Dawson v. Myers

Decision Date14 May 1980
Docket NumberNo. 79-3246,79-3246
PartiesRossye DAWSON, Individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. Beverlee A. MYERS * et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Gill DeFord, Los Angeles, Cal., for plaintiff-appellant.

Richard Magasin, Los Angeles, Cal., argued, for defendants-appellees; George Deukmejian, Atty. Gen., Los Angeles, Cal., on brief.

On Appeal from the United States District Court for the Central District of California.

Before WRIGHT and ANDERSON, Circuit Judges, and SOLOMON, ** District Judge.

J. BLAINE ANDERSON, Circuit Judge:

This is a class action challenging the State of California's transfer of assets rule which was relied upon to deny Medi-Cal benefits to members of the class. In short, this rule denies Medi-Cal benefits to any individual who has transferred assets so as to qualify under the financial eligibility requirements for Medi-Cal. The class members argue that the transfer rule conflicts with the federal Medicaid statutes and regulations, and they also challenge the rule's constitutionality based on due process and equal protection grounds. The court below rejected all of these arguments and upheld the transfer rule. We believe that the district court reached the correct result and affirm.

I. BACKGROUND
A. Medicaid

Title XIX of the Social Security Act established the Medicaid program. 42 U.S.C. § 1396 et seq. This cooperative federal-state program is designed to provide medical assistance to certain classes of individuals who are in need of such assistance. Although states are not required to participate, if they choose to do so they must develop a plan which conforms to the federal guidelines. 42 U.S.C. § 1396a(b). Despite the extensive federal standards (42 U.S.C. § 1396a), the individual states are given wide discretion in the administration of their local programs. Norman v. St. Clair, 610 F.2d 1228, 1230 (5th Cir. 1980). After a state's plan is approved by the Secretary of Health, Education and Welfare, the state then receives reimbursement for a portion of the funds which are expended. 42 U.S.C. § 1396.

A state which has chosen to adopt a Medicaid program has the option of deciding whether it should provide benefits to only one or to both of the statutorily-defined groups of needy persons. States participating in the program must provide assistance to the group which is referred to as the categorically needy. 1 42 U.S.C. § 1396a(a)(10)(A). Generally, in order to be considered categorically needy, an individual must be receiving financial assistance, or be financially eligible for such assistance, under Title IV-A of the Social Security Act (Aid to Families with Dependent Children, referred to as AFDC) or Title XVI of the Social Security Act (Supplemental Security Income for the Aged, Blind, and Disabled, referred to as SSI). 2

When they establish their Medicaid program, the states have the option of also providing benefits to the group which is referred to as the medically needy. This group covers individuals who would qualify for AFDC or SSI except that they have sufficient income and resources to cover the essentials aside from their medical costs. 3 The medically needy begin receiving assistance after they have incurred medical expenses which reduce their income (and assets) below a prescribed level. Thus, the chief distinction between the two groups is that the categorically needy have lower incomes and less resources than the medically needy.

B. Medi-Cal

California, through its Medi-Cal program, has voluntarily chosen to participate in the Medicaid program. In addition, California voluntarily chose to cover the medically needy as well as the categorically needy. California has adopted a comprehensive statutory and regulatory scheme to implement its Medi-Cal program.

As part of its plan, the California legislature adopted what is called a transfer of assets rule. Cal. (Welf. & Inst.) Code § 14015. 4 Basically, this prevents persons from qualifying as medically needy if they have transferred assets for less than fair consideration within two years prior to their application for assistance. The transfer rule only applies to applicants in the medically needy group; it has no application at all to the categorically needy.

California has promulgated regulations which, among other things, establish eligibility requirements for the medically needy and implement the transfer rule. 5 Under these regulations, an individual is eligible as medically needy only if his or her assets are valued at $1500 or less. 22 Cal.Admin.Code § 50420. An individual's home, income-producing real property, and certain other assets are not counted toward the $1500 limitation. 22 Cal.Admin.Code §§ 50418, 50425-50489. Although this property is exempt insofar as determining eligibility, it remains potentially subject to California's recovery procedures. That is, after the individual dies, California is entitled to recover the cost of medical assistance it provided to the individual from the assets (including both exempt and nonexempt property) which are left in the individual's estate.

Under the regulations which implement the transfer rule, any transfer of assets (including exempt property) for less than adequate consideration creates a rebuttable presumption that the transfer was made for the purpose of establishing eligibility. Unless the applicant rebuts the presumption, the state can deny benefits on this basis.

C. Facts

Dawson, who originally filed this action, has died. Two other individuals, Beltran and Manahan, intervened. Beltran, who is 87, lives in an extended care facility. Manahan, who is 85, lives in a convalescent home. Both Beltran and Manahan were medically needy and otherwise qualified to receive Medi-Cal benefits. However, both were denied benefits based on the fact that they had transferred assets for less than adequate consideration prior to applying for Medi-Cal. Neither was able to overcome the presumption of ineligibility resulting from these transfers.

In their complaint, Beltran and Manahan (referred to as appellants), on behalf of themselves and others similarly situated, sought declaratory and injunctive relief invalidating and enjoining the California transfer rule. In addition, the appellants sought reimbursement for those amounts which they had been forced to pay because of the state's transfer rule. The district court certified a class consisting of all those who had been denied Medi-Cal benefits based on California's transfer rule.

On May 10, 1979, the district court granted California's motion for summary judgment and denied the cross motion filed by the appellants. The court entered findings of fact and conclusions of law which held that the state's transfer rule did not conflict with the federal statutory and regulatory framework, nor did it amount to a denial of due process or equal protection. The appellants then brought this appeal. 6

II. DISCUSSION

The appellants make five distinct arguments against California's transfer rule. They claim that it creates an irrebuttable presumption in violation of the due process clause. Since the rule only applies to the medically needy, they contend that it also violates the equal protection clause. Furthermore, the appellants claim that the transfer rule conflicts with two different sections of the federal statutes (42 U.S.C. §§ 1396a(a)(10)(C), 1396a(a)(17) (B), as well as one section of the federal regulations (42 C.F.R. § 435.401). We address the challenges based on the federal statutes and regulations first because if the appellants' arguments are correct, we would not need to reach the constitutional issues. Dandridge v. Williams, 397 U.S. 471, 475-476, 90 S.Ct. 1153, 1156-1157, 25 L.Ed.2d 491 (1970). Moreover, in addressing appellants' arguments, the cardinal principle of statutory construction must be kept in mind, that is, statutes should be construed to avoid constitutional questions. See Swain v. Pressley, 430 U.S. 372, 378 n. 11, 97 S.Ct. 1224, 1228 n. 11, 51 L.Ed.2d 411 (1977).

A. 42 U.S.C. § 1396a(a)(10)(C)

Appellants' primary argument is that the California transfer rule conflicts with 42 U.S.C. § 1396a(a)(10)(C), which requires states providing benefits to the medically needy to cover "all individuals who would, except for income and resources" be eligible for SSI (and therefore come under the categorically needy classification), "and who have insufficient (as determined in accordance with comparable standards) income and resources to meet the costs of necessary medical and remedial care and services." 7 The appellants attribute the following meaning to § 1396(a)(10)(C): "except for the definitional distinction that the medically needy may have higher income and resource levels, the states must use the same rules for the medically needy as for the categorically needy."

Under the Social Security Act, an SSI applicant whose assets exceed the eligibility levels may dispose of the excess assets in order to become eligible for SSI payments. 42 U.S.C. § 1382b(b). This has been administratively interpreted to permit the transfer of the excess assets for less than adequate consideration or as a gift. Social Security Claims Manual § 12507(a). According to the appellants, since transfer rules cannot be applied to SSI applicants (i. e., the categorically needy ), they therefore cannot be applied to the medically needy.

The court below rejected the appellants' reasoning and concluded that the California transfer rule did not conflict with § 1396a(a)(10)(C). The court agreed with the appellants that California could not employ any substantive eligibility requirements on the medically needy which were more restrictive than those used for the categorically needy. Nevertheless, the court characterized the transfer rule as a collateral or procedural eligibility requirement which...

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