Geston v. Anderson, 12–2224.

• Decision Date: 10 September 2013
• Docket Number: No. 12–2224.,12–2224.
• Citation: 729 F.3d 1077
• Parties: John GESTON; Carolyn Geston, Plaintiffs–Appellees, v. Maggie D. ANDERSON, in her official capacity as Interim Executive Director of the North Dakota Department of Human Services, Defendant–Appellant, State of Hawaii Department of Human Services; Kansas Department of Health and Environment; Attorney General of the State of Maryland; State of New Mexico Human Services Department; Oklahoma Health Care Authority; Rhode Island Executive Office of Health and Human Services; State of Tennessee; Connecticut Department of Social Services, Amici on Behalf of Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

729 F.3d 1077

John GESTON; Carolyn Geston, Plaintiffs–Appellees,

v.Maggie D. ANDERSON, in her official capacity as Interim Executive Director of the North Dakota Department of Human Services,¹ Defendant–Appellant,State of Hawaii Department of Human Services; Kansas Department of Health and Environment; Attorney General of the State of Maryland; State of New Mexico Human Services Department; Oklahoma Health Care Authority; Rhode Island Executive Office of Health and Human Services; State of Tennessee; Connecticut Department of Social Services, Amici on Behalf of Appellant.

No. 12–2224.

United States Court of Appeals,

Eighth Circuit.

Submitted: Dec. 12, 2012.

Filed: Sept. 10, 2013.

Stephen A. Feldman, Special AAG, argued, Jenkintown, PA (Karen R. Guss, on the brief), for Defendant–Appellant.

Rene H. Reixach, argued, Rochester, NY (Gregory C. Larson, on the brief, Bismarck, ND), for Plaintiffs–Appellees.

Charles A. Miller, Carolyn F. Corwin, Philip J. Peisch, Washington, DC., George A. Jepsen, Hartford, CT, Douglas F. Gansler, on the brief, of Baltimore, MD, for Amici on Behalf of Appellant.

Before LOKEN, MELLOY, and COLLOTON, Circuit Judges.

COLLOTON, Circuit Judge.

John Geston applied for Medicaid benefits, and the North Dakota Department of Human Services denied his application on the basis that the total assets owned by Geston and his wife exceeded the eligibility limit. The Gestons sued in the district court, arguing that the Department had wrongfully denied the application because it had improperly counted against Mr. Geston's eligibility an annuity owned by his wife. The district court ² ruled for the Gestons, holding that the North Dakota statute under which the annuity had been deemed countable violates and is preempted by federal Medicaid law. We conclude that the judgment must be affirmed.

I.

A.

Medicaid provides federal funding to States that assist certain needy individuals in obtaining medical care. See42 U.S.C. § 1396a(a)(10). “[D]esigned to advance cooperative federalism,” the federal Medicaid program not only gives States the option of participating but also gives participating States significant flexibility in defining many facets of their systems. Wisc. Dep't of Health & Family Servs. v. Blumer, 534 U.S. 473, 495, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002). But to receive funding, participating States must comply with federal statutes and regulations promulgated by the Secretary of the Department of Health and Human Services governing such aspects as who is eligible for care, what services are available, and at what cost those services are provided. Nat'l Fed'n of Indep. Bus. v. Sebelius, –––U.S. ––––, 132 S.Ct. 2566, 2581, 183 L.Ed.2d 450 (2012). One such requirement is that state methodologies for determining eligibility must be “no more restrictive” than the federal methodology that would be employed under the supplemental security income program. 42 U.S.C. § 1396a(a)(10)(C)(i). A State's methodology is considered “no more restrictive” if “additional individuals may be eligible for medical assistance and no individuals who are otherwise eligible are made ineligible for such assistance.” Id. § 1396a(r)(2)(B).

For an applicant to be eligible for Medicaid benefits, his assets must not exceed statutory limits. Id. § 1382(a). An asset may be classified as either a “resource” or “income,” and Congress has established limits for each category. See id. Resources are “cash or other liquid assets or personal property that an individual ... owns and could convert to cash to be used for his or her support and maintenance.” 20 C.F.R. § 416.1201(a). Income is “anything you receive in cash or in kind that you can use to meet your needs for food and shelter.” Id. § 416.1102.

Eligibility determinations are more complicated when the applicant is married, because assets of both the spouse receiving care (the “institutionalized spouse”) and the spouse living at home (the “community spouse”) must be considered. Under the Medicare Catastrophic Coverage Act of 1988 (“the Act”), 42 U.S.C. § 1396 et seq., so-called “spousal impoverishment” provisions permit community spouses to keep a standard amount of assets known as the “community spouse resource allowance” (“spouse allowance”). See id.§ 1396r–5(f)(2); see also Blumer, 534 U.S. at 477–78, 122 S.Ct. 962. The legislative history suggests that this provision was designed to “protect community spouses from pauperization while preventing financially secure couples from obtaining Medicaid assistance.” Blumer, 534 U.S. at 480, 122 S.Ct. 962 (internal quotation omitted).

After setting aside the spouse allowance and certain other exemptions, the Act establishes a limit on the total resources a couple may own while still remaining eligible for Medicaid benefits. 42 U.S.C. § 1382(a)(1)(B). To determine the institutionalized spouse's eligibility, therefore, States must consider “ resources held by either the institutionalized spouse, community spouse, or both ... to be available to the institutionalized spouse.” Id.§ 1396r–5(c)(2)(A) (emphasis added). The Act excludes, however, the community spouse's income from eligibility determinations: “[d]uring any month in which an institutionalized spouse is in the institution, ... no income of the community spouse shall be deemed available to the institutionalized spouse.” Id.§ 1396r–5(b)(1).

Because resources count toward the institutionalized spouse's eligibility while the community spouse's income does not, an asset's classification as a “resource” of the couple or “income” of the community spouse can determine whether an institutionalized spouse qualifies for benefits.

B.

John Geston entered a full-time care facility on July 21, 2010. His wife continued living in their home in Bismarck, North Dakota. In November 2011, the Gestons filed an “asset assessment” form with the Burleigh County Social Service Board. See42 U.S.C. § 1396r–5(c)(1)(B). The Board determined that the Gestons' countable assets exceeded the statutory limit by $586,854.80. The Gestons then began to reduce their resources. First, they purchased certain assets that do not count under the statute toward an applicant's eligibility for Medicaid: they sold their primary residence and purchased a more expensive home, Mrs. Geston sold her car and purchased a more expensive car, and each purchased prepaid burial services. See42 U.S.C. § 1382b(a)(1), (2)(A), (2)(B). Second, Mrs. Geston purchased a single-premium ( i.e., lump-sum) immediate annuity from Employees Life Company for $400,000. The annuity was scheduled to pay her $2,734.65 per month over 13 years, for a total return of $426,605.40. The annuity contract provides that the contract is “irrevocable” and cannot be “transferred, assigned, surrendered or commuted during [Mrs. Geston's] lifetime.” A separate provision prohibits Mrs. Geston from revoking the recipient of the payment stream.

After these expenditures, Mr. Geston applied for Medicaid benefits, and the North Dakota Department of Human Services (“the Department”) denied his application. The Department reasoned that the remaining value of the corpus of the annuity— i.e., the difference between the purchase price and the payments Mrs. Geston had already received—constituted a countable resource under North Dakota's Medicaidstatute, and that as a result the Gestons' assets “exceeded the Medicaid asset limit.” Specifically, North Dakota Century Code § 50–24.1–02.8(7)(b) provides that annuity payments received by a community spouse will be treated as income only if they do not raise the community spouse's total income over a certain threshold. Because Mrs. Geston's income including the annuity exceeded that threshold, the Department deemed it a resource countable toward Mr. Geston's eligibility.

The Gestons brought this action against the Executive Director of the Department in her official capacity, seeking declaratory and injunctive relief, pursuant to 42 U.S.C. § 1983 and the Supremacy Clause of the United States Constitution. The district court concluded that there was a conflict between federal and state law, because federal law treated the annuity as Mrs. Geston's uncounted income, whereas the State classified the annuity as a countable resource and deemed Mr. Geston ineligible as a result. The court thus granted the Gestons' motion for summary judgment, because the North Dakota statute was “more restrictive” than the federal methodology, 42 U.S.C. § 1396a(a)(10)(C)(i), (r)(2)(B), and because it conflicted with the federal provision that prohibits a State from counting the community spouse's income toward the institutionalized spouse's eligibility. Id.§ 1396r–5(b)(1). The Department appeals, arguing that federal law allows the State to count the annuity as a resource of the couple in determining Mr. Geston's eligibility.

II.

A.

Defending the district court's decision, the Gestons rely principally on two provisions of federal law to establish that Mrs. Geston's annuity is unearned income that North Dakota may not count as a resource when determining Mr. Geston's eligibility for Medicaid benefits. Like the other circuits to address this issue, we conclude that the arguments are persuasive. See Lopes v. Dep't of Social Servs., 696 F.3d 180 (2d Cir.2012); James v. Richman, 547 F.3d 214 (3d Cir.2008).

First, Congress defined “income” for purposes of eligibility determinations to include both “earned” and “unearned” income, 42 U.S.C. § 1382a(a), and it defined unearned income to include “any payments received as an annuity ... benefit.” Id. § 1382a(a)(2)(B). The Department, however, contends that this provision does not apply to the sort of annuity purchased by Mrs. Geston, and that North Dakota may define Mrs. Geston's annuity benefit as a resource rather than income.

The Department argues that the term “annuity” in § 1382a(a)(2)(B) means “retirement annuity” as defined by § 408 of the Internal Revenue Code. IRC § 408 defines certain types of...