Hutcherson v. Arizona Health Care Cost Containment Sys. Admin.

• Decision Date: 27 January 2012
• Docket Number: No. 10–16426.,10–16426.
• Citation: 2012 Daily Journal D.A.R. 1163,12 Cal. Daily Op. Serv. 1107,667 F.3d 1066
• Parties: Rebecca G. HUTCHERSON, Plaintiff–Appellant, v. ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, and Thomas J. Betlach, in his capacity as Director of AHCCCS, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

12 Cal. Daily Op. Serv. 1107

2012 Daily Journal D.A.R. 1163

667 F.3d 1066

Rebecca G. HUTCHERSON, Plaintiff–Appellant,

v.ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION, and Thomas J. Betlach, in his capacity as Director of AHCCCS, Defendants–Appellees.

No. 10–16426.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 30, 2011.Filed Jan. 27, 2012.

Eric K. Macdonald and Ryan K. Hodges (argued), Jackson White, Mesa, AZ, for the appellant.

Timothy D. Ducar (argued), Lorona Steiner Ducar, Ltd., Phoenix, AZ, for the appellees.

Appeal from the United States District Court for the District of Arizona, James A. Teilborg, District Judge, Presiding. D.C. No. 2:09–cv–00898–JAT.Before: RAYMOND C. FISHER and JOHNNIE B. RAWLINSON, Circuit Judges, and ROBERT J. TIMLIN, Senior District Judge.^*

OPINION

TIMLIN, Senior District Judge:

Rebecca Hutcherson (“Appellant”) appeals the district court's judgment granting summary judgment to Arizona Health Care Cost Containment System Administration and Thomas Betlach (collectively “AHCCCS”). We hold that the 2006 amendment to 42 U.S.C. § 1396p(c)(1)(F)(i) creates a right in the State to recover as a remainder beneficiary against a community spouse's annuity for an institutionalized spouse's medical costs. We further hold that the State's recovery is not limited to the amount it paid for the institutionalized spouse's medical costs as of the date of the community spouse's death. Accordingly, we affirm.

I.

Appellant is the daughter of John and Betty Hutcherson.¹ At some point, Betty required long-term care in a nursing home or similar facility. In June 2007, Betty applied for Medicaid assistance from AHCCCS. Betty did not qualify for Medicaid assistance at that time because the Hutchersons' assets exceeded the limit to qualify. In order for Betty to qualify for Medicaid assistance, John “spent down” his assets by purchasing an annuity in his name for $100,000. The annuity paid a fixed monthly amount of $2,781.63 for 36 months. AHCCCS was listed as the annuity's remainder beneficiary in the first position, as required by the Medicaid statute, and Appellant was listed as the remainder beneficiary in the second position.

On April 5, 2008, John died. At that time, the annuity had a remaining value of approximately $75,000. The annuity provided that, at the time of the annuitant's death, the beneficiary could choose to either be paid a lump sum or receive the remaining monthly annuity payments as scheduled. AHCCCS opted to receive the monthly payments from the annuity.

At the time of John's death, AHCCCS had paid $23,840.51 for Betty's medical care. Following John's death, AHCCCS continued to pay for Betty's care at a monthly cost of $2,552.92. AHCCCS deducted this continuing monthly cost from the monthly annuity payments it was receiving and applied the remaining $228.71 to the $23,840.51 that it had paid for Betty's care prior to John's death.

Betty stopped receiving Medicaid assistance from AHCCCS in 2009. The annuity was then used by AHCCCS to pay off the remaining balance of the $23,840.51 and AHCCCS released its claim on the annuity. In total, AHCCCS received $60,840.51 from the annuity before the remaining value was paid to Appellant as the secondary remainder beneficiary.

On April 29, 2009, Appellant filed a declaratory judgment action seeking a declaration that AHCCCS had no right to recover from John's annuity at all or, alternatively, had no right to recover for any costs incurred for the care Betty received after John's death. The parties filed cross-motions for summary judgment following discovery. The district court granted AHCCCS's motion, concluding that (1) 42 U.S.C. § 1396p(c)(1)(F)(i) was validly enacted by Congress and is binding on Appellant; (2) AHCCCS could recover from the annuity for costs it incurred on Betty's behalf; and (3) AHCCCS could recover for amounts it spent on Betty's care after John's death.

Appellant timely filed this appeal.

II.

We have jurisdiction over this case pursuant to 28 U.S.C. § 1291. We review de novo a district court's grant of summary judgment. City of Los Angeles v. San Pedro Boat Works, 635 F.3d 440, 446 (9th Cir.2011).

III.

Medicaid is a cooperative program through which the federal government reimburses states for some costs they incur in providing medical assistance to the poor. See Wisconsin Dep't of Health & Family Servs. v. Blumer, 534 U.S. 473, 479, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002). Each state develops its own plan for determining Medicaid eligibility based on standards established by the federal government, taking into account the income and assets of the applicant. Id.

Unique problems arose regarding Medicaid eligibility for spouses given that they generally share income and assets. See id. at 479–80, 122 S.Ct. 962. For example, states generally considered income from either spouse and jointly-held assets in determining the Medicaid eligibility for the institutionalized spouse, but did not consider assets held solely in the name of the community spouse. Id.² As a result, some community spouses were left destitute so that the institutionalized spouse could qualify for Medicaid assistance, while some wealthy couples were able to qualify for assistance by simply holding their assets solely in the name of the community spouse. Id. at 480, 122 S.Ct. 962. Congress responded to this problem by passing the Medicare Catastrophic Coverage Act of 1988 (“MCCA”), which had the dual aim of ending the “pauperization” of community spouses and preventing wealthy couples from qualifying for Medicaid assistance by sheltering their assets. Id.; see also J.P. v. Mo. State Family Support Div., 318 S.W.3d 140, 142 (Mo.Ct.App.2010) (“In enacting the MCCA, Congress sought to protect the community spouse from poverty, but it also wanted to protect the Medicaid system from abuse.”).

One provision of the MCCA allows an institutionalized spouse to qualify for Medicaid assistance while reserving for the community spouse a capped amount of assets for the community spouse's benefit, known as the “community spouse resource allowance” or “CSRA.” Blumer, 534 U.S. at 482, 122 S.Ct. 962. The CSRA is designed to ensure that the community spouse can meet his or her minimum monthly maintenance needs. See id. at 478, 122 S.Ct. 962. All assets above the CSRA must be spent before the institutionalized individual can be eligible for Medicaid assistance. See id. at 483, 122 S.Ct. 962.

Congress regulates the means by which couples may spend down their assets to qualify an institutionalized individual for Medicaid assistance. The Medicaid Act prevents wealthy couples from qualifying for Medicaid by imposing a penalty when couples attempt to dispose of assets that could otherwise be used to pay for the institutionalized spouse's medical care. If a couple disposes of any property for less than fair market value during a five-year “look back” period, the institutionalized spouse is not eligible to receive coverage for an amount of time equal to the “total, cumulative uncompensated value of all assets transferred by the individual (or individual's spouse) ... divided by ... the average monthly cost to a private patient of nursing facility services in the State.” 42 U.S.C. § 1396p(c)(1)(A), (E). In other words, if either spouse tries to give away assets, the institutionalized spouse will be ineligible for Medicaid benefits for the length of time that those assets could have covered the spouse's medical costs. The effect is to treat couples who dispose of assets as if those assets were available to the couple to pay for medical care.

Congress has, however, provided specific ways that a community spouse may spend down his or her assets without affecting the institutionalized spouse's eligibility for Medicaid. Of relevance here, the Medicaid statute allows the community spouse to purchase an annuity. See 42 U.S.C. § 1396p(c)(1)(F)(i). This provision protects the community spouse from destitution by allowing the spouse to convert his or her assets, which are considered in determining the institutionalized spouse's eligibility, to income, which is not considered. See 42 U.S.C. § 1396r–5(b)(1), (c)(1).

In 2005, Congress passed the Deficit Reduction Act (“DRA”), which sought to further close loopholes in the Medicaid Act. See, e.g., N.M. v. Div. of Med. Assist. & Health Servs., 405 N.J.Super. 353, 964 A.2d 822, 827–28 (N.J.Sup.Ct.App.Div.2009) (discussing the DRA's legislative history); see also Mackey v. Dep't of Human Servs., 289 Mich.App. 688, 808 N.W.2d 484, 488 n. 7, 2010 WL 3488988, at *4 n. 7 (Mich.Ct.App. Sept. 7, 2010) (“[W]hen signing into law the Deficit Reduction Act of 2005, President George W. Bush stated that the act “ ‘tightens the loopholes that allowed people to game the system by transferring assets to their children so they can qualify for Medicaid benefits.’ ” ”) (quoting Reif, A Penny Saved Can Be A Penalty Earned: Nursing Homes, Medicaid Planning, The Deficit Reduction Act of 2005, And The Problem of Transferring Assets, 34 NYU Review of Law & Social Change 339, 347 (2010)). The DRA added several requirements that must be met before an annuity is exempt from the transfer penalty. For instance, the annuity must (i) be irrevocable and nonassignable, (ii) be actuarially sound, and (iii) provide for payments in equal amounts with no deferral and no balloon payments. Id. § 1396p(c)(1)(G)(ii). In addition, and of particular relevance to this case, the DRA originally provided that the purchase of an annuity is allowable only where “the State is named as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant.” 42 U.S.C. § 1396p(c)(1)(F)(i) (2005) (emphasis added).

In 2006, Congress amended the language of § 1396p(c)(1)(F)(i). Under the amended language, spouses may purchase an annuity to spend down their assets only if “the State is named as...