Hughes v. McCarthy

Decision Date25 October 2013
Docket NumberNo. 12–3765.,12–3765.
PartiesCarole L. HUGHES; Harry Hughes, Plaintiffs–Appellants, v. John B. McCARTHY, Medicaid Director, Defendant–Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

734 F.3d 473

Carole L. HUGHES; Harry Hughes, Plaintiffs–Appellants,
v.
John B. McCARTHY, Medicaid Director, Defendant–Appellee.

No. 12–3765.

United States Court of Appeals,
Sixth Circuit.

Argued: March 7, 2013.
Decided and Filed: Oct. 25, 2013.


[734 F.3d 474]


ARGUED:William J. Browning, Browning, Meyer & Ball, Co.
LPA, Worthington, OH, for Appellants. Rebecca L. Thomas, Office of the Ohio Attorney General, Columbus, OH, for Appellee. ON BRIEF:William J. Browning, Browning, Meyer & Ball, Co. LPA, Worthington, OH, for Appellants. Rebecca L. Thomas, Office of the Ohio Attorney General, Columbus, OH, for Appellee. René H. Reixach, Woods Oviatt Gilman LLP, Rochester, NY, Eugene P. Whetzel, Ohio State Bar Association, Columbus, OH, Howard S. Scher, United States Department of Health and Human Services, Washington, D.C., for Amici Curiae.

Before: KETHLEDGE, WHITE, and STRANCH, Circuit Judges.
*

OPINION

HELENE N. WHITE, Circuit Judge.

Plaintiffs Carole and Harry Hughes (collectively, the Hugheses), a nursing home

[734 F.3d 475]

resident and her community spouse, appeal the district court's grant of summary judgment in favor of the director of the Ohio Department of Job and Family Services (ODJFS or the Ohio agency),1 holding that the Ohio agency properly penalized Mrs. Hughes based on Mr. Hughes's purchase of an annuity for himself with funds from his IRA account. The district court held that 42 U.S.C. § 1396r–5(f)(1)2 precluded the transfer of assets because it exceeded Mr. Hughes's community spouse resource allowance (CSRA). Because the transfer occurred before the Ohio agency determined that Mrs. Hughes was eligible for Medicaid coverage and § 1396p(c)(2)(B)(i) permits an unlimited transfer of assets “to another for the sole benefit of the individual's spouse,” we REVERSE.

I.
A.

Congress established the Medicaid program in 1965 to provide federal and state funding of medical care for individuals who cannot afford to cover their own medical costs. See Social Security Amendments of 1965, Title XIX, Grants to States for Medical Assistance Programs, Pub.L. No. 89–97, 79 Stat. 286, 343–52 (codified as amended at 42 U.S.C. §§ 1396–1396w–5); Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980). The program is administered by the Secretary of Health and Human Services (HHS or the federal agency), who in turn exercises her authority through the Centers for Medicare and Medicaid Services (CMS).3 To implement the program, “[e]ach participating State develops a plan containing reasonable standards ... for determining eligibility for and the extent of medical assistance within boundaries set by the Medicaid statute[s] and the Secretary of [HHS].” Wis. Dep't of Health & Family Servs. v. Blumer, 534 U.S. 473, 479, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002) (internal quotation marks omitted); see42 U.S.C. § 1396a(17).

In 1988, Congress passed the Medicare Catastrophic Coverage Act (MCCA), Pub.L. No. 100–360, 102 Stat. 683, “to protect community spouses from ‘pauperization’ while preventing financially secure couples from obtaining Medicaid assistance. To achieve this aim, Congress installed a set of intricate and interlocking requirements with which States must comply in allocating a couple's income and resources.” Blumer, 534 U.S. at 480, 122 S.Ct. 962 (internal citation and parenthetical omitted). In particular, the MCCA allows the community spouse to keep a portion of the couple's assets—the CSRA—without affecting the institutionalized spouse's Medicaid eligibility. 4See

[734 F.3d 476]

42 U.S.C. § 1396r–5(c)(2), (f)(2)(A). As the first step in determining the CSRA, the total of all the couple's resources is calculated as of the time the institutionalized spouse's institutionalization began; half of that total is allocated to each spouse (the spousal share). Id. § 1396r–5(c)(1)(A). Once the spousal share is determined, the CSRA is calculated by measuring the spousal share allocated to the community spouse against a statutory formula, which is further defined under each state plan, and subject to a ceiling and floor indexed for inflation. Id. § 1396r–5(c)(2)(B), (f)(2), (g).

“The CSRA is considered unavailable to the institutionalized spouse in the eligibility determination, but all resources above the CSRA (excluding a small sum set aside as a personal allowance for the institutionalized spouse ...) must be spent before eligibility can be achieved.” Blumer, 534 U.S. at 482–83, 122 S.Ct. 962 (citing 42 U.S.C. § 1396r–5(c)(2)). However, a community spouse's income is not considered available to the institutionalized spouse for eligibility purposes, except in limited circumstances. See42 U.S.C. § 1396r–5(b). Moreover, “after the month in which an institutionalized spouse is determined to be eligible for benefits ..., no resources of the community spouse shall be deemed available to the institutionalized spouse.” Id. § 1396r–5(c)(4).

B.

A state plan must “comply with the provisions of [§ ] 1396p ... with respect to liens, adjustments and recoveries of medical assistance correctly paid, [ ] transfers of assets, and treatment of certain trusts.” 42 U.S.C. § 1396a(18) (internal footnote omitted). Paragraph (1) of § 1396p(c) requires (in relevant part) that a state plan “must provide that if an institutionalized individual or the spouse of such an individual ... disposes of assets for less than fair market value on or after the look-back date” (which, as relevant here, is defined as thirty-six months prior to the first date on which the institutionalized spouse applies for Medicaid assistance), “the individual is ineligible for medical assistance for services” (such as coverage for nursing home costs) for the numbers of months that the assets would have covered the average monthly cost of such services. Id.§ 1396p(c)(1)(A); see id.§ 1396p(c)(1)(B)(i)-(ii), (C)(i)(I), (D)(ii), (E)(i).

In other words, even if the institutionalized spouse is eligible for Medicaid coverage after spending down her assets, § 1396p(c) requires a state to impose a transfer penalty (a period of restricted coverage) if either spouse disposed of assets for less than fair market value during the look-back period. However, the transfer penalties under paragraph (1) do not apply in certain circumstances. As relevant here: “An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that ... (B) the assets [ ](i) were transferred to the individual's spouse or to another for the sole benefit of the individual's spouse[.]” Id.§ 1396p(c)(2)(B)(i). Congress amended § 1396p(c)(2)(B) to its current form in 1993. See Omnibus Budget Reconciliation Act (OBRA) of 1993, Pub.L. No. 103–66, § 13611(a)(2), 107 Stat. 312; MCCA of 1988, Pub.L. No. 100–360, § 303(b), 102 Stat. 683.

Congress later passed the Deficit Reduction Act of 2005 (DRA),

[734 F.3d 477]

Pub.L. No. 109–171, 120 Stat. 4, 62–64, as amended by the Tax Relief and Health Care Act of 2006, Pub.L. No. 109–432, 120 Stat. 2922, 2998, which added provisions to paragraph (1) concerning whether the purchase of certain annuities should be deemed transfers for less than fair market value. See42 U.S.C. § 1396p(c)(1)(F), (G). Congress did not, however, amend § 1396p(c)(2)(B) with the DRA's enactment.

II.
A.

Mrs. Hughes entered a nursing home in 2005. For nearly four years, Mr. Hughes paid for his wife's nursing home costs using the couple's resources, which largely consisted of funds from his IRA account. In June 2009, about three months before Mrs. Hughes applied for Medicaid coverage, Mr. Hughes purchased a $175,000 immediate single-premium annuity for himself using funds from his IRA account. The annuity guarantees monthly payments of $1,728.42 to Mr. Hughes from June 2009 to January 2019, totaling nine years and seven months, which is commensurate with Mr. Hughes's undisputed actuarial life expectancy. Combined with other retirement income, the annuity increased Mr. Hughes's monthly income to $3460.64 after the annuity took effect. In the event of Mr. Hughes's death, Mrs. Hughes is the first contingent beneficiary and the Ohio agency is “the remainder beneficiary for the total amount of medical assistance furnished to annuitant['s] spouse, [Mrs.] Hughes.”

Mrs. Hughes applied for Medicaid coverage in September 2009. In December 2009, the Stark County division of the Ohio agency issued a notice that she was eligible for Medicaid as of the month of her application. However, the Ohio agency placed her on restricted coverage from September 2009 to June 2010, deeming her ineligible for coverage of nursing home costs for that time period because of Mr. Hughes's annuity purchase.

The Ohio agency determined that Mr. Hughes's annuity purchase was an improper transfer because he used a community resource (the IRA account) in an amount that exceeded his CSRA of $109,560 and because the annuity failed to name Ohio as the first contingent beneficiary. Thus, the Ohio agency placed Mrs. Hughes on restricted coverage for approximately ten months, the number of months that the difference between Mr. Hughes's CSRA and the annuity would have paid for nursing home costs. The Hugheses appealed the decision. The Ohio agency affirmed in a state-hearing and administrative-appeal level decision. State-court proceedings have been stayed pending this case's resolution.

B.

In August 2010, the Hugheses filed this case under 42 U.S.C. § 1983, alleging that the Ohio agency violated the federal Medicaid statutes, including § 1396p(c)(2)(B)(i), when it placed Mrs. Hughes on restricted coverage due to Mr. Hughes's purchase of an annuity with funds from his IRA account.5 They claimed, inter alia, that the Medicaid statutes grant them the right to purchase an actuarially-sound 6 immediate

[734 F.3d 478]

single-premium annuity for the sole benefit of the community spouse.

The district court granted summary judgment in favor of the Ohio agency and denied the Hugheses' request for injunctive relief. See Hughes...

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