Cubanski v. Heckler, 85-7123

• Citation: 781 F.2d 1421
• Decision Date: 06 March 1986
• Docket Number: No. 85-7123,85-7123
• Parties: , Medicare&Medicaid Gu 35,116, Medicare&Medicaid Gu 35,451 Stanley CUBANSKI, Director, Department of Health Services State of California, Petitioner, and Donald A. Barrier, Alan Bierman, Lola Bierman, James Jones, Ronald Kwiek, Petitioners-Intervenors, v. Margaret HECKLER, Secretary, Department of Health and Human Services, United States of America, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1421

781 F.2d 1421

12 Soc.Sec.Rep.Ser. 180, Medicare&Medicaid Gu 35,116,

Medicare&Medicaid Gu 35,451

Stanley CUBANSKI, Director, Department of Health Services State of California, Petitioner and Donald A. Barrier, Alan Bierman, Lola Bierman, James Jones Ronald Kwiek, Petitioners-Intervenors, v. Margaret HECKLER, Secretary, Department of Health and Human Services, United States of America, Respondent.

No. 85-7123.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Aug. 14, 1985.

Decided Feb. 7, 1986.

As Amended March 6, 1986.

Willie M.J. Curtis, Ralph M. Johnson, San Francisco, Cal., Evelyn R. Frank, Legal Aid Soc. of Alameda Cty., Oakland, Cal., for petitioner.

Brenda F. Kohn, Cade L. Morrow, San Francisco, Cal., for respondent.

Petition for Review of a Decision of the Department of Health and Human Services.

Before DUNIWAY and CHOY Senior Circuit Judges, and FARRIS, Circuit Judge.

DUNIWAY, Senior Circuit Judge:

The California legislature increased the amount of income a medically needy adult couple can keep for non-medical needs and still be eligible to receive Medicaid. The State submitted this amendment of its Medicaid plan to Health and Human Services (HHS) Secretary Heckler, who disapproved it. The California Department of Health Services (the State) and the Legal Aid Society of Alameda County (Intervenors) challenge the Secretary's final determination. We reverse.

I. Facts.

A. The Medicaid Program.

Title XIX of the Social Security Act, 42 U.S.C. Sec. 1396 et seq., was established "for the purpose of providing federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons." Harris v. McRae, 1980, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784. In order to participate in the program, States must submit a plan to the Secretary, who shall approve any plan which fulfills the requirements set out in 42 U.S.C. Sec. 1396a(a). 42 U.S.C. Sec. 1396a(b). Upon such approval, the State becomes entitled to Federal Financial Participation in state expenditures made in accordance with that plan. 42 U.S.C. Sec. 1396b.

A State Medicaid Program must provide medical assistance to so-called categorically needy recipients of welfare benefits. 42 U.S.C. Sec. 1396a(a)(10)(A). In addition, states may provide Medicaid coverage to so-called medically needy aged, blind and disabled people and families whose income is too high to allow them to qualify for welfare benefits. 42 U.S.C. Sec. 1396a(a)(10)(C).

Each state Medicaid plan must set an income standard for medically needy recipients in accordance with Federal requirements. This "medically needy income level" (MNIL) represents the amount of income an individual or family may keep for non-medical needs and still be eligible to receive Medicaid.

B. Medi-Cal Revisions.

The California Medicaid plan (Medi-Cal) includes medically needy recipients. Hearings conducted by the California legislature in early 1983 suggested that aged and disabled medically needy recipients were unable to afford necessary medical care, as well as non-medical necessities, under current income standards. In response to findings that elderly and disabled adults incur greater living expenses than families with dependent children, the California legislature amended its Medicaid plan to increase the MNIL for a family of two medically needy adults to 133 1/3 percent of the highest amount that would ordinarily be paid to a family of three persons without any income or resources under its aid to families with dependent children (AFDC) plan. Statutes of 1983, Ch. 323, Sec. 124.6(c) (codified at Cal.Welfare and Inst.Code Sec. 14005.12(c)). The effect of this amendment was to increase the MNIL for adult couples from $544 to $709 per month. Ch. 323 further directed the State Director of Health Services to adopt regulations to implement the amended provisions as emergency regulations "necessary for the immediate preservation of the public peace, health and safety, or general welfare," Section 124.7(d), and provided that the amended provision would be inapplicable to the extent that it conflicts with federal law, Section 124.7(a). The State began implementing these revisions on November 1, 1983, effective July 1, 1983.

C. The Secretary's Determination.

The State submitted State Plan Amendment (SPA) 83-14 to its Title XIX Medicaid Plan, reflecting its revised adult couple MNIL. On December 19, 1983, the Administrator of the Health Care Financing Administration (HCFA) notified the State that SPA 83-14 was disapproved on the ground that it violated Section 1903(f) of the Social Security Act, 42 U.S.C. Sec. 1396b(f).

Pursuant to 42 U.S.C. Sec. 1316(a), the State petitioned the Secretary to reconsider HFCA's disapproval of SPA 83-14. On November 30, 1984, after a hearing was held, the Hearing Officer issued a Recommended Decision that the HCFA decision should be affirmed. On January 30, 1985, the HCFA Administrator, pursuant to delegated authority from the Secretary, issued her final decision affirming her initial disapproval of the plan amendment.

The State filed a timely petition for review by this court of the Secretary's final decision pursuant to 42 U.S.C. Sec. 1316(a)(3). On April 1, 1985, this court granted a Motion to Intervene filed by the Legal Aid Society of Alameda County on behalf of several medically needy adult couples.

II. Standard of Review.

In reviewing the Secretary's disapproval of SPA 83-14, this court must decide all relevant questions of law and interpret the statutory provisions at issue. 5 U.S.C. Sec. 706. The Secretary's decision must be set aside if found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," Sec. 706(2)(A); "in excess of statutory ... authority," Sec. 706(2)(C); or "without observance of procedure required by law," Sec. 706(2)(D). The Secretary's interpretation of the Medicaid Act is entitled to deference, FEC v. Democratic Senatorial Campaign Committee, 1981, 454 U.S. 27, 31-32, 102 S.Ct. 38, 41-42, 70 L.Ed.2d 23. However, "the courts are the final authorities on issues of statutory construction. They must reject administrative constructions of the statute ... that are inconsistent with the statutory mandate or that frustrate the policy that Congress sought to implement." Id. at 32, 102 S.Ct. at 42. See also Livermore v. Heckler, 9 Cir., 1984, 743 F.2d 1396, 1404-1405.

III. Discussion.

A. Section 1903(f) and ROM Sec. 2572-D.

Section 1903(f) of the Social Security Act, 42 U.S.C. Sec. 1396b(f), states the limitation on Federal participation in medical assistance:

(1)(A) Except as provided in paragraph (4), payment under the preceding provisions of this section shall not be made with respect to any amount expended as medical assistance in a calendar quarter, in any State, for any member of a family the annual income of which exceeds the applicable income limitation determined under this paragraph.

(B)(i) Except as provided in clause (ii) of this subparagraph, the applicable income limitation with respect to any family is the amount determined, in accordance with standards prescribed by the Secretary, to be equivalent to 133 1/3 percent of the highest amount which would ordinarily be paid to a family of the same size without any income or resources, in the form of money payments, under the plan of the State approved under part A of subchapter IV of this chapter [AFDC].

(emphasis added.)

This rule is further elaborated in the regulations implementing the statute:

Medically needy income standards: General requirements.

To determine eligibility of medically needy individuals, a Medicaid agency must use an income standard under this subpart that is--

(a) Based on family size;

(b) Uniform for all individuals in a covered group;

(c) For FFP [Federal Financial Participation] purposes, not in excess of 133 1/3 percent of the highest money payment that ordinarily would be made in the State AFDC program to an individual or a family of comparable size; and

(d) Reasonable.

42 C.F.R. Sec. 435.811 (1984).

Medically needy.

(a) FFP is available in expenditures for services provided to medically needy recipients whose annual income ... does not exceed the following amounts ...

(1) For couples and families of two or more, 133 1/3 percent of the highest money payment that would ordinarily be made under the State's AFDC plan to a family of the same size without income and resources.

42 C.F.R. Sec. 435.1007.

The Administrator disapproved SPA 83-14 on the grounds that it violated the "plain and unequivocal" language of Section 1903(f) and the above regulations. However, the Administrator's narrow reading of the statute fails to recognize sufficiently the substantive component of the MNIL determination. Section 1903(f) does not simply fix the applicable MNIL at 133 1/3 percent of the highest amount ordinarily paid to a family of the same size without income or resources under a State's AFDC plan. The section provides that the applicable MNIL is "the amount determined, in accordance with standards prescribed by the Secretary, to be equivalent to " 133 1/3 percent of the highest amount ordinarily paid to a family of the same size under AFDC. 42 U.S.C. Sec. 1396b(f)(1)(B)(i) (emphasis added.) Had Congress intended that MNILs be determined purely as a mathematical procedure, it would not have included the above clause, which requires the Secretary to prescribe standards for determining an "equivalent" MNIL in relation to the comparative needs of medically needy and AFDC families of the same size. See Batterton v. Francis, 1977, 432 U.S. 416, 428, 97 S.Ct. 2399, 2407, 53 L.Ed.2d 448: "Congress itself must have appreciated that the meaning of the statutory term was not self-evident, or it would not have given the Secretary the power to prescribe standards."

In response to a state's request "for a clarification of policy" regarding the...