Elliot v. North Carolina Dept. of Human Resources

• Decision Date: 02 August 1994
• Docket Number: 9323SC718,Nos. 9317SC352,s. 9317SC352
• Citation: 446 S.E.2d 809,115 N.C.App. 613
• Court: North Carolina Court of Appeals
• Parties: , 45 Soc.Sec.Rep.Ser. 298 Reba C. ELLIOT, Guardian for Bobby G. Casstevens v. NORTH CAROLINA DEPARTMENT OF HUMAN RESOURCES. Billy Page SEXTON, Administrator for Wilma J. Sexton v. David H. FLAHERTY, Secretary North Carolina Department of Human Resources and Mary Deyampert, Director, Division of Social Services, North Carolina Department of Human Resources in their official capacities.

Page 809

446 S.E.2d 809

115 N.C.App. 613, 45 Soc.Sec.Rep.Ser. 298

Reba C. ELLIOT, Guardian for Bobby G. Casstevens v. NORTH CAROLINA DEPARTMENT OF HUMAN RESOURCES.

Billy Page SEXTON, Administrator for Wilma J. Sexton v. David H. FLAHERTY, Secretary North Carolina Department of

Human Resources and Mary Deyampert, Director, Division of

Social Services, North Carolina Department of Human

Resources in their official capacities.

Nos. 9317SC352, 9323SC718.

Court of Appeals of North Carolina.

Aug. 2, 1994.

Atty. Gen. Michael F. Easley by Asst. Atty. Gen. Jane T. Friedensen and Associate Atty. Gen. Elizabeth J. Weese, Raleigh, for respondent-appellee.

Legal Aid Soc. of Northwest North Carolina, Inc. by Joseph P. Henry, Winston-Salem, for petitioner-appellant.

Appeal by petitioner from order entered 3 May 1993 by Judge D. Marsh McLelland in Alleghany County Superior Court. Heard in the Court of Appeals 31 January 1994.

Atty. Gen. Michael F. Easley by Asst. Atty. Gen. Claud R. Whitener, III, Raleigh, for respondent-appellee.

Legal Services of Blue Ridge, Inc. by Charlotte Gail Blake, Boone, for petitioner-appellant.

McCRODDEN, Judge.

Upon motions of respondents, this Court has consolidated these appeals, both of which arise out of the Department of Human Resources's (DHR's) denial of medical assistance benefits (Medicaid) sought by petitioners. Respondents denied Medicaid benefits to petitioners because petitioners' resources exceeded the allowable reserve limit. For a single person such as Mr. Casstevens, the applicable asset limit to receive Medicaid benefits through DHR is $1,500.00. N.C.Admin.Code tit. 10, r. 50B.0311(c) (August 1993). The asset limit for a two-person household, applicable to the Sextons, is $2,250.00. Id.

The pertinent facts in No. 9317SC352 are as follows. Petitioner Reba Elliot is the sister and guardian of Bobby G. Casstevens, who is mentally disabled, resides in Knollwood Hall Nursing Facility ("Knollwood"), and who had been receiving Medicaid benefits prior to 1 January 1991. On 1 January, Mr. Casstevens inherited $4,874.97 from his father's estate, which Ms. Elliot reported to the Stokes County Department of Social Services ("DSS"). DSS informed her that, because her brother was no longer eligible for Medicaid, his benefits would be terminated. DSS also told her that she should reapply for Medicaid when his reserve was reduced to the $1,500.00 allowable reserve limit.

Knollwood was not aware of the termination of Mr. Casstevens' Medicaid benefits, and consequently did not bill Ms. Elliot for her brother's care for the period from January until May. Ms. Elliot reapplied for Medicaid on 30 May 1991, after having paid Knollwood $3,700.00, thereby reducing his balance to below the reserve limit. On 5 July 1991, DSS granted prospective Medicaid coverage effective 30 May 1991, but denied retroactive coverage from the period of 3 April through 30 May 1991. The nursing home bills, incurred between 3 April and 30 May, totalled $3,938.99.

Ms. Elliot appealed DSS' decision to DHR, which affirmed the denial of retroactive benefits. Pursuant to N.C.Gen.Stat. § 108A-79(k) (1988), petitioner Elliot appealed the final decision to the superior court. From the superior court's order affirming the agency decision, petitioner Elliot appeals.

The facts in No. 9323SC718 are as follows. Petitioner Billy Page Sexton was married to Wilma J. Sexton, who was hospitalized for her final illness at Forsyth Medical Center in 1992. When Mr. Sexton applied for Medicaid benefits on his wife's behalf on 2 March 1992, he disclosed that he owned stock valued at $5,500.00 in Blue Ridge Bank. He was informed that, because the stock put them over the state agency's resource level of $2,250.00 for a two-person household, his wife could not qualify for Medicaid until he transferred the stock. Mr. Sexton planned to transfer the stock to his daughter, Glenda Medley, on 5 March 1992. However, before he was able to transfer the stock, he received a call from the hospital informing him that his wife was dying. Ms. Sexton died on 6 March 1992. Blue Ridge Bank issued a stock certificate dated 6 March 1992, which transferred ownership of the stock to Glenda Medley on 26 March 1992.

Ms. Sexton's medical bills at the time of the hearing exceeded $50,000.00. Alleghany County DSS denied Mr. Sexton's application for Medicaid benefits because the excess reserve had not been reduced at the time of Ms. Sexton's death. Mr. Sexton ultimately filed a petition for judicial review in the superior court. Mr. Sexton appeals from Judge D. Marsh McLelland's order of 3 May 1993, affirming the final administrative decision.

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I.

The Administrative Procedure Act governs the standard of review of an administrative agency's decision. Henderson v. N.C. Department of Human Resources, 91 N.C.App. 527, 372 S.E.2d 887 (1988). Section 150B-51 of the North Carolina General Statutes provides in pertinent part that a reviewing court may reverse or modify the agency's decision if the substantial rights of the petitioners may have been prejudiced because the agency's findings or conclusions are:

(1) In violation of constitutional provisions;

(2) In excess of statutory authority or jurisdiction of the agency;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Unsupported by substantial evidence ...; [or]

(6) Arbitrary or capricious.

N.C.Gen.Stat. § 150B-51 (1991). The appropriate standard of review is the "whole record" test, in which the reviewing court must examine all competent evidence to determine if there is substantial evidence to support the administrative agency's findings and conclusions. Henderson, 91 N.C.App. at 530, 372 S.E.2d at 889. In turn, the scope of appellate review of a superior court's consideration of a final agency decision is whether the lower court committed any errors of law in applying the whole record test. Sherrod v. N.C. Dept. of Human Resources, 105 N.C.App. 526, 530, 414 S.E.2d 50, 53 (1992).

II.

Congress established the Medicaid program as Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., "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, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784, 794 (1980). States choosing to participate in this optional program are reimbursed for a portion of their costs in providing medical treatment to needy persons. See Atkins v. Rivera, 477 U.S. 154, 156-57, 106 S.Ct. 2456, 2458-59, 91 L.Ed.2d 131, 137 (1986). "Although participation in the Medicaid program is entirely optional, once a state elects to participate, it must comply with the requirements of Title XIX," Harris, 448 U.S. at 301, 100 S.Ct. at 2680, 65 L.Ed.2d at 794, and the requirements of the Secretary of Health and Human Services. Atkins, 477 U.S. at 157, 106 S.Ct. at 2458-59, 91 L.Ed.2d at 137.

In general, states serve two groups of persons through their Medicaid programs. First, states must serve the "categorically needy," 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 aged, blind, and disabled persons 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, 65 L.Ed.2d at 795 n. 1. Second, states are permitted, but not required, to serve the "medically needy," which refers to those persons in need of medical assistance whose income levels disqualify them from the AFDC or SSI programs. See 42 U.S.C. § 1396a(a)(10)(C); Harris, 448 U.S. at 301 n. 1, 100 S.Ct. at 2680 n. 1, 65 L.Ed.2d at 795 n. 1.

Congress created the SSI program in 1972, to take effect 1 January 1974. The new SSI eligibility criteria were broader than some of the prior state-established criteria. Schweiker v. Hogan, 457 U.S. 569, 581-82, 102 S.Ct. 2597, 2605-06, 73 L.Ed.2d 227, 237 (1982). In 1974, Congress, fearing that participating states would withdraw from the Medicaid program, added § 209(b) to the Supplemental Security Income Act, 42 U.S.C. § 1396a(f), to encourage continued participation by states with stricter criteria. See Morris by Simpson v. Morrow, 783 F.2d 454, 456-57 (4th Cir.1986). States choosing the § 209(b) option are not required to provide Medicaid to persons who would not have been eligible under the state medical assistance plan in effect on 1 January 1972, prior to the enactment of SSI. States electing the § 209(b) option are required to operate a program for the medically needy, Morris, 783 F.2d at 457, and to adopt an income spend-down provision, Schweiker v. Gray Panthers, 453 U.S. 34, 38-39 n. 5, 101 S.Ct. 2633, 2637-38 n. 5, 69 L.Ed.2d 460, 467 n. 5 (1981). Since North Carolina has elected to utilize the § 209(b) option, it must have a program for the medically needy, and it may utilize its 1 January 1972 eligibility criteria, if they are more restrictive than the SSI criteria. See id. at 38-39, 101 S.Ct. at 2637-38, 69 L.Ed.2d at 466-67.

When a "medically needy" applicant's income or resources exceed the applicable state's Medicaid eligibility limits, the "spend down" rule may apply. See 42 U.S.C. § 1396a(a)(17). Under this rule, the applicant may be able to "spend down" excess income or assets, by applying them to outstanding medical bills, to become eligible for Medicaid. "Income spend-down" is the process whereby an applicant's income is reduced for the purpose of determining Medicaid eligibility by the amount of incurred but unpaid medical expenses. "Resource spend-down" is the process which allows Medicaid applicants to offset their resources by incurred but unpaid medical bills. North Carolina currently requires that applicants actually spend excess resources to pay their medical bills before...