Phillips v. Noot, s. 83-1366

• Decision Date: 12 March 1984
• Docket Number: Nos. 83-1366,83-1367 and 83-1393,s. 83-1366
• Citation: 728 F.2d 1175
• Parties: , Medicare&Medicaid Gu 34,017 Shirley PHILLIPS, on behalf of herself and her minor children and others similarly situated, Appellees, v. Arthur E. NOOT, in his official capacity as Commissioner of the Minnesota Department of Public Welfare, and Ramsey County Community Human Services Board, v. Richard S. SCHWEIKER, in his official capacity as Secretary, United States Department of Health and Human Services, Appellant. Shirley PHILLIPS, on behalf of herself and her minor children and others similarly situated, Appellees, v. Arthur E. NOOT, in his official capacity as Commissioner of the Minnesota Department of Public Welfare, and Ramsey County Community Human Services Board, Appellants, v. Richard S. SCHWEIKER, in his official capacity as Secretary, United States Department of Health and Human Services. Shirley PHILLIPS, on behalf of herself and her minor children and others similarly situated, Appellants, v. Arthur E. NOOT, in his official capacity as Commissioner of the Minnesota Department of Public Welfare, and Ramsey County Community Human Services Board, Appellees, v. Richard S. SCHWEIKER, in his official capacity as Secretary, United States Department of Health and Human Services, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1175

728 F.2d 1175

4 Soc.Sec.Rep.Ser. 244, Medicare&Medicaid Gu 34,017

Shirley PHILLIPS, on behalf of herself and her minor children and others similarly situated, Appellees, v. Arthur E. NOOT, in his official capacity as Commissioner of

the Minnesota Department of Public Welfare, and Ramsey County Community Human Services Board, v. Richard S. SCHWEIKER, in his official capacity as Secretary,

United States Department of Health and Human

Services, Appellant.

Shirley PHILLIPS, on behalf of herself and her minor children and others similarly situated, Appellees, v. Arthur E. NOOT, in his official capacity as Commissioner of

the Minnesota Department of Public Welfare, and

Ramsey County Community Human Services

Board, Appellants, v. Richard S. SCHWEIKER, in his official capacity as Secretary,

United States Department of Health and Human Services.

Shirley PHILLIPS, on behalf of herself and her minor children and others similarly situated, Appellants, v. Arthur E. NOOT, in his official capacity as Commissioner of

the Minnesota Department of Public Welfare, and

Ramsey County Community Human Services

Board, Appellees, v. Richard S. SCHWEIKER, in his official capacity as Secretary,

United States Department of Health and Human

Services, Appellee.

Nos. 83-1366, 83-1367 and 83-1393.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 12, 1983.

Decided March 12, 1984.

Hubert H. Humphrey, III, Atty. Gen., State of Minn. by Beverly Jones Heydinger, Sp. Asst. Atty. Gen., St. Paul, Minn., for Noot [Levine].

David R. Smith, Dept. of Health and Human Services, Washington, D.C., for Schweiker [Heckler]; Juan A. del Real, Gen. Counsel, Ann T. Hunsaker, Asst. Gen. Counsel, Robert P. Jaye, Deputy Asst. Gen. Counsel, Dept. of Health and Human Services, of counsel.

Michael Hagedorn, Southern Minn. Regional Legal Services, Inc., Saint Paul, Minn., for Phillips et al.; Michael Parks, Nat. Health Law Program, Inc., Los Angeles, Cal., of counsel.

Before ROSS, Circuit Judge, HENLEY, Senior Circuit Judge, and McMILLIAN, Circuit Judge.

HENLEY, Senior Circuit Judge.

This class action presents questions as to when and how Medicaid benefits received by the plaintiffs may be terminated by the defendants. The plaintiffs are all Minnesota residents whose Aid to Families with Dependent Children (AFDC) and Medicaid benefits have been terminated because of the enactment of 42 U.S.C. Sec. 602(a)(8)(B)(ii)(II). The defendants are the Commissioner of the Minnesota Department of Public Welfare, the Ramsey County Commissioner Services Board, and the Secretary of Health and Human Services. ¹

BACKGROUND

The case begins with a change in the law under which AFDC benefits are provided. In 1981 Congress amended this law to limit significantly the use of an exclusion (in AFDC parlance, a "disregard") used in figuring a recipient's income for purposes of AFDC eligibility. As a result, the plaintiffs lost their entitlement to AFDC benefits.

Recipients of AFDC benefits automatically receive Medicaid benefits. 42 U.S.C. Sec. 1396a(a)(10)(A)(i). These recipients are termed "categorically needy." In some states, including Minnesota, people not eligible for AFDC benefits may still qualify for Medicaid if they are found to be "medically needy," or if they fall into one of several other categories. Plaintiffs here were receiving AFDC benefits and thus were "categorically needy." When their AFDC benefits were terminated, they were no longer considered "categorically needy." However, when AFDC benefits are terminated because of "increased income from employment," recipients are entitled to receive Medicaid for four additional months without a determination that they are "medically needy." 42 U.S.C. Sec. 1396a(e)(1). Recipients may still be eligible for Medicaid benefits if they meet the requirements of other Medicaid provisions.

The first issue is whether Sec. 1396a(e)(1)'s four-month grace period applies in this case. The second issue is whether the defendants are required to extend Medicaid coverage to those formerly "categorically needy" while their "medically needy" applications are pending. The district court answered the first question in favor of the plaintiffs and the second question in favor of the defendants. Both plaintiffs and defendants appeal. We affirm.

1. The four-month extension of Medicaid.

Under 42 U.S.C. Sec. 1396a(e)(1), when AFDC benefits are terminated because of an increase in income, recipients are still covered by Medicaid for four months. The plaintiffs in this case argue that they are entitled to the benefits of this provision.

The plaintiffs became ineligible for AFDC benefits not because they began to make more money, but because the way income was calculated for AFDC eligibility was changed. In determining whether a person is eligible for AFDC benefits, certain expenses are excluded, or "disregarded," in figuring the person's income. These include work expenses up to $75.00 a month and child care expenses up to $160.00 a month. Until 1981, there was another "disregard," which allowed recipients to exclude $30.00 plus one-third of their earnings from their income for AFDC eligibility purposes. This disregard is hereinafter referred to as the "30 + 1/3 disregard." This provision was designed to encourage AFDC recipients to work whenever they could, and to remove a substantial disincentive--the termination of AFDC benefits--to working. However, as part of the Omnibus Budget Reconciliation Act (OBRA), Congress in 1981 amended this provision to allow application of the "30 + 1/3 disregard" for only four months. 42 U.S.C. Sec. 602(a)(8)(B)(ii)(II) (1983).

Plaintiffs were eligible for AFDC benefits when the "30 + 1/3 disregard" was applied to their incomes. Four months after the law went into effect, the disregard no longer applied to the plaintiffs' incomes. Without the disregard, the plaintiffs were ineligible for AFDC benefits. While there was no increase in "real" income, there was an increase in "countable" income, i.e., income which is determinative of AFDC eligibility. Plaintiffs argue that since their "countable income" has increased, they are entitled to four additional months of Medicaid benefits. Defendants argue just as strenuously that because there has been no increase in actual income, Sec. 1396a(e)(1) does not apply.

The statute itself is somewhat ambiguous. "Increased income from employment" would seem to mean an actual increase in earnings. However, immediately following those words in the same provision is a reference to the recipient "becoming ineligible" for benefits. Since eligibility has to do with "countable income," this reference tends to support the plaintiffs' argument.

Both plaintiffs and defendants cite several other provisions of the AFDC and Medicaid statutes in an attempt to show that "income" in those statutes means "countable" or "actual" income, as the case may be. We appreciate the effort, but it clears up nothing. Rather, the cited provisions serve only to demonstrate that the word "income" can mean a number of things.

The legislative history of Sec. 1396a(e)(1) is more helpful. The clear primary purpose of the provision was to remove a work disincentive: loss of Medicaid benefits. The committee reports discussed then-current law, stating:

With the introduction of the earnings disregard provisions under the 1967 amendments, and the consequent gradual loss of cash benefits as earned income increased, families on the assistance rolls can have a substantial total income, and still receive full medicaid protection. The medicaid program has, therefore, a work disincentive effect at some point in the earnings scale--the earning of an extra dollar can mean the phaseout of cash assistance, and the abrupt and complete loss of medicaid.

H.Rep. 92-231, reprinted in 1972 U.S.Code Cong. & Ad.News 4989, 5060. The Senate Report reflects a similar awareness of and unhappiness with this disincentive. S.Rep. 92-1230 at p. 46.

We are of the opinion that refusing to apply Sec. 1396a(e)(1) in this situation would discourage aid recipients from continuing to work. Of course, the primary concern of Sec. 1396a(e)(1)'s drafters was to remove a disincentive to increased work, because that was the specific problem with which they were faced. However, the overall concern was with encouraging employed aid recipients to continue working. Thus, applying Sec. 1396a(e)(1) here would be consistent with Congress's intention of reducing disincentives to work.

Congress often has more than one purpose in mind when it enacts legislation. That appears to be the case here. In addition to removing a work disincentive, Sec. 1396a(e)(1) was designed to prevent sudden loss of medical care. Section 1396a(e)(1)'s legislative history indicates that both the House and Senate were concerned about the potential harm caused by immediate cut-off of Medicaid benefits when families became ineligible for AFDC benefits. The Congress apparently did not want families who became ineligible for AFDC because of increased income to be suddenly and precipitously without medical coverage, especially when that income increase might be marginal. See H.Rep. 92-231, reprinted in 1972 U.S.Code Cong. & Ad.News 4989, 5060; S.Rep. 92-1230 at p. 46.

The concern over termination of Medicaid benefits was voiced specifically in terms of marginal earnings increases, but the broader concern was over the fact that such terminations were immediate upon AFDC termination. We read the legislative history as demonstrating a desire to prevent the sudden absence of medical coverage as provided by Medicaid. The plaintiffs had been depending on Medicaid to pay for their medical expenses. Time was needed to arrange for alternative insurance coverage or to apply for Medicaid under some other provision, and to make changes in the family budget to accommodate the new expenses. The four-month buffer would give the now-ineligible recipient time to arrange...