Ctr. for Special Needs Trust Admin., Inc. v. Olson

• Decision Date: 16 April 2012
• Docket Number: No. 11–2158.,11–2158.
• Citation: 676 F.3d 688
• Parties: CENTER FOR SPECIAL NEEDS TRUST ADMINISTRATION, INC., Appellant, v. Carol K. OLSON, in her official capacity as Executive Director of North Dakota Department of Human Services, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

676 F.3d 688

CENTER FOR SPECIAL NEEDS TRUST ADMINISTRATION, INC., Appellant,

v.Carol K. OLSON, in her official capacity as Executive Director of North Dakota Department of Human Services, Appellee.

No. 11–2158.

United States Court of Appeals, Eighth Circuit.

Submitted: Nov. 16, 2011.Filed: April 16, 2012.

Rene H. Reixach, argued, Rochester, NY, Richard Meyer, on the brief, Worthington, OH, for appellant.

Jeanne M. Steiner, AG, argued, Bismarck, ND, for appellee.

Rochelle Bobroff, Washington, DC, on the amicus brief of the National Senior Citizens Law Center, AARP, and National Health Law Program.Craig C. Reaves, Kansas City, MO, on the amicus brief of the National Academy of Elder Law Attorneys.

Before WOLLMAN, MURPHY, and BENTON, Circuit Judges.

BENTON, Circuit Judge.

This case addresses the effect of a pooled special-needs trust created by an over–65–year–old beneficiary on his Medicaid benefits. The Center for Special Needs Trust Administration, a section 501(c)(3) non-profit, appeals a summary judgment in favor of the North Dakota Department of Human Services. Invoking 42 U.S.C. § 1983 and the Constitution's Supremacy Clause, Article VI, clause 2, the Center alleges that North Dakota's demand for reimbursement and its state regulations violate a paragraph of the Medicaid Act, 42 U.S.C. § 1396p(d)(4)(C). The district court ¹ ruled that North Dakota was entitled to reimbursement, and that its regulations are consistent with the Medicaid Act. Having jurisdiction under 28 U.S.C. § 1291, this court affirms.

I.

A.

In 2007, Allen H. Kemmet, a disabled nursing-home resident, transferred $54,450 to the Center for deposit in a “C” pooled special-needs trust. He later applied for Medicaid. When the North Dakota Department of Human Services received his Medicaid application, it mistakenly recorded him as 54 years old; he was 78. North Dakota approved his application and did not penalize his transfer of funds to the pooled trust. North Dakota provided benefits to Kemmet in the amount of $41,135.19 to cover his care in the nursing facility. After Kemmet's death in October 2008, North Dakota decided it had erroneously found him eligible and should not have paid the benefits (based on his true age). North Dakota demanded reimbursement for the services it provided Kemmet, contending that his payment of $54,450 to the Center disqualified him for Medicaid, citing 42 U.S.C. § 1396p(c)(2), N.D.C.C. § 50–24.1–02(1), and N.D. Admin. Code § 75–02–02.1–33.2(7)(b)(4). According to North Dakota, the transfer of funds was disqualifying because it was not within the exception in paragraph 1396p(c)(2)(B)(iv) for assets “transferred to a trust ( including a trust described in subsection (d)(4) of this section) established solely for the benefit of an individual under 65 years of age who is disabled.” (emphases added). See also N.D. Admin. Code § 75–02–02.1–33.2(7)(b)(4) (stating that an individual may be disqualified from Medicaid to the extent that his assets were transferred to a trust established solely for the benefit of an individual less than 65 who is disabled).

The Center refused to reimburse North Dakota and sued for (1) a declaratory judgment that North Dakota violated federal law by demanding payment from the Center, and that the state regulations on pooled trusts conflict with federal law; (2) an injunction that the agency stop demanding payment from pooled trusts upon the death of a beneficiary; and (3) an award of costs and reasonable attorney fees under 42 U.S.C. § 1988.

Both parties moved for summary judgment. The Center contended that (1) North Dakota waived its claim by its initial approval, (2) North Dakota is estopped from claiming the trust was not compliant, (3) the North Dakota regulations conflict with the Medicaid Act, and (4) the Act preempts the rules and policies relied upon by North Dakota. North Dakota responded that (1) the Center lacks standing, (2) the complaint fails to allege a violation of a federally-protected right, and (3) the Medicaid Act does not preempt state law in this case.

The district court ruled that North Dakota had not waived its claim and was not estopped, and that the case did not involve preemption. The court determined that the Center had standing and a basis for a § 1983 claim. However, the court concluded that the § 1983 claim lacked merit, deferring to a 2008 federal agency letter that indicated transfers to pooled trusts made by people 65 and older disqualified them from Medicaid. The court dismissed the case. The Center appeals.

B.

Medicaid, a cooperative federal aid program, helps the states provide medical assistance to the poor. Lankford v. Sherman, 451 F.3d 496, 504 (8th Cir.2006), citing Schweiker v. Hogan, 457 U.S. 569, 572, 102 S.Ct. 2597, 73 L.Ed.2d 227 (1982). If a state participates, it must comply with the Medicaid Act and regulations. Id., citing Schweiker v. Gray Panthers, 453 U.S. 34, 37, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981); Bowlin v. Montanez, 446 F.3d 817, 818 (8th Cir.2006). A state submits a plan to the Secretary of Health and Human Services under 42 U.S.C. § 1396a(a). Once the plan is approved, the federal government subsidizes the state's medical-assistance services. Lankford, 451 F.3d at 504. Congress gives states “substantial discretion to choose the proper mix of amount, scope, and duration limitations” of their Medicaid programs. Alexander v. Choate, 469 U.S. 287, 303, 105 S.Ct. 712, 83 L.Ed.2d 661 (1985). However, failure to comply with federal requirements may jeopardize federal funds. See 42 U.S.C. §§ 1396a(a)(1)-(65), 1396c. Among these requirements, states must “comply with the provisions of section 1396p of this title with respect to ... treatment of certain trusts.” 42 U.S.C. § 1396a(a)(18).

To be eligible for Medicaid, a person must have income and resources less than thresholds set by the Secretary. 42 U.S.C. § 1396a(a)(17). In general, trust assets count as resources for determining Medicaid eligibility. See 42 U.S.C. § 1396p(d)(3). In 1993, Congress created an exception for special-needs trusts for disabled individuals. 42 U.S.C. § 1396p(d)(4); Norwest Bank of N.D. v. Doth, 159 F.3d 328, 330 (8th Cir.1998).

This case concerns a specific type “C” special-needs trust—a pooled special-needs trust that pays for a disabled person's Medicaid-ineligible expenses, such as clothing, phone service, vehicle maintenance, and taxes. 42 U.S.C. § 1396p(d)(4)(C). A type “C” trust may be established by the beneficiary or a third party. The non-profit organization as trustee manages the pooled assets of many disabled individuals (with separate accounts for each beneficiary). Residual amounts in the pooled trust after the beneficiary's death do not have to be paid back to the state, and may be kept by the non-profit for the benefit of other pooled-trust beneficiaries. Id. The Medicaid Act describes pooled special-needs trusts:

(d) Treatment of trust amounts

....

(4) This subsection shall not apply to any of the following trusts:

....

(C) A trust containing the assets of an individual who is disabled (as defined in section 1382c(a)(3) of this title) that meets the following conditions:

(i) The trust is established and managed by a non-profit association.

(ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.

(iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) [42 U.S.C. § 1382c(a)(3) ] by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.

(iv) To the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this title [42 U.S.C. § 1396 et seq.].

42 U.S.C. § 1396p(d)(4)(C). This paragraph has no age limit.

Two predecessor paragraphs, however, have age limits:

(c) Taking into account certain transfers of assets

....

(2) An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that—

....

(B) the assets—

....

(iv) were transferred to a trust (including a trust described in subsection (d)(4) of this section) established solely for the benefit of an individual under 65 years of age who is disabled (as defined in section 1382c(a)(3) of this title);

42 U.S.C. § 1396p(c)(2)(B)(iv) (emphasis added). The second paragraph provides:

(d) Treatment of trust amounts

....

(4) This subsection shall not apply to any of the following trusts:

(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1382c(a)(3) of this title) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if 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 under this subchapter.

42 U.S.C. § 1396p(d)(4)(A) (emphasis added). Under this type “A” trust, a disabled person under the age of 65 remains eligible for Medicaid, even if the person is the beneficiary of a special-needs trust that provides “a supplement to enhance the quality of their lives.” Norwest Bank of N.D., 159 F.3d at 330. Eligibility continues “so long as the [“A” trust] contains a pay-back trust provision, i.e., a provision specifying that the total [assistance] provided on or after October 1, 1993, will be paid back to the state after the beneficiaries' death from any funds remaining in the trust.” Id. A type “A” trust must be established by a third party.

The Center contends that the North Dakota regulations 75–02–02.1–31.1(4)(b) a...