Daley v. Sec'y of the Exec. Office of Health & Human Servs.

• Decision Date: 30 May 2017
• Docket Number: SJC-12200,SJC-12205
• Citation: 74 N.E.3d 1269,477 Mass. 188
• Parties: Mary E. DALEY, personal representative, v. SECRETARY OF the EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES& another.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

477 Mass. 188

74 N.E.3d 1269

Mary E. DALEY, personal representative,¹

v.SECRETARY OF the EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES& another.²

SJC-12200

SJC-12205

Supreme Judicial Court of Massachusetts, Worcester..

Argued January 5, 2017

Decided May 30, 2017

Lisa Neeley, Worcester (Patrick Tinsley, Belmont, also present) for Lionel C. Nadeau.

Brian E. Barreira, Plymouth, for Mary E. Daley.

Ronald M. Landsman, of Maryland, for National Academy of Elder Law Attorneys, Inc.

Elizabeth Kaplan & Julie E. Green, Assistant Attorneys General, for Director of the Office of Medicaid & another.

Patricia Keane Martin, for National Academy of Elder Law Attorneys (Massachusetts Chapter), was present but did not argue.

Leo J. Cushing & Thomas J. McIntyre, for Real Estate Bar Association for Massachusetts, Inc., amicus curiae, submitted a brief.

Present: Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ.

GANTS, C.J.

These two cases require this court to navigate the labyrinth of controlling statutes and regulations to determine whether applicants are eligible for long-term care benefits under the Federal Medicaid Act (act) where they created an irrevocable trust and deeded their primary asset—their home—to that trust but retained the right to reside in and enjoy the use of the home for the rest of their life. The Director of the Massachusetts Office of Medicaid (MassHealth) determined that the applicants in these two cases were not eligible for long-term care benefits because their retention of a right to continue to live in their homes made the equity in their homes a "countable" asset whose value exceeded the asset eligibility limitation under the act. The applicants unsuccessfully challenged MassHealth's determinations in the Superior Court pursuant to G. L. c. 30A, § 14. We granted Mary E. Daley's application for direct appellate review and transferred Lionel C. Nadeau's appeal to this court on our own motion. We conclude that neither the grant in an irrevocable trust of a right of use and occupancy in a primary residence to an applicant nor the retention by an applicant of a life estate in his or her primary residence makes the equity in the home owned by the trust a countable asset for the purpose of determining Medicaid eligibility for long-term care benefits. We therefore vacate the judgments that rely on such a finding and remand the matters to MassHealth for findings regarding two other possible sources of countable assets contained in the trusts.³

Background . The act, enacted in 1965 as Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., created a cooperative State and Federal program to provide medical assistance to individuals who cannot afford to pay for their own medical costs. See Arkansas Dep't of Health & Human Servs . v. Ahlborn , 547 U.S. 268, 275, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006). The general administration of Medicaid is entrusted to the United States Secretary of Health and Human Services, who in turn exercises authority through the Centers for Medicare and Medicaid Services (CMS). Id .⁴ Although the Medicaid program is voluntary for States, participating States must comply with certain requirements imposed by the act and regulations promulgated by the Secretary through CMS. See Wilder v. Virginia Hosp. Ass'n , 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). Massachusetts has opted to participate in Medicaid via the establishment of a State Medicaid program known as MassHealth. See G. L. c. 118E, § 9 (establishing program of medical assistance "pursuant to and in conformity with the provisions of Title XIX").

Participating States are required to cover the costs of care for the "categorically needy," which the act defines as those individuals who are unable to cover the costs of their basic needs and who already receive or are eligible for certain forms of public assistance. See Roach v. Morse , 440 F.3d 53, 59 (2d Cir. 2006). States have the option to cover the costs of care for the "medically needy," Haley v. Commissioner of Pub. Welfare , 394 Mass. 466, 467–468, 476 N.E.2d 572 (1985), which the act defines as people who have income and resources to cover the costs of their basic needs but not their necessary medical care. See 42 U.S.C. § 1396a(a)(10)(C).

Medicaid has become one of the largest programs in the Federal budget as well as a major expenditure for State governments, which must finance a significant portion of Medicaid benefits on their own. See R. Rudowitz, Kaiser Commission on Medicaid and the Uninsured, Medicaid Financing: The Basics (Dec. 2016) (Medicaid is third largest domestic program in Federal budget, exceeded only by Medicare and Social Security); Massachusetts Medicaid Policy Institute & Massachusetts Budget and Policy Center, Understanding the Actual Cost of MassHealth to the State (Nov. 2014) (reporting net cost of MassHealth and health reform programs as twenty-three per cent of State budget). As of 2015, the Medicaid program provided health and long-term care coverage to nearly 70 million low-income Americans, including, among many others, poor senior citizens who are also covered by Medicare. See Kaiser Family Foundation, Medicaid at 50 (2015), http://kff.org/medicaid/report/medicaid-at-50 [https://perma.cc/TK7Q-72KR].

The demand for Medicaid long-term care benefits, which cover nursing home care as well as other forms of personal long-term care services, has grown steadily as a result of our country's aging population and the expense of paying privately for nursing homes or other long-term care. See Cohen v. Commissioner of the Div. of Med. Assistance , 423 Mass. 399, 402, 668 N.E.2d 769 (1996), cert. denied sub nom. Kokoska v. Bullen , 519 U.S. 1057, 117 S.Ct. 687, 136 L.Ed.2d 611 (1997). See also Bernstein, With Medicaid, Long–Term Care of Elderly Looms as a Rising Cost, N.Y. Times, Sep. 6, 2012, http://www.nytimes.com/2012/09/07/health/policy/long-term-care-looms-as-rising-medicaid-cost.html [https://perma.cc/2JB6-L6NM] (describing Medicaid as "the only safety net for millions of middle-class people whose needs for long-term care, at home or in a nursing home, outlast their resources"). A recent survey estimated that the median annual cost of nursing home care for a senior in a semiprivate room in Massachusetts was more than $128,000. See Genworth 2015 Cost of Care Survey, Massachusetts, https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/cost-of-care/118928MA_040115_gnw.pdf [https://perma.cc/2RNC-6P5G]. Private long-term care insurance can cost more than $3,000 annually. See AARP, Understanding Long–Term Care Insurance (May 2016), http://www.aarp.org/health/health-insurance/info-06-2012/understanding-long-term-care-insurance.html [https://perma.cc/56MK-DYZ2]. Because many individuals cannot afford these expenses, Medicaid pays for the care of two-thirds of people in nursing homes in the United States. See Zernike, Goodnough, & Belluck, In Health Bill's Defeat, Medicaid Comes of Age, N.Y. Times, Mar. 27, 2017. See also E.L. Reaves & M. Musumeci, Kaiser Commission on Medicaid and the Uninsured, Medicaid and Long–Term Services and Supports: A Primer (Dec. 2015), http://kff.org/medicaid/report/medicaid-and-long-term-services-and-supports-a-primer [https://perma.cc/KJZ5-5WJR]. The cost of Medicaid's long-term care benefit is expected to rise by fifty per cent over the next decade, and State and Federal officials are reportedly "scrambling to control spending." Gorman & Feder Ostrov, Long–Term Care Is an Immediate Problem—For the Government, Kaiser Health News, Aug. 1, 2016, http://khn.org/news/long-term-care-is-an-immediate-problem-for-the-government [https://perma.cc/N9V9-5QKE].

In order to qualify for Medicaid in Massachusetts, MassHealth requires that "[t]he total value of countable assets owned by or available to" an individual applicant not exceed $2,000.

130 Code Mass. Regs. § 520.003(A)(1) (2014).⁵ For a couple living together, the limit is $3,000. 130 Code Mass. Regs. § 520.003(A)(2) (2014). This asset limit often requires applicants to "spend down" or otherwise deplete their resources to qualify for Medicaid long-term care benefits when they enter a nursing home. See Lebow v. Commissioner of the Div. of Med. Assistance , 433 Mass. 171, 172, 740 N.E.2d 978 (2001).⁶

Through "Medicaid planning," individuals attempt to transfer or otherwise dispose of their assets long before they need long-term care so that, when the need arises, they may satisfy the asset limit and qualify for Medicaid benefits. In essence, the purpose of Medicaid planning is to enable persons whose assets would otherwise render them ineligible for long-term care benefits to become eligible for Medicaid benefits by transferring to their children or other loved ones the assets they would otherwise use to pay for long-term care, shifting to the taxpayers the burden of paying for that care. See generally Cohen , 423 Mass. at 402–403, 668 N.E.2d 769. As a report of the House of Representatives's committee on energy and commerce declared in 1985, "When affluent individuals use Medicaid qualifying trusts and similar ‘techniques' to qualify for the program, they are diverting scarce Federal and State resources from low-income elderly and disabled individuals, and poor women and children." H.R. Rep. No. 265, 99th Cong., 1st Sess., pt. 1, at 72 (1985), quoted in Cohen , supra at 404, 668 N.E.2d 769.

Congress has imposed two substantial constraints on such Medicaid planning. The first is the so-called "look-back" rule, which imposes a penalty for any asset transfer for less than fair market value made by an individual within five years of the individual's application for Medicaid benefits. See 42 U.S.C. § 1396p(c)(1)(B)(i). See generally D. Westfall, G.P. Mair, J.R. Buckles, N.M. Oliveira, & W. Murieko, Estate Planning Law & Taxation § 13.05 (2017) (Westfall). In its present form, the "look-back" rule provides that, if such a transfer occurs, the applicant is ineligible for...