Ford v. Iowa Dept. of Human Services, 92-362

• Decision Date: 19 May 1993
• Docket Number: No. 92-362,92-362
• Citation: 500 N.W.2d 26
• Parties: , Medicare & Medicaid Guide P 41,591 Bernard FORD and Mardel Ford, Appellees, v. IOWA DEPARTMENT OF HUMAN SERVICES, Appellant. Esther GLODEN, Appellee, v. IOWA DEPARTMENT OF HUMAN SERVICES, Appellant.
• Court: Iowa Supreme Court

Page 26

500 N.W.2d 26

41 Soc.Sec.Rep.Ser. 256, Medicare & Medicaid Guide P 41,591

Bernard FORD and Mardel Ford, Appellees, v. IOWA DEPARTMENT OF HUMAN SERVICES, Appellant.

Esther GLODEN, Appellee, v. IOWA DEPARTMENT OF HUMAN SERVICES, Appellant.

No. 92-362.

Supreme Court of Iowa.

May 19, 1993.

Bonnie J. Campbell, Atty. Gen., John M. Parmeter, Special Asst. Atty. Gen., and Daniel W. Hart, Asst. Atty. Gen., for appellant.

Thomas A. Krause, of Legal Services Corp. of Iowa, Des Moines, for appellees.

Considered by McGIVERIN, C.J., and HARRIS, LARSON, CARTER, and NEUMAN, JJ.

NEUMAN, Justice.

In 1988 Congress enacted legislation to ameliorate the financial hardship suffered by aging couples faced with the high cost of nursing home care. These consolidated appeals examine the extent to which the Iowa Department of Human Services (DHS), in implementing that legislation, may use the cost of an annuity as the yardstick by which to measure the noninstitutionalized spouse's monthly maintenance needs allowance. On judicial review, the district court found DHS violated its rule-making authority in doing so. We reverse and remand for an order enforcing the agency's decision.

I. Background facts and proceedings. Resolution of this controversy turns primarily on an analysis of agency authority under Iowa Code chapter 17A (1991), the Administrative Procedure Act. But to put that analysis in a factual context, we begin with a brief legislative history of pertinent provisions of the Medicare Catastrophic Coverage Act, 42 U.S.C. § 1396r-5 (1990) (hereafter "MCCA").

As already noted, Congress passed the MCCA in part to aid citizens whose spouses reside in nursing homes or other medical institutions and receive Medicaid benefits. Under prior law, nearly all of a couple's assets had to be depleted before either one could satisfy Medicaid eligibility requirements, leaving the spouse who remained in the community in a financially precarious position. H.R.Rep. No. 105(II), 100th Cong., 2d Sess. 65-68 (1988), reprinted in 1988 U.S.C.C.A.N. 803, 888-92 (hereafter "House Report"). The MCCA was designed to avoid impoverishing the "community spouse." Id. at 892.

Congress was also mindful that--as part of a welfare program--Medicaid eligibility rules should not "facilitate the transfer of accumulated wealth from nursing home patients to their nondependent children." Id. at 896. Thus the MCCA requires that an institutionalized spouse's income and resources cannot exceed published supplemental security income (SSI) limits. Id. at 888-92. For example, when these proceedings arose, an institutionalized spouse owning more than $2000 was required to apply that resource toward medical bills and nursing home expense. 42 U.S.C. § 1382(a); 20 C.F.R. 416.1205(c). Only when that resource dipped below the SSI limit would the person become eligible for Medicaid. House Report at 888, 892. Certain assets, such as a house, car, personal effects and household goods, are not counted towards the SSI limit. Id. at 892.

Under this regulatory scheme, all of a couples' "countable" resources are regarded as available to the institutionalized spouse, except an amount called the "community spouse resource allowance," or CSRA. 42 U.S.C. § 1396r-5(c)(2). The CSRA is one-half of the couple's total resources, or $60,000, whichever is less. 42 U.S.C. § 1396r-5(f)(2); 441 Iowa Admin.Code § 75.5(3)(d). The CSRA is not considered available to the institutionalized spouse and thus is not counted toward the SSI limit. 42 U.S.C. § 1396r-5(c)(2), (4).

The institutionalized spouse is also permitted to divert a portion of monthly income to the community spouse. This deduction from the institutionalized spouse's monthly income is known as the "community spouse monthly income allowance." 42 U.S.C. § 1396r-5(d)(1)(B). The allowance depends on a figure called the "minimum monthly maintenance needs allowance," which (at the time of these proceedings) was a maximum of $1500. 42 U.S.C. § 1396r-5(d)(3)(C). In other words, the institutionalized spouse can divert however much the community spouse needs to bring that spouse's monthly income to the $1500 needs allowance. 42 U.S.C. § 1396r-5(d)(1)(B), (d)(2).

If diversion of the institutionalized spouse's income to the community spouse does not reach the $1500 monthly maintenance allowance, the agency can increase the CSRA upon application by either spouse. 42 U.S.C. § 1396r-5(e)(2)(C). The controversy before us centers on this provision.

The Fords and Glodens are both couples with one spouse in a nursing home (the "institutionalized spouse") and the other remaining in the couple's home (the "community spouse"). In the Ford case the institutionalized spouse filed an application for Medicaid with DHS, and in Gloden the community spouse requested determination of the Medicaid "community spouse resource allowance" without an application for Medicaid. See 42 U.S.C. § 1396r-5(e)(1). In both cases, the initial community spouse resource allowance left significant resources that had to be spent before Medicaid eligibility for the institutionalized spouse could be established. In the Ford case, the initial community spouse resource allowance was one-half ($32,177.26) of the couple's total countable resources of $64,354.53, leaving the other half to be counted for Medicaid eligibility for the institutionalized spouse. In the Gloden case, the initial community spouse resource allowance was the maximum, then $60,000, from the couple's total countable resources of $136,847.07. This left $76,847.07 to be counted toward Medicaid eligibility for the institutionalized spouse.

Both couples requested an administrative hearing to increase the community spouse resource allowance and thus decrease the amount counted for Medicaid eligibility for the institutionalized spouse. In each case, an administrative law judge increased the CSRA to an amount sufficient, if invested in bank accounts and certificates of deposit, to generate enough additional monthly income to reach $1500. In the Fords' case, the community spouse had $1165.92 monthly income; he was thus entitled to sufficient resources to generate an additional $334.08 per month. The administrative law judge determined that, at the prevailing interest rates, the sum of $51,728.25 was necessary to generate that amount and thus bring the community spouse's monthly income up to $1500. The ALJ thus set the CSRA for the Fords at $51,728.25.

In the Glodens' case, the community spouse had a monthly income of only $308, requiring an additional $1192 to bring her up to $1500. However, the sum of all the couple's resources would not generate that amount, so the administrative law judge set the CSRA at $136,847.07, leaving no resources available to the institutionalized spouse.

On administrative review, the DHS director decided that, instead of looking at the investment of resources necessary to generate sufficient interest income (the "interest-only" method), the agency should look at the resources necessary to purchase a single-premium life annuity that would furnish monthly payments to the community spouse in an amount sufficient to bring the spouse's income up to $1500. It was determined that in the Ford case an annuity would cost less than the initial CSRA, so the initial CSRA of $32,177.26 was affirmed. In the Gloden case an annuity paying $1192 per month could be purchased for a single-premium payment of $112,986, an amount substantially less than the $136,847 set aside under the interest-only method. DHS amended the Gloden CSRA accordingly. In neither case were the parties required to purchase an annuity; their applications to increase the CSRA were simply resolved on the basis that their needs could be met through the liquidation of assets and purchase of an annuity.

The Fords and Glodens petitioned the district court to challenge these decisions. Their petitions for judicial review rested on two legal arguments. First, they argued that the interest-only method is mandated under federal and state law. Second, they argued that even if the annuity method were allowable, it could only be applied following rule-making proceedings and it was unlawful for the agency to adopt such a policy in a contested case proceeding.

The district court agreed with the petitioners and reversed the agency, ruling that the annuity method could not be applied until it had been formally adopted as an agency rule. The court did not decide the legality of the annuity method. The court ordered the agency to compute the CSRA in each case using the interest-only method. It is from this ruling that DHS appeals.

II. Scope of review. In judicial review proceedings, the district court functions in an appellate capacity to correct errors of law. Anderson v. Iowa Dep't of Human Servs., 368 N.W.2d 104, 107 (Iowa 1985). On appeal, we determine whether the district court correctly applied the law. Id.

III. Issues on appeal. On appeal, DHS reasserts its position that it was unnecessary to formally adopt a rule permitting the annuity method of valuing the CSRA prior to applying such a method in these cases. It also contends that the annuity method violates neither state nor federal Medicaid regulations. We shall consider the arguments in turn.

A. Rule-making vs. case-by-case adjudication. This case illustrates the tension in administrative law between formalized rule-making and case-by-case adjudication of statutory standards. On the one hand, Iowa Code section 17A.3(2) operates to invalidate any agency rule or "other written statement of law or policy" that has not first been subjected to public inspection and indexing as required by section 17A.3(1)(c) and (d). Yet the administrative procedure act itself exempts from the definition of "rule" any "determination, decision, or order in a contested case." Iowa Code § 17A.2(7).

This court has previously held, in the case of a proposed rule, that section 17A.3(2) does not come...