Dermody v. Exec. Office of Health & Human Servs.

• Decision Date: 27 January 2023
• Docket Number: SJC-13199
• Parties: Laurie A. DERMODY v. EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

491 Mass. 223

201 N.E.3d 285

Laurie A. DERMODY

v.EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES.

SJC-13199

Supreme Judicial Court of Massachusetts, Middlesex.

Argued February 2, 2022

Decided January 27, 2023

Jesse M. Boodoo, Assistant Attorney General, for the defendant.

Lisa M. Neeley, for the plaintiff.

Patricia Keane Martin, Wellesley, Clarence D. Richardson, Jr., & C. Alex Hahn, for Massachusetts Chapter of the National Academy of Elder Law Attorneys, amicus curiae, submitted a brief.

Present: Budd, C.J., Gaziano, Lowy, Cypher, Kafker, Wendlandt, & Georges, JJ.

BUDD, C.J.

Robert G. Hamel purchased an annuity issued by Nationwide Life Insurance Company (Nationwide) to help his wife, Joan Hamel,¹ become eligible for Medicaid benefits to pay for her long-term care. Robert named the Commonwealth as the primary remainder beneficiary to the "extent benefits paid," and the plaintiff, his daughter Laurie A. Dermody, as the contingent remainder beneficiary. When Robert died before the end of the annuity period, the plaintiff brought suit against the Executive Office of Health and Human Services (Commonwealth) and Nationwide contending that she, rather than the Commonwealth, was entitled to the remainder of the annuity. A Superior Court judge agreed with the plaintiff. For the reasons that follow, we reverse.²

Facts and prior proceedings. We recite the undisputed facts, reserving some details for later discussion. In May 2015, Joan was admitted to a skilled nursing facility for long-term care. The following month, Robert used spousal resources to purchase an annuity contract (annuity) from Nationwide. Robert paid a single premium of $172,000 for the annuity, which provided for a monthly payment to him of $2,873.69 for a five-year term.³ It is undisputed that the purchase of the annuity was intended to help Joan become eligible for long-term care benefits pursuant to the Medicaid Act and MassHealth regulations. In the application for the annuity, Robert listed "Commonwealth of MA the Extent Benefits Paid [sic ]" as the primary remainder beneficiary and the plaintiff as the contingent remainder beneficiary.⁴

In July 2015, Joan submitted an application for MassHealth long-term care benefits, which was approved in December of that same year. Robert, who never applied for or received MassHealth benefits on his own behalf, died in December 2016. In June 2017, MassHealth informed Nationwide that it was making a claim on the annuity up to the total amount of medical assistance paid on behalf of Joan, which at that time totaled $135,511.99.⁵ In July 2017, Nationwide paid $118,517.50 to the Commonwealth, which was the full remaining value of the annuity proceeds.

In August 2017, the plaintiff brought a declaratory judgment action against the Commonwealth and Nationwide, claiming that she was entitled to the remaining proceeds in the annuity rather than the Commonwealth. After the Commonwealth's motion to dismiss was denied, all parties filed cross motions for summary judgment. A Superior Court judge subsequently granted summary judgment for the plaintiff and ordered the Commonwealth to turn over to the plaintiff the remaining annuity proceeds it received from Nationwide.⁶ The Commonwealth unsuccessfully sought an interlocutory appeal pursuant to Mass. R. Civ. P. 64, as amended, 423 Mass. 1410 (1996). After final judgment entered, the Commonwealth filed a timely notice of appeal, and we allowed the plaintiff's application for direct appellate review.

Discussion. Our determination of the rightful owner of the annuity's remainder proceeds turns on our interpretation of the Medicaid Act, as well as the annuity contract. More specifically, first we must decide whether certain provisions of the Medicaid Act bearing on the application of asset transfer penalties are meant to operate together or separately, and then we must view the contract terms in light of our interpretation of those provisions.

1. Medicaid program. a. Overview. The Medicaid Act, passed by Congress in 1965, "created a cooperative State and Federal program to provide medical assistance to individuals who cannot afford to pay for their own medical costs." Daley v. Secretary of the Executive Office of Health & Human Servs., 477 Mass. 188, 189, 74 N.E.3d 1269 (2017). See Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq.

A State choosing to participate in the Medicaid program "develops a plan containing reasonable standards ... for determining eligibility for and the extent of medical assistance within boundaries set by the Medicaid statute and the Secretary of Health and Human Services" (quotation and citation omitted). Wisconsin Dep't of Health & Family Servs. v. Blumer, 534 U.S. 473, 479, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002). All participating States "must comply with certain requirements imposed by [Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., ] and regulations promulgated by the Secretary through [the Centers for Medicare and Medicaid Services]." Daley, 477 Mass. at 190, 74 N.E.3d 1269, citing Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). Massachusetts participates in Medicaid through MassHealth, which is administered through the Executive Office of Health and Human Services (EOHHS). See G. L. c. 118E, § 9.

The provisions comprising the Medicaid Act have been described as "among the most completely impenetrable texts within human experience." Briggs v. Commonwealth, 429 Mass. 241, 243 n.3, 707 N.E.2d 355 (1999), quoting Rehabilitation Ass'n of Va., Inc. v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994), cert. denied sub nom. Metcalf v. Rehabilitation Ass'n of Va., Inc., 516 U.S. 811, 116 S.Ct. 60, 133 L.Ed.2d 23 (1995). This is due to the fact that they are "dense reading," but also because "Congress ... revisits the area frequently, generously cutting and pruning in the process." Briggs, supra. In many cases, Congress has made changes to the Medicaid Act in response to "Medicaid planning" by "individuals with ‘significant resources [who] devise strategies to appear impoverished in order to qualify for Medicaid benefits.’ "⁷ Fournier v. Secretary of the Executive Office of Health & Human Servs., 488 Mass. 43, 45, 170 N.E.3d 1159 (2021), quoting Lebow v. Commissioner of the Div. of Med. Assistance, 433 Mass. 171, 172, 740 N.E.2d 978 (2001). That is, the amendments have been attempts to ensure that Medicaid benefits go to those who need them rather than to those who can afford to pay. The Medicare Catastrophic Coverage Act of 1988 (MCCA), 42 U.S.C. § 1396r-5, is one such example.

Prior to the passage of the MCCA, "[S]tates generally considered income from either spouse and jointly-held assets in determining the Medicaid eligibility for the institutionalized spouse, but did not consider assets held solely in the name of the community spouse."⁸ Hutcherson v. Arizona Health Care Cost Containment Sys. Admin., 667 F.3d 1066, 1068 (9th Cir. 2012). "As a result, some community spouses were left destitute so that the institutionalized spouse could qualify for Medicaid assistance, while some wealthy couples were able to qualify for assistance by holding their assets solely in the name of the community spouse." Id.

With the passage of the MCCA, "Congress sought to protect community spouses from ‘pauperization’ while preventing financially secure couples from obtaining Medicaid assistance" (citation omitted). Blumer, 534 U.S. at 480, 122 S.Ct. 962. The MCCA amended the Medicaid Act to allow the community spouse to retain a certain amount of income and assets for monthly maintenance needs (community spouse resource allowance [CSRA]).⁹ 42 U.S.C. § 1396r-5(c), (f). See 130 Code Mass. Regs. § 520.016(B)(2) (2013). "[A]ll resources above the CSRA ... must be spent before eligibility can be achieved." Blumer, supra at 483, 122 S.Ct. 962, citing 42 U.S.C. § 1396r-5(c)(2).

The MCCA also amended the Medicaid rules so that in determining eligibility, a couple's combined assets are considered available to the applicant regardless of specific ownership.¹⁰ See Morris v. Oklahoma Dep't of Human Servs., 685 F.3d 925, 929 (10th Cir. 2012), citing 42 U.S.C. § 1396r-5(c)(2)(A). See also 130 Code Mass. Regs. § 520.003(A)(2) (2019). Moreover, the MCCA added a provision generally penalizing asset transfers for less than fair market value during a particular period of time prior to an applicant's initial eligibility determination ("look-back" period).¹¹ See 42 U.S.C. § 1396p(c)(1).¹² This transfer penalty renders the applicant ineligible for benefits for the period of time that the assets could have been used to pay for long-term care.¹³

We turn now to the two provisions at issue here, both of which affect the operation of the look-back rule -- the sole benefit provision ( 42 U.S.C. § 1396p [c][2][B][i]) and the beneficiary naming provision ( 42 U.S.C. § 1396p [c][1][F][i]).

b. Section 1396p(c)(2)(B)(i) and 1396p(c)(1)(F)(i). To provide an avenue for couples to spend down their assets to become Medicaid-eligible without becoming completely impoverished, Congress exempted from the look-back rule those transfers made for the "sole benefit" of the community spouse. 42 U.S.C. § 1396p(c)(2)(B)(i), as amended by the Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, Title XIII, § 13611(a), 107 Stat. 622 (1993).¹⁴ Such transfers traditionally have been accomplished through the purchase of an annuity for the benefit of the community spouse. See State Medicaid Manual § 3258.9. In this way, assets that otherwise would be considered in determining an institutionalized spouse's eligibility for Medicaid are converted to an income stream for exclusive use by the community spouse, which is not counted for eligibility purposes. See Hutcherson, 667 F.3d at 1069. See also 42 U.S.C. § 1396r-5(b)(1), (c)(1).

However, the sole benefit provision made it theoretically possible for married couples to shelter an unlimited amount of assets...