act, “is designed to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary care and services.”
Atkins v. Rivera,
477
U.S.
154, 156, 106
S.Ct.
2456, 2458,
States that participate in the Medicaid program must provide coverage to the “categorically needy,” which includes persons eligible to receive benefits under Aid to Families with Dependent Children (AFDC), 42
U.S.C.A.
§§ 601-617, or Supplemental Security Income for the Aged, Blind, and Disabled under Title XVI of the Social Security Act (SSI), 42
U.S.C.A.
§§ 1381-1383d.
See
42
U.S.C.A
§ 1396a(a)(10)(A)(i). The categorically needy are “persons whom Congress considered especially deserving of public assistance because of family circumstances, age, or dllability.”
Gray Panthers, supra,
453
U.S.
at 37, 101
S.Ct.
at 2636-37,
The Medicaid program further “offers participating States the option of providing Medicaid assistance to certain other groups of individuals, one of which is the ‘optional categorically needy.’”
Herweg v. Ray,
455
U.S.
265, 268-69, 102
S.Ct.
1059, 1063, 71
L.Ed.2d
137, 142 (1982) (citation omitted). The optional categorically needy are statutorily defined at 42
U.S.C.A.
§ 1396a(a)(10)(A)(ii).
See Skandalis v. Rowe,
Specifically, 42
U.S.C.A
§ 1396a(a)(10)(A)(ii)(V) permits states to provide “optional categorically needy” coverage to persons receiving long-term care in a medical institution, such as a nursing home, who satisfy certain resource requirements and whose income does not exceed the limitation provided in 42
U.S.C.A.
§ 1396b(f)(4)(C), which sets the ceiling at 300 percent of the benefit rate established by SSI. Significantly, 42
U.S.C.A.
§ 1396a(a)(10)(A)(ii)(Y) imposes “an income cap on these individuals.”
New Mexico Dep’t of Human Servs. v. Department of Health & Human Servs. Health Care Fin. Admin.,
In determining whether income is excessive, Congress has required the states to adopt a methodology that takes “into account only such income ... as [is], as determined in accordance with standards prescribed by the Secretary, availаble to the applicant.” 42
U.S.C.A
§ 1396a(a)(17)(B). Because of that delegation of authority, the Supreme Court has stated that the Secretary’s definition of available income “is entitled to ‘legislative effect’ because, ‘[i]n a situation of this kind, Congress entrusts to
DHS-DMAHS also has adopted a regulation that defines income, which states in part: “In order to be considered in the determination of eligibility, income must be ‘available.’ Income shall be considered available to an individual when ... the individual actually receives the income.”
N.J.A.C.
10:71-5.1(b)1.i. Although that standard appears to be in tension with the controlling federal regulations, 42
U.S.C.A.
§ 1396a(r)(2)(A)(i) permits a state to adopt an income methodology for the optional categorically needy that is “less restrictivе” than the SSI methodology.
See Georgia, Dep’t of Medical Assistance v. Shalala,
The Medicaid program also provides states with the option of offering assistance “to the ‘medically needy,’ that is, persons who meet the nonfinancial eligibility requirements for cash assistance under AFDC or SSI, but whose income or resources exceed the financial eligibility standards of those programs.”
Rivera, supra,
We note that as part of the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93), Pub.L. No. 103-66, Congress expressly provided for the creation of so-called “Miller Trusts,” which permit “persons in income cap states whose fixed income places them over the income limit ... nevertheless [to] qualify for Medicaid nursing home benefits.” Sanford J. Schlesinger & Barbara J. Schemer,
OBRA ’93 Makes Sweeping Changes in Medicaid Rules,
21
Est. Plan.
74, 80 (1994). (Those trusts are so named because a precursor to the current codified version, involving the judicial creation of trusts for incompetent persons, was initially accepted in
Miller, supra,
746
F.Supp.
19, as a method of excluding income for eligibility purposes, thereby avoiding the income cap.) Presently, in a state such as New Jersey, which provides for nursing-home coverage under 42
U.S.C.A.
§ 1396a(a)(10)(A)(ii)(V) but does not provide such coverage under the medically needy program, a trust containing “pension, Social Security, and other income to the individual” can be established under federal law to exclude that income from a Medicaid eligibility determination. 42
U.S.C.A
§ 1396p(d)(4)(B)(i). That trust, however, must provide that “the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.” 42
U.S.C.A
§ 1396p(d)(4)(B)(ii). Accordingly, those trusts provide a
We further recognize that the Governor, in her budget proposal for fiscal year 1996, recommends authorizing DHS-DMAHS to provide coverage for nursing-home services through New Jersey’s medically needy program. Governor Christine Todd Whitman, State of New Jersey [Proposed] Budget Fiscal Year 1995-96, at E-15 (Jan. 23, 1995). That change would eliminate the “Medicaid Gap” problem by allowing persons to spend down them income on the costs of their care to qualify for coverage. New Jersey would then fall in fine with the national trend: the overwhelming majority of states with a medically needy program provide long-term nursing-home coverage through that program. See Quadagno, supra, 31 The Gerontologist at 521.
Both Congress’s codification of Miller Trusts and the Governor’s proposal to cover nursing-home care through the medically needy program are measures that are responsive to the “Medicaid Gap” problem. Unfortunately, L.M. encountered a more rigid Medicaid system when he sought benefits. He faced the income cap imposed by 42 U.S.C.A. § 1396a(a)(10)(A)(ii)(V) prior to the Congressional authorization of Miller Trusts in 1993. In that context, L.M. and his wife of fifty-three years divorced, presumably motivated wholly or in part by a desire to enable L.M. to receive Medicaid benefits. We now turn to the issues raised by L.M.’s apрeal, to determine whether the Board properly denied his application for benefits when he applied under the system in place in 1992.
Ill
Generally, we will not reverse the decision of an administrative agency unless it is arbitrary, capricious, or unreasonable or is not supported by substantial credible evidence in the record as a whole.
Dennery v. Board of Educ.,
131
N.J.
626, 641,
In affirming the decision of the Director of DHS-DMAHS to deny L.M.’s application for Medicaid benefits, the Appellate Division relied solely on
Estate of G.E. v. Division of Medical Assistance & Health Services,
271
N.J.Super.
229,
The Appellate Division affirmed the decision of the Director of DHS-DMAHS that the court-ordered transfer of G.E.’s pension benefits to support V.E. did not render them unavailable to G.E. for the purpose of determining his monthly income, and that G.E. was ineligible for Medicaid due to excessive income. Initially, the' court determined that “the Secretary’s position, now formalized in 20
C.F.R.
[§] 416.1123(b)(2), that amounts paid to satisfy support orders constitute ‘available income’ for Medicaid eligibility purposes,” was a valid exercise of regulatory authority under 42
U.S.C.A
§ 1396a(a)(17)(B).
Estate of G.E., supra,
271
N.J.Super.
Next, the
Estate of G.E.
court addressed whether
N.J.AC.
10:71 — 5.1(b)1.i, which describes incomers available if “the individual actually receives the income,” provides a “less restrictive income eligibility standard[ ] for Medicaid applicants by excluding payments under a spousal support order from an applicant’s countable income,” pursuant to 42
U.S.CA
§ 1396a(r)(2)(A)(i). 271
N.J.Super.
at 237,
We agree that we must initially address the issue of ownership of the pension. “While the Medicaid statute provides a detailed definition of income for purposes of th[e] [income] cap, it does not specify rules for determining
ownership
of that income, particularly as between spouses.”
New Mexico, supra,
When one spouse enters a nursing home, however, the issue of ownership becomes relevant. Under federal law, when “the applicant enters a nursing home, the spouse’s income continues to be deemed ‘available’ during the first month of separation[] [but] [thereafter, mutual consideration of spousal income ceases unless the spouse’s income is actually contributed.”
Washington, Dep’t of Social & Health Servs. v. Bowen,
For example, in
New Mexico, supra,
the New Mexico Department of Human Services, along with a class of aged, blind, and disabled married persons needing nursing-home care, challenged the Secretary’s decision to disapprove of New Mexico’s Mеdicaid plan because it had supplanted the name-on-the-check rule with community-property principles. The class members alleged that because the bulk of the income supporting them and their respective spouses had happened to be paid in their name, the Secretary’s rale disqualified them from Medicaid although their true personal income under New Mexico community-property law fell under the income cap.
New Mexico, supra,
Addressing that claim, the Court of Appeals for'the Tenth Circuit initially acknowledged that the Secretary possesses broad discretion, but emphasized that the exercise of that discretion must be evaluated within “the structure of the Medicaid program
Next, the
New Mexico
court emphasized that “the particular area of state law with which we are concerned, dealing with matters of family relations ordinarily reserved from federal encroachment, weighs heavily in favor of honoring the state’s policy choices.”
Insofar as marriage is within temporal control, the States lay on the guiding hand. The whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the States and not to the laws of the United States. Federal courts repeatedly have declined to assert jurisdiction over divorces that presented no federal question. On the rare occasion when state family law has come into conflict with a federal statute, this Court has limited review under the Supremacy Clause to a determination whether Congress has positively required by direct enactment that state law be pre-empted. A mere conflict in words is not sufficient. State family and family-property law must do major damage to clear and substantial federal interests before the Supremacy Clause will demand that state law be overridden.
[Hisquierdo v. Hisquierdo, 439 U.S. 572, 581, 99 S.Ct. 802, 808, 59 L.Ed.2d 1 , 10-11 (1979) (internal citations and quotation marks omitted).]
See also Mansell v. Mansell,
490
U.S.
581, 587, 109
S.Ct.
2023, 2028,
In that context, the
New Mexico
court noted Congress’s silence on the issue of ownership of income and concluded that express preemption was lacking. Furthermore, it rejected the notion that application of New Mexico’s community-property laws to determine whether the income cap is exceeded “does major damage to the objectives of the Medicaid program.”
The effect on Medicaid eligibility of the equitable distribution of a pension in connection with a divorce from bed and board presents another instance in which the issue of ownership of income becomes relevant. Although the federal and New Jersey regulations provide that a pension constitutes unearned income for Medicaid-eligibility purposes,
see
20
C.F.R.
§ 416.1121(a);
N.J.A.C.
10:71-5.4(a)3, nothing in the Medicaid statute or regulations addresses the ownership of that income. “Since the Medicaid statute or regulations provide no criteria for determining whether income in a particular form or from a particular source is the income of a particular individual, one ‘must turn to state lаw to define the property interests involved.’ ”
Purser, supra,
N.J.S.A.
2A:34-23 provides that “where a judgment of ... divorce from bed and board is entered the court may make such award or awards to the parties ... to effectuate an equitable distribution of the property, both real and personal, which was legally and beneficially acquired by them or either of them during the marriage.” The general purpose of that provision is to empower courts “to allocate marital assets between the spouses, regardless of ownership.”
Painter v. Painter,
65
N.J.
196, 213,
The purpose of equitable distribution differs from that of support obligations:
Alimony and child support can help maintain the income of both parties at a certain level over time by using one party’s income to support the other. However, the primary purpose of marital property distribution laws is not to compensate for changes in the parties’ fortunes after they have separated, but to achieve a fair distribution of what the parties ‘lawfully and beneficially acquired’ while they were together.
[Kikkert, supra,
88
N.J.
at 9,
See also Mendell v. Mendell,
162
N.J.Super.
469, 475-76,
In this ease, to effectuate the equitable distribution of assets the QDRO directed the administrator of the Union Carbide pension to pay L.M.’s wife “the benefits of the plan as if she were the employee pension beneficiary.” Specifically, the administrator must pay L.M.’s wife “$657.37 per month plus all increases to which the participant may have been entitled.” L.M. retained no interest in thе pension. Therefore, pursuant to New Jersey law, L.M.’s wife is the sole owner of the pension asset. We note that if L.M. were required to pay his wife $657.37 per month in alimony, but retained his pension through equitable distribution, he would remain the owner of the pension asset because “[t]he allowance of alimony does not confer upon the receiving spouse any interest in the assets of the paying spouse.”
Mendell, supra,
162
N.J.Super.
at 475,
Because L.M. does not own the pension, we hold that the monthly pension income cannot be considered as income that is available to L.M. for Medicaid eligibility purposes. Pursuant to 42
U.S.C.A
§ 1396a(a)(17)(D), the Secretary has promulgated “deem
Despite the deference we generally accord to an agency’s interpretation of the operative law, the decision by the Director of DHS-DMAHS to attribute the pension income to L.M. after the pension was equitably distributed to his wife cannot stand. That decision is inconsistent with New Jersey’s law of equitable distribution. Furthermore, the operative principles of New Jersey’s family-property law do not conflict with the express terms of the Medicaid law,
see Bowen, supra,
Through enactment of the Medicaid program, Congress intended to confer “broad discretion on the States to adopt standards for determining the extent of medical assistance, requiring only that such standards be ‘reasonable’ and ‘consistent with the objectives’ of the Act.”
Beal v. Doe,
432
U.S.
438, 444, 97
S.Ct.
2366, 2370, 53
L.Ed.2d
464, 472 (1977);
see also Bowen, supra,
Because the pension is owned by L.M.’s spouse, the pension benefits cannot constitute available income to L.M. under the federal and New Jersey regulations that define income.
Finally, we note the Attorney General’s concern that a disposition of this appeal in a manner favorable to L.M. might encourage persons to divorce to protect assets for the spouse of the nursing-home resident. That incentive, the Attorney General points out, might persist even if the Governor’s proposal to cover nursing-home services through the medically needy program becomes law because persons could seek to transfer assets such as pensions through equitable distribution instead of spending down their income on their care. That would unfairly place a further burden on the limited financial resources of the State.
We shаre the Attorney General’s concern. We also infer that government is equally concerned about federal and state Medicaid policies that are so restrictive that they encourage married couples, like L.M. and his wife, to seek judicial authorization to sever the bonds of a fifty-three-year-old marriage that they would otherwise preserve at all costs. As noted, that cruel dilemma confronted by L.M. and his spouse has been partially alleviated by Congress’s authorization of “Miller Trusts” and by the prospect of legislative approval of Governor Whitman’s proposal to cover nursing-home services through the medically needy program.
Supra
at 488-489,
In that connection, we note that the Governor’s budget proposal also recommends that DHS-DMAHS implement policies to prevent persons from evading the rules of the Medicaid system to avoid paying their appropriate share for long-term care. Either the Secretary or DHS-DMAHS might further that objective by considering adoption of a regulation that addresses the effect on available income of the transfer of pension benefits by equitable distribution primarily for the purpose of achieving Medicaid eligibility.
For reversal and remandment — Chief Justice WILENTZ and Justices HANDLER, POLLOCK, O’HERN, GARIBALDI, STEIN and COLEMAN — 7.
Opposed — None.