Hogan v. Heckler

• Decision Date: 18 September 1985
• Docket Number: No. 85-1149,85-1149
• Citation: 769 F.2d 886
• Parties: , 10 Soc.Sec.Rep.Ser. 323, Medicare&Medicaid Gu 34,845 George HOGAN, et al., Plaintiffs, Appellees, v. Margaret HECKLER, Defendant, Appellee, Phillip Johnston, et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 886

769 F.2d 886

54 USLW 2117, 10 Soc.Sec.Rep.Ser. 323,

Medicare&Medicaid Gu 34,845

George HOGAN, et al., Plaintiffs, Appellees, v. Margaret HECKLER, Defendant, Appellee Phillip Johnston, et al., Defendants, Appellants.

No. 85-1149.

United States Court of Appeals, First Circuit.

Argued June 4, 1985.

Decided Aug. 12, 1985.

As Amended Aug. 20, 1985.

Rehearing En Banc Denied Sept. 18, 1985.

H. Reed Witherby, Asst. Atty. Gen., Boston, Mass., with whom Francis X. Bellotti, Atty. Gen., Boston, Mass., was on brief, for appellants.

John F. Cordes and Nicholas S. Zeppos, Appellate Staff, Civil Div., Washington, D.C., with whom Richard K. Willard, Acting Asst. Atty. Gen., Washington, D.C., and William F. Weld, U.S. Atty., Boston, Mass., were on brief, for appellee Margaret Heckler, Secretary, Dept. of Health and Human Services.

Steven A. Hitov, Western Massachusetts Legal Services, for appellees, George Hogan, et al.

Before CAMPBELL, Chief Judge, and DAVIS ^* and TORRUELLA, Circuit Judges.

LEVIN H. CAMPBELL, Chief Judge.

This is an appeal from a judgment by the United States District Court for the District of Massachusetts in a class action brought by Medicaid applicants against the Massachusetts Commissioner of Public Welfare and Secretary of Human Services ("state defendants") and the United States Secretary of Health and Human Services ("the Secretary") challenging the use in the state's Medicaid program of a six-month budget period for the deduction of medical expenses for the plaintiff class of applicants and the Secretary's regulation which allowed Massachusetts to adopt this requirement. The district court held that the challenged provisions were invalid because they conflicted with sections 1902(a)(17) and 1902(a)(10)(C)(i)(III) of the Social Security Act, 42 U.S.C. Secs. 1396a(a)(17) and 1396a(a)(10)(C)(i)(III). See Hogan v. Heckler, 597 F.Supp. 1106 (D.Mass.1984). We reverse.

I. Statutory Background

In order to understand plaintiffs' claim it is useful to review first the statutory set up of the Medicaid program.

Medicaid was established in 1965 through Title XIX of the Social Security Act as a cooperative federal and state cost-sharing venture for the provision of basic medical services to eligible applicants, Pub.L. No. 89-97, 79 Stat. 343 (1965), as amended, 42 U.S.C. Secs. 1396 et seq. States choosing to participate in the program are required to follow federal guidelines, 42 U.S.C. Sec. 1396. The United States Secretary of Health and Human Services (formerly the Secretary of Health, Education and Welfare) is entrusted with the administration of the Act and must approve the state plans of medical assistance before the participating states are allowed to receive any federal monies. The Secretary's regulations are entitled at least to deference and, when promulgated in accordance with an explicit statutory delegation, to "legislative effect". See Schweiker v. Gray Panthers, 453 U.S. 34, 44, 101 S.Ct. 2633, 2640, 69 L.Ed.2d 460 (1981); see also Connecticut Department of Income Maintenance v. Heckler, --- U.S. ----, 105 S.Ct. 2210, 2214, 85 L.Ed.2d 577 (1985). Massachusetts has chosen to participate in the Medicaid program, Mass.Gen.Laws Ann. ch. 118E, Sec. 1 et seq. (West Supp.1985).

The Medicaid statute covers two types of beneficiaries. First, it covers low income individuals who come within certain federal cash assistance programs--Supplemental Security Income for the Aged, Blind and Disabled ("SSI") and Aid to Families with Dependent Children ("AFDC"). Such persons automatically qualify for Medicaid, 42 U.S.C. Sec. 1396a(a)(10)(A). They are referred to as "categorically needy ." ¹ Second, a state may provide Medicaid to certain so-called "medically needy" persons who meet the categorical requirements for SSI or AFDC (i.e., aged, blind or disabled persons, or families with dependent children) but whose income or assets exceed the limits that would qualify them for these programs, 42 U.S.C. Sec. 1396d(a). A state participating in the Medicaid program is under no obligation to provide coverage for the medically needy, see Schweiker v. Hogan, 457 U.S. 569, 591-92, 102 S.Ct. 2597, 2610-11, 73 L.Ed.2d 227 (1982), but if it chooses to do so, it is subject to some federally-imposed conditions, including that the standards used to determine eligibility be "reasonable" and "comparable for all groups," 42 U.S.C. Sec. 1396a(a)(17), and that the methodology employed to determine their eligibility be the "same methodology" which would be employed to determine eligibility for the related categorically needy group, 42 U.S.C. Sec. 1936a(a)(10)(C)(i)(III). Massachusetts has opted to provide coverage to medically needy persons, Mass.Gen.Laws Ann. ch. 118E, Sec. 1 (West Supp.1985).

Eligibility for a medically needy applicant is determined in the following manner. First, his gross income is calculated. Next, several deductions are applied to determine the applicant's "countable income," see 42 C.F.R. Sec. 453.831(a); 106 C.M.R. Secs. 505.200, 506.100-200. Then, the countable income figure is compared to the appropriate income standard, which in most (though not all ) ² instances, is comparable to the corresponding SSI or AFDC standard of need. If the applicant's countable income is equal to or less than the standard, the applicant is eligible for Medicaid, see 42 C.F.R. Sec. 435.831(b); 106 C.M.R. Sec. 506.400. Up to this point, the procedure is similar to the procedure followed in determining eligibility for SSI or AFDC categorically needy. Thus, countable income is computed on a monthly basis , ³ as both SSI and AFDC have, since 1981, been required by statute to use a one month budget period, see 42 U.S.C. Secs. 1382(c)(1) [for SSI] and 602(a)(13) [for AFDC]. Likewise, the deductions available to a medically needy applicant must be the same as those available to a categorically needy applicant of the corresponding program. See 42 C.F.R. Sec. 435.831(a); cf. 106 C.M.R. Secs. 506.100-200.

However, since by definition the medically needy possess income in excess of the limits imposed by the SSI and AFDC programs, the determination of their Medicaid eligibility involves an extra factor not considered for categorically needy eligibility. Medically needy applicants are required to "spend down" their excess income by incurring medical expenses that reduce their net countable income to the amount of the eligibility standards. See 42 U.S.C. Sec. 1396a(a)(17); 42 C.F.R. Sec. 435.831(c); 106 C.M.R. Secs. 506.500 et seq. Put another way, medically needy applicants are allowed a special deduction for their medical expenses, to reduce their income to the Medicaid eligibility levels. The difference between the applicant's income and the Medicaid eligibility income standard, i.e. the amount of medical expenses that the applicant must incur to qualify, is called the "spenddown".

Unlike in the computation of countable income, there is no express statutory or regulatory requirement that an applicant's "spenddown" be computed on a monthly basis. To the contrary, in a regulation dating back to the inception of the Medicaid Act, the Secretary has allowed states to "use a prospective period of not more than six months to compute income," 42 C.F.R. Sec. 435.831. Following this guideline, the state of Massachusetts, like others, has adopted a six month budget period for the determination of the spenddown of a medically needy applicant, Mass.Gen.Laws Ann. ch. 118E, Sec. 10 (West Supp.1985); ⁴ see also 106 C.M.R. Sec. 506.510 . ⁵ This means that an applicant is required to incur medical expenses at least equal to his total excess income during a period of six months, that is, to incur, within a six month period, an amount of medical expenses at least equal to six times his monthly excess income, see 106 C.M.R. Sec. 506.520 ("The spenddown liability is determined by multiplying the excess monthly income by six."). To take an example used by the district court: an applicant whose monthly income is $100 above the appropriate standard of eligibility must spend, within the corresponding six month period, ⁶ a sum of $600 in medical expenses to achieve Medicaid eligibility. See Hogan v. Heckler, 597 F.Supp. at 1108.

According to the state defendants, the purpose of this requirement is to average out the amount of medical expenses that an applicant will be able to deduct in order to insure that the limited resources devoted to the medicaid program go to those persons that have considerable, recurrent expenses . ⁷ However, although the requirement, as framed by the state, assumes that an applicant has six months' excess income available at the time of application, an applicant is not allowed to anticipate future medical expenses unless he is institutionalized at a long term care facility, see 106 C.M.R. Sec. 506.620. This means that applicants in a noninstitutional setting must often wait several months until their accumulated medical expenses equal their spenddown amount. Taking our above example of an applicant who has $100 monthly excess income, yielding a $600 spenddown, if that person has regular medical expenses of, say, $115 a month, then he will not become eligible until the last month of the six month budget period , ⁸ even though for every month in that period his medical expenses have surpassed his excess income. Moreover, as Medicaid eligibility is redetermined at the close of each six month period, see 106 C.M.R. Sec. 506.580, the applicant is forced into a new wait every time. A person in this predicament is forced either to operate on credit while his medical bills accumulate to reach his spenddown amount or to incur higher cost medical care to spend down his excess income faster. See Hogan v. Heckler, 597 F.Supp. at 1109 . ⁹

II. Proceedings Below

The action was originally filed in the district court in May, 1980 as Hogan v. Harris, No. 80-883-T, naming as defendants the Secretary and the state defendants. Plain...