Gillmore v. ILL. DEPT. OF HUMAN SERVICES

• Decision Date: 10 December 2004
• Docket Number: No. 4-04-0048.,4-04-0048.
• Parties: Martha GILLMORE, Executrix of the Estate of Mary A. Fillbright, Deceased, Plaintiff-Appellant, v. The ILLINOIS DEPARTMENT OF HUMAN SERVICES, Acting Through Linda Renee Baker, Its Secretary, and Jackie Garner, Director, Illinois Department of Public Aid, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

822 N.E.2d 882

345 Ill. App.3d 497

291 Ill.Dec. 7

Martha GILLMORE, Executrix of the Estate of Mary A. Fillbright, Deceased, Plaintiff-Appellant, v. The ILLINOIS DEPARTMENT OF HUMAN SERVICES, Acting Through Linda Renee Baker, Its Secretary, and Jackie Garner, Director, Illinois Department of Public Aid, Defendant-Appellee.

No. 4-04-0048.

Appellate Court of Illinois, Fourth District.

Argued November 17, 2004.

Decided December 10, 2004.

As Modified Upon Denial of Rehearing January 19, 2005.

Duane D. Young (argued), Dawn D. Behnke, LaBarre, Young & Behnke, Springfield, for Martha Gillmore.

Lisa Madigan, Attorney General, Gary S. Feinerman, Solicitor General, Timothy K. McPike, Assistant Attorney General (argued), Chicago, for Department of Human Services.

MODIFIED UPON DENIAL OF REHEARING

Justice APPLETON delivered the opinion of the court:

Plaintiff, Martha Gillmore, as the executrix of Mary A. Fillbright's estate, appeals from the circuit court's order affirming the administrative decision of the Illinois Department of Human Services (Department). The Department awarded Fillbright medical assistance beginning January 1, 2002. However, the award was subject to a penalty period from April 2002 through January 2004 because Fillbright's purchase of an annuity on January 31, 2002, was considered a nonallowable transfer of assets. Plaintiff appealed to the circuit court, arguing the Department erred in implementing the penalty because the purchase of the annuity conformed to federal law. We affirm.

I. BACKGROUND

On January 31, 2002, Fillbright, age 78, applied for medical assistance under the Medical Assistance — No Grant (MANG) program administered by the Department. Fillbright was seeking financial assistance for her residential long-term care. The same day she applied for MANG, Fillbright purchased a single-premium annuity in the amount of $73,713. The annuity was based on her life expectancy of 116 months with payments to Fillbright for 115 months in the amount of $188.94 and a final payment in month 116 of $72,741.94. Fillbright's life expectancy was derived from federally approved life-expectancy tables.

On March 11, 2002, the Department's local office determined that Fillbright's purchase of the annuity constituted a nonallowable transfer of assets subject to an ineligibility period. Her benefits, which had been approved effective January 1, 2002, were subject to a penalty where no benefits would be paid between April 2002 and January 2004.

Fillbright appealed the office's decision. On June 25, 2002, the Department conducted an administrative hearing before a hearing officer. On July 28, 2002, the Department, through its secretary, Linda Renee Baker, considered and adopted the hearing officer's findings of fact and affirmed the office's decision. In evaluating Fillbright's appeal, the Department questioned whether Fillbright received fair-market value on her purchase of the annuity. The Department determined that she did not receive fair-market value since she was not being paid in "approximately equal periodic payments" over the term of the annuity in accordance with section 120.387(e)(13) of Title 89 of the Illinois Administrative Code (89 Ill. Adm.Code § 120.387(e)(13) (Conway Greene CD-ROM March 2002)).

The Department held as follows:

"In this case, the annuity clearly does not pay benefits in approximately equal periodic payments over the term of the annuity, and the local office correctly determined that, accordingly, fair[-]market value was not received. The local office correctly determined a 22[-]month penalty period for [long-term care] services, from April 2002 through January 2004, based on the amount of the transfer and the private rate for [long-term care] services at the facility where [Fillbright] resides."

On August 22, 2002, Fillbright filed a complaint for administrative review with the circuit court of Menard County, claiming the Department's decision was in error and contrary to federal law. Fillbright claimed the Department's decision violated her state and federal constitutional rights to due process and equal protection. On September 15, 2003, the circuit court affirmed the Department's decision to impose the penalty period. In its order, the court held:

"Once the Department determined the annuity in this case was not purchased for fair-market value, it was incumbent upon [Fillbright] to show that in fact it was a fair[-]market[-]value transfer. Plaintiff relied solely on a legal argument for her position and presented no testimony to the hearing officer concerning the fair[-]market value of the transfer. Under these circumstances, this court is unable to find that the Department erred. Accordingly, the decision of the Department is hereby affirmed."

This appeal followed. While her case was pending on appeal, Fillbright died. Martha Gillmore was appointed as executrix of Fillbright's estate and proceeds herein as special administratrix on behalf of the decedent.

II. ANALYSIS

Plaintiff claims the Department's regulation requiring an annuity be paid "in approximately equal periodic payments" interposes a requirement for the purposes of Medicaid eligibility that does not exist in federal law. She claims administering this additional requirement is improper and illegal. The Department claims the requirement is consistent with federal law and is an enforceable regulation justifying its final administrative decision.

A. Standard of Review

When reviewing the appeal of an administrative decision, this court reviews the agency's decision, not the decision of the trial court. Harris v. Department of Human Services, 345 Ill.App.3d 764, 766, 281 Ill.Dec. 442, 803 N.E.2d 1063, 1065 (2004). If the decision involves a pure question of law, as does the one before us, our review is de novo. Carpetland U.S.A., Inc. v. Illinois Department of Employment Security, 201 Ill.2d 351, 369, 267 Ill.Dec. 29, 776 N.E.2d 166, 177 (2002)

.

B. Background of the Medicaid Act

Title XIX of the Social Security Act (Medicaid Act) (42 U.S.C. §§ 1396 through 1396v (2000)) is a cooperative federal/state program, funded in large part by the federal government and administered by the states. Alexander v. Choate, 469 U.S. 287, 289 n. 1, 105 S.Ct. 712, 714 n. 1, 83 L.Ed.2d 661, 664 n. 1 (1985). While state participation in the program is voluntary, participating states must adopt plans that comply with certain requirements imposed by federal statutes and regulations. Wilder v. Virginia Hospital Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455, 462 (1990).

Illinois elected to participate in the Medicaid program and designated the Department (as successor agency of the Illinois Department of Public Aid pursuant to section 80-10(d) of the Department of Human Services Act (20 ILCS 1305/80-10(d) (West 2002))) to administer the program. 20 ILCS 2205/2205-5 (West 2002). The Department was required to implement a medical-assistance plan consistent with the guidelines contained in the Medicaid Act, and the regulations promulgated thereunder, and to submit it to the United States Department of Health and Human Services (HHS) for approval. Upon approval, the State became eligible for reimbursement for a portion of the expenditures made in providing specific types of medical assistance to eligible individuals under the plan. See 42 U.S.C. § 1396b (a)(2000).

Under the Illinois program, two groups of persons receive Medicaid benefits: (1) the "categorically needy," who receive welfare or cash-assistance payments from the State and are automatically eligible for Medicaid benefits (305 ILCS 5/5-2(1) (West 2002); 42 C.F.R. §§ 435.100 through 435.170 (2003)) and (2) the "medically needy," who have incomes too high to qualify for cash-welfare payments but low enough to qualify for medical assistance (305 ILCS 5/5-2(2) (West 2002); 42 C.F.R. §§ 435.300 through 435.350 (2003)). The Department identifies people like plaintiff who fall into this second category as MANG recipients.

MANG recipients must meet certain asset requirements before being declared eligible to receive Medicaid benefits. Section 1396p(d)(6) of the Medicaid Act provides that the term "trust" includes an annuity to the extent and in such manner as the Secretary of HHS specifies. 42 U.S.C. § 1396p(d)(6) (2000). At the center of plaintiff's claim is the interpretation of the Health Care Financing Administration (now known as the Centers for Medicare and Medicaid Services) State Medicaid Manual, known as "Transmittal 64." Transmittal 64 is the only guidance relating to annuities ever provided by the Secretary.

C. Federal Requirements

Transmittal 64 was issued to provide instructions to Medicaid caseworkers at the state level regarding transfers of assets for less than fair-market value. State Medicaid Manual, Health Care Financing Administration Pub. No. 45-3, Transmittal 64, § 3258 (November 1994). We note that a guideline such as Transmittal 64, although not a statute or a regulation, is entitled to deference by the courts as long as it is "consistent with the plain language and purposes of the statute and if [it is] consistent with prior administrative views." Cleary v. Waldman, 167 F.3d 801, 808 (3d Cir.1999).

According to Transmittal 64, annuities are usually purchased to provide a source of income for retirement. However, they are also sometimes used to shelter assets so that the purchaser of the annuity or the purchaser's spouse can qualify for Medicaid. The former is not subject to an eligibility penalty, while the latter is. To capture those annuities that shelter assets, while not penalizing annuities validly purchased as part of a retirement plan, Transmittal 64 states:

"[A] determination must be made with regard to the ultimate purpose of the annuity (i.e., whether the purchase of the annuity constitutes a transfer of assets for less than fair[-]market value). If the expected return on the annuity is commensurate with a reasonable

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