Roloff v. Sullivan, 91-3198

• Citation: 975 F.2d 333
• Decision Date: 11 September 1992
• Docket Number: No. 91-3198,91-3198
• Parties: , Medicare & Medicaid Guide P 40,777, 3 NDLR P 92 Eleanor ROLOFF, individually, and as Personal Representative of the Estates of Beatrice Beall and Bernice Beall; and R. Dianne Strickland, as Guardian of Dorothy Unger, Plaintiffs-Appellants, v. Louis W. SULLIVAN, Secretary of the United States Department of Health and Human Services; Gail R. Wilensky, Administrator of the Health Care Financing Administration; Michelle Harris, Regional Director of the United States Department of Health and Human Services; Barbara Gagel, Regional Administrator of the Health Care Financing Administration; and Suzanne L. Magnant, Administrator of the Indiana Department of Public Welfare, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 333

975 F.2d 333

38 Soc.Sec.Rep.Ser. 618, Medicare & Medicaid Guide

P 40,777,

3 NDLR P 92

Eleanor ROLOFF, individually, and as Personal Representative of the Estates of Beatrice Beall and Bernice Beall; and R. Dianne Strickland, as Guardian of Dorothy Unger Plaintiffs-Appellants, v. Louis W. SULLIVAN, Secretary of the United States Department of Health and Human Services; Gail R. Wilensky Administrator of the Health Care Financing Administration Michelle Harris, Regional Director of the United States Department of Health and Human Services; Barbara Gagel Regional Administrator of the Health Care Financing Administration; and Suzanne L. Magnant, Administrator of the Indiana Department of Public Welfare, Defendants-Appellees.

No. 91-3198.

United States Court of Appeals, Seventh Circuit.

Argued April 15, 1992.

Decided Sept. 11, 1992.

Kent Hull (argued), Legal Services of Northern Indiana, South Bend, Ind., for plaintiffs-appellants.

Clifford D. Johnson, Asst. U.S. Atty., Office of U.S. Atty., South Bend, Ind., Barbara F. Altman (argued), Dept. of Health and Human Services, Region V, Office of Gen. Counsel, Chicago, Ill., for defendants-appellees Louis W. Sullivan, Gail R. Wilensky, Michelle Harris and Barbara Gagel.

Leneigha L. Downs, Office of Atty. Gen., Federal Litigation, Indianapolis, Ind., for defendant-appellee Suzanne Magnant.

Before CUMMINGS and POSNER, Circuit Judges, and WILL, Senior District Judge. ^*

CUMMINGS, Circuit Judge.

Plaintiffs contend that Indiana's method of calculating the resources of Medicaid applicants, known as the first day of the month rule, is contrary to the Medicaid statute, 42 U.S.C. § 1396 et seq. Specifically, plaintiffs challenge Indiana's calculation of an applicant's resources on the first day of the month without regard to any depletions of the applicant's resources that occur later in the month. An applicant who depletes her resources in the middle of the month must wait to the beginning of the next month to qualify for Medicaid. Plaintiffs also claim that Indiana's first day of the month rule must be tempered by rules implementing "conditional eligibility" and "resource spend down," concepts we discuss in detail below. The district court granted summary judgment to the defendants, deciding that Indiana was permitted to implement this regulatory scheme. Plaintiffs appeal.

I.

Plaintiffs filed their first amended class action complaint on April 19, 1990. The class was alleged in the complaint to consist of all persons who have applied for Medicaid in Indiana but have been denied eligibility because of the first day of the month rule, and all those likely to be denied eligibility because of the rule. The complaint alleged that defendants' actions violated the Medicaid statute (42 U.S.C. § 1396 et seq.), the Administrative Procedure Act (5 U.S.C. § 553), the Indiana rulemaking statute (Ind.Code § 4-22-2-3, et seq.), and the Fifth and Fourteenth Amendments. ¹ Indiana's procedures were allegedly unlawful under 42 U.S.C. § 1396a(f) because they were more restrictive than those used by the state on January 1, 1972. On February 11, 1991, the district court certified a plaintiff class consisting of "all persons who have applied for (and will apply for in the future) Medicaid benefits for the aged, blind or disabled in the State of Indiana since the promulgation of the 'first day of the month rule' in 1984."

On July 24, 1991, the district court granted the defendants' motion for summary judgment. The court noted that there was an "apparent factual dispute over what standards were in effect in Indiana as of January 1, 1972," but decided that this apparent dispute was not material to the legal issues in the case. Roloff v. Sullivan, 772 F.Supp. 1083, 1090 (N.D.Ind.1991). Turning to the plaintiffs' arguments based on the Medicaid Act, the district court concluded that "A state is only subjected to the limits of those policies in effect as of January 1, 1972 when that state has not adopted [Supplemental Security Income] eligibility requirements. Since the first day of the month rule is part of the [Supplemental Security Income] program, Indiana's adoption of that rule complies with its statutory duties under § 1396a(f)." Id. at 1092. An argument that the Medicaid Act requires Indiana to have a resource spend down rule was also rejected by the Court, which found the decision of Gandenberg v. Barry, 687 F.Supp. 346 (S.D.Ohio 1988), persuasive. Finally, the Court rejected plaintiffs' argument that Indiana's procedures were faulty under 42 U.S.C. § 1396a(a)(17), which requires that eligibility standards take "into account only such income and resources as are * * * available to the applicant or recipient" and "provide for reasonable evaluation of any such income or resources."

II.

A. Federal Statutory Background

Medicaid is an intricate program whereby states and the federal government cooperate to give medical assistance to the needy. "Although participation in the Medicaid program is entirely optional, once a state elects to participate, it must comply with the requirements of Title XIX [42 U.S.C. § 1396 et seq.]." Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2679, 65 L.Ed.2d 784. Generally speaking, states serve two groups of persons through their Medicaid programs. First, states are obligated to serve (with an important exception noted below) the "categorically needy," which are defined to include families with dependent children eligible for public assistance under the Aid to Families with Dependent Children ("AFDC") program, 42 U.S.C. § 601 et seq., and the aged, blind, and disabled eligible for benefits under the Supplemental Security Income ("SSI") program, 42 U.S.C. § 1381 et seq. See 42 U.S.C. § 1396a(a)(10)(A); Harris, 448 U.S. at 301 n. 1, 100 S.Ct. at 2680 n. 1. Second, states are permitted, but not obligated, to serve the "medically needy," which refers to those persons in need of medical assistance whose income levels disqualify them for the AFDC or SSI programs. See 42 U.S.C. § 1396a(a)(1)(C); Harris, 448 U.S. at 301 n. 1, 100 S.Ct. at 2680 n. 1. Indiana has chosen not to offer Medicaid coverage to the medically needy.

A state's obligation to provide Medicaid coverage to the categorically needy is subject to an important limitation found at 42 U.S.C. § 1396a(f). Under this provision (known as the Section 209(b) option), a state may provide Medicaid coverage only to those individuals who would have been eligible under the state Medicaid plan in effect on January 1, 1972. Schweiker v. Gray Panthers, 453 U.S. 34, 38-39, 101 S.Ct. 2633, 2637-38, 69 L.Ed.2d 460. Congress offered states the Section 209(b) option when it expanded the Medicaid program in 1972. The fear was that states "would withdraw from the cooperative Medicaid program rather than expand their Medicaid coverage in a manner commensurate with the expansion of categorical assistance." Id. at 38, 101 S.Ct. at 2637. Indiana is a Section 209(b) state.

It is necessary for the purposes of this appeal to examine 42 U.S.C. § 1396a(f) (the Section 209(b) provision) in some detail. ² As noted above, the normal rule is that a state must provide coverage to the categorically needy, defined generally to include persons who are receiving, or are eligible to receive, SSI or AFDC benefits. 42 U.S.C. § 1396a(a)(10)(A). ³ Section 209(b), which begins "Notwithstanding any other provision of this subchapter," serves as an exception to Section 1396a(a)(10)(A), which would otherwise be applicable law. There is an important qualification, however, on the Section 209(b) exception--even though a state can retain its 1972 standards, it must perform an "income spend down" when calculating available income by deducting "incurred expenses for medical care." In this sense the Section 209(b) exception resembles the optional medically needy provision found at Section 1396a(a)(10)(C), which also requires income to be offset by incurred medical expenses. ⁴ The income spend down requirement under Section 209(b) must be distinguished from the resource spend down rule that plaintiffs in this case apparently assert that Indiana must adopt. Although in individual cases it may be difficult to distinguish income from resources, the two rules are quite different.

To summarize, after the 1972 amendment to the Medicaid Act, a state could choose what might be called the "SSI option" with regard to the categorically needy, or it could choose the "Section 209(b) option." Under the SSI option, a state must give Medicaid assistance based on the somewhat higher SSI income and resource standards--but it does not have to offset incurred medical expenses from income in determining Medicaid eligibility. Under the Section 209(b) option, a state can employ more stringent income and resource standards for eligibility as long as they are no more stringent than its January 1, 1972, standards, but is required to offset incurred medical expenses from income. See generally 42 C.F.R. § 435.1(d).

B. Indiana's First Day of the Month Rule

To qualify for Medicaid, an applicant must meet both an income eligibility test and a resource eligibility test; if either the applicant's income or the value of his resources (assets) is too high, then he does not qualify for Medicaid. See Medicare & Medicaid Guide p 14,311 (CCH 1992). Indiana currently calculates resources in accordance with the following rule:

(a) An applicant or recipient is ineligible for medical assistance for any month in which the total equity value of all non-exempt resources exceeds the applicable limitation, set forth below, on the first day of the month:

(1) $1,500 for the applicant or recipient, * * *; or

(2) $2,250 for the applicant or recipient and his spouse.

470 Ind.Admin.Code § 9.1-3-17 (1988). Indiana adopted this rule in 1984, apparently under pressure from the federal Health Care Finance Authority. ⁵ The application of this rule to the real parties in interest in this...