Herting v. Cal. Dep't of Health Care Servs.

• Decision Date: 27 March 2015
• Docket Number: H040220
• Parties: Deborah HERTING, as Trustee, etc., Plaintiff and Appellant, v. CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

235 Cal.App.4th 607

185 Cal.Rptr.3d 401

Deborah HERTING, as Trustee, etc., Plaintiff and Appellant

v.CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.

H040220

Court of Appeal, Sixth District, California.

Filed March 27, 2015

Myers Urbatsch, San Francisco, Kevin Patrick Urbatsch, Lily Moallem, Counsel for Plaintiff/Appellant Deborah Herting, as Trustee, etc.

Kamala D. Harris, Attorney General, Office of the Attorney General, Julie Weng–Gutierrez, Senior Assistant Attorney General, Susan M. Carson, Supervising Deputy Attorney General, Hadara R. Stanton and Cheryl Lynn Feiner, Deputy Attorneys General, Counsel for Defendant/Respondent California Department of Health Care Services.

Opinion

ELIA, J.

In this case we are called upon to examine the relationship between “special needs trusts,” which allow certain individuals to qualify for public medical assistance under the federal Medicaid program, and the provisions entitling the state to recover the amounts it has paid to provide such assistance. Deborah Herting, trustee of the Alexandria A. Pomianowski Special Needs Trust, appeals from an order requiring the trust to reimburse respondent, the State Department of Health Care Services (DHCS or the Department) for medical expenses the Department had paid in behalf of the trust beneficiary, Alexandria Pomianowski, before her death. Herting contends that the trust assets were exempt from the Department's reimbursement rights because the beneficiary was under 55 years of age when the services were provided. We conclude that the Department was entitled to reimbursement of the medical expenses it paid under both the federal Medicaid statutes and the statutes and regulations implementing Medicaid through California's medical assistance program, known as Medi-Cal. Accordingly, we will affirm the order.

Overview

The federal Medicaid program, created in 1965 by adding title XIX to the Social Security Act (42 U.S.C. § 301 et seq. ) , is a complex “system of ‘cooperative federalism,’ ” in which both the federal government and participating states “reimburse certain costs of medical treatment for needy persons.” (Harris v. McRae (1980) 448 U.S. 297, 301, 308, 100 S.Ct. 2671, 65 L.Ed.2d 784 ; see 42 U.S.C. § 1396 et seq. ) Those eligible for Medicaid assistance include “severely impaired individuals” such as Alexandria Pomianowski, the beneficiary of the trust at issue. (42 U.S.C. § 1396a, subd. (a)(10)(A)(i)(II)(bb).)

The functioning of the Medicaid system depends on a “financial contribution by both the Federal Government and the participating State.” (Harris v. McRae, supra, 448 U.S. at p. 308, 100 S.Ct. 2671.) “Although participation in the Medicaid program is entirely optional, once a State elects to participate, it must comply with the requirements of Title XIX,” many of which are set forth in 42 United States Code section 1396a et seq. (hereafter “section 1396a ”) (Harris v. McRae, supra, at p. 301, 100 S.Ct. 2671.) Nevertheless, “ ‘[t]he [Medicaid] program was designed to provide the states with a degree of flexibility in designing plans that meet their individual needs. [Citation.] As such, states are given considerable latitude in formulating the terms of their own medical assistance plans.’ [Citation.]” Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 810, 135 Cal.Rptr.2d 1, 69 P.3d 927. California has implemented the Medicaid program through the Medi-Cal Act, described in Welfare and Institutions Code section 14000, et seq.

In this case, the relevant statutory provisions are those delineating Medicaid and Medi-Cal eligibility and recovery requirements, particularly 42 United States Code section 1396p (hereafter “section 1396p ”) and Welfare and Institutions Code section 14009.5, respectively. Section 1396a, subdivision (a)(18), specifically requires the state to “comply with the provisions of section 1396p... with respect to liens, adjustments and recoveries of medical assistance correctly paid, transfers of assets, and treatment of certain trusts.” (Fn. omitted.) Accordingly, Welfare and Institutions Code section 14009.5 prescribes the conditions under which DHCS may claim reimbursement from the estate of a Medi-Cal recipient. Entering into the picture are the provisions for “special needs trusts,” which, in Probate Code sections 3600 -3605, enable a disabled person to qualify for Medi–Cal benefits by sheltering money that exceeds the limit of the individual's eligibility. This case calls for application of these provisions and for resolution of any apparent incongruities among them.

Procedural Background

Alexandria Pomianowski was 19 years old in April 2009, when she was in a catastrophic automobile accident which left her a ventilator-dependent quadriplegic with associated medical complications. After being released from a four-month hospital stay, she continued to need total care in all aspects of daily living, including bathing, feeding, dressing, toileting, and mobility. A lawsuit was filed on her behalf against the County of Santa Cruz and Ford Motor Company, eventually culminating in a settlement for $3,175,000. In a December 2010 order approving the settlement, the superior court directed that these funds be deposited in a special needs trust, less amounts directly payable to Kaiser Permanente for medical care, to DHCS, and to Alexandria's attorney. Accordingly, on February 1, 2011, $1,424,019.39, was placed in the Alexandria A. Pomianowski Special Needs Trust. Appellant Deborah Herting, Alexandria's mother, was the trustee.

On January 19, 2013, when she was 23, Alexandria died. By this time there was $1,294,453.23 in cash left in the trust account. Herting notified DHCS of the death in accordance with Probate Code section 9202, which gave the Department four months thereafter in which to file a claim against Alexandria's estate. Within that period the Department filed its claim for reimbursement of $417,812.43 in health care costs it had paid under the Medi-Cal program.

In July 2013 Herting filed a final account and petition for termination of the trust, along with a request for denial of the Department's claim for reimbursement from the trust. Herting invoked the exceptions set forth in section 1396p, subdivision (b)(1)(B), and Welfare and Institutions Code section 14009.5, subdivision (b)(1), which limit the Department's right to recover from the estate of a decedent who received medical care while under 55 years of age.

DHCS opposed Herting's request. Citing section 1396p, subdivision (d)(4)(A), the Department pointed out that a special needs trust, while allowing a disabled person under 65 to be eligible for public assistance under Medicaid, must also provide for reimbursement to the state upon the person's death. Tracking that federal mandate, the Department noted, was title 22 of the California Code of Regulations, which in section 50489.9 prescribes the same condition of eligibility.¹ Alexandria had been deemed eligible for Medi-Cal benefits only because her trust contained that reimbursement provision. Finally, the Department cited Probate Code sections 3604 and 3605, which give specified government agencies (including DHCS) priority over the funds remaining in the trust after the death of a special needs trust beneficiary. In short, the Department argued, “[t]o apply the 55 and under limitation in Section 1396p(b), as argued by the Trustee, to special needs trusts, would not only thwart the intent of the statute to provide for payback of Medi-Cal expenses, but would lead to an unreasonable result that is contrary to public policy. For no logical reason, recovery by the State from special needs trusts would be limited to those individuals who incurred medical expenses between the ages of 55 and 65, and the heirs of all others would get a windfall of taxpayer funds,” contrary to the intent of Congress.

The superior court approved the settlement but granted the Department's claim. The court recognized that the express purpose of the trust had been to enable Alexandria to qualify for Medi-Cal and that the payback provisions of the document reflected that purpose. The court therefore ordered that the Department be reimbursed from the remaining funds in the trust in the full amount of its claim. Herting filed a timely appeal from the order.

Analysis

Herting's central argument is that DHCS has no right of recovery from a special needs trust when the beneficiary is under the age of 55. As Herting recognizes, Congress revised the Medicaid system in response to abuses by wealthy individuals, particularly those over 65, who used trusts not only to establish eligibility for benefits but also to preserve their assets for the benefit of their children or other third parties. (Lewis v. Alexander (3d Cir. 2012) 685 F.3d 325, 332–333 ; see also Weisner, OBRA '93 and Medicaid: Asset Transfers, Trust Availability and Estate Recovery Statutory Analysis in Context, 19 Nova L.Rev. 679 (1995) ; Rosenberg, Supplemental Needs Trusts for People with Disabilities: The Development of A Private Trust in the Public Interest (2000) 10 B.U. Pub. Int. L.J. 91, 151 (Rosenberg).) As part of the Omnibus Budget Reconciliation Act of 1993, Congress tightened the eligibility rules, while adding certain exceptions, notably subdivision (d)(4)(A), to section 1396p in order to exempt the severely disabled under age 65 whose assets would otherwise make them ineligible for Medicaid, by permitting the establishment of a supplemental or special needs trust. Congress thus struck a balance between curbing abusive asset transfers and ensuring access to public assistance by the disabled. Section 1396p, subdivision (d)(4)(A), now states that a determination of eligibility does not include the assets in a trust established for “an individual under age 65 who is disabled (as defined in section 1382c (a)(3) of this title) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a...