Indiana Dept. of Public Welfare v. Payne, 49S02-9310-CV-1112

CourtSupreme Court of Indiana
Citation622 N.E.2d 461
Docket NumberNo. 49S02-9310-CV-1112,49S02-9310-CV-1112
PartiesINDIANA DEPARTMENT OF PUBLIC WELFARE, Appellant (Defendant Below), v. Hazen PAYNE, Appellee (Plaintiff Below).
Decision Date18 October 1993

DICKSON, Justice.

Seeking clarification of certain state and federal Medicaid eligibility requirements, the Defendant-Appellant Indiana Department of Public Welfare ("the Department") petitions for transfer following the Court of Appeals' partial affirmance of the entry of summary judgment against it in favor of Plaintiff-Appellee Hazen Payne. Indiana Dep't of Pub. Welfare v. Payne (1992), Ind.App., 592 N.E.2d 714, reh'g denied (1992), 598 N.E.2d 608.

In resolving this dispute, we are confronted with two questions. The first, a state law issue, is whether a financially ineligible Indiana Medicaid applicant, in order to establish eligibility, may spend down 1 that portion of his resources exceeding a state-established standard resource allowance. The second question asks whether an Indiana Medicaid applicant must first meet all threshold federal eligibility requirements before utilizing a less restrictive state provision to qualify for medical assistance.

In July, 1988, Payne was diagnosed as having leukemia and was hospitalized for most of the next five months, during which time he underwent chemotherapy. A divorced construction laborer, Payne had no health insurance, and his hospital and medical expenses totalled $149,968.36. In October, 1988, Payne applied for Medicaid assistance through the Monroe County Welfare Department which recognized his eligibility effective December 1, 1988, but denied benefits for the preceding five months, citing Payne's resources in excess of the applicable standard allowance on the eligibility determination day of these months.

Payne's appeal to an administrative law judge was denied on April 28, 1989, as was his final administrative appeal to the State Board of Public Welfare on July 10, 1989. Payne sought judicial review, and on February 5, 1991, the Marion County Superior Court reversed the administrative determination and remanded the case to the Department for further proceedings. Subsequently, the Department sought relief from our Court of Appeals which affirmed, in relevant part, that Payne should have been allowed to spend down his excess resources to meet Medicaid eligibility requirements. Payne, 592 N.E.2d at 714. On rehearing, our Court of Appeals further determined that federal law allows Indiana to employ methods of determining income and resource eligibility for Medicaid that are more liberal than those used by states adopting the corresponding federal means for determining eligibility. Payne, 598 N.E.2d at 608. It is from these decisions that the Department seeks further review. We grant transfer.

Applicable Federal and State Medicaid Law

Our analysis first necessitates an overview of the intricate interrelationship between the relevant federal statutes and state provisions governing Medicaid. 2 In 1965, the United States Congress amended the Social Security Act by adding Grants to States for Medical Assistance Programs, 42 U.S.C. Sec. 1396 et seq. (Supp.1965-68) as a cooperative program between the federal government and states to provide medical assistance to individuals who were receiving benefits under any one of four welfare programs established elsewhere in the Social Security Act. In 1972, Congress restructured Medicaid by replacing three of these four programs with a new federal program entitled Supplemental Security Income for the Aged, Blind, and Disabled ("SSI"), 42 U.S.C. Sec. 1381 et seq. (Supp.1974). For many states, SSI greatly increased the number of potentially eligible Medicaid recipients. Congress, concerned that some states might discontinue participation in Medicaid if required to bear the increased costs of providing benefits to everyone eligible for SSI, offered states the option of providing Medicaid assistance only to those individuals who would have been eligible under the state's Medicaid plan in effect on January 1, 1972. 42 U.S.C. Sec. 1396a(f) (Supp.1974) (commonly known as the "Section 209(b) option" 3). Under Section 209(b) a state could retain its 1972 Medicaid eligibility requirements but could not implement requirements more restrictive than its 1972 provisions or more liberal than the SSI requirements. 4 Indiana elected to continue participation in Medicaid under Section 209(b). Ind.Code Sec. 12-15-2-6.

State Law Question

Indiana's resource spend-down provision in effect in 1972 provides in part:

(c) Possession of intangible personal property with an available liquid cash value in excess of the standard resource allowance shall render an applicant ineligible for assistance, and utilization of some of the resources down to the amount of the standard resource allowance is necessary before the applicant can be found eligible.

(d) Possession of intangible personal property with an available cash value which has increased to be in excess of the standard resource allowance shall not make a recipient ineligible for assistance providing the recipient is willing to make the necessary adjustments and taken immediate steps to do so.

Burns' Ind. Admin. Rules and Regulations, Rule (52-1206)-2 (Supp.1975) ("the 1972 Rule").

The Department argues that Indiana's 1972 spend-down provision is ambiguous and thus should be subject to administrative rather than judicial interpretation unless plainly erroneous or inconsistent with the rule itself. The Department urges that the trial court's de novo review of Indiana's Medicaid provisions effective on January 1, 1972, was improper because the issue is one of fact rather than law.

The Department further argues that the 1972 Rule's language "utilization of some of the resources down to the limit of the standard resource allowance" was too broadly construed by the Court of Appeals. The Department contends that a state Medicaid regulation issued in 1984, in effect in 1988 at the time of Payne's application for assistance, limits the interpretation of the 1972 Rule. This regulation states in pertinent part:

(a) An applicant or recipient is ineligible for medical assistance for any month in which the total equity value of all non-exempt resources exceeds the applicable limitation, set forth below, on the first day of the month:

(1) $1,500 for the applicant or recipient, including the amount determined in (b) below, if applicable; or

(2) $2,250 for the applicant or recipient and his spouse.

Ind.Admin.Code tit. 470, r. 9.1-3-17 (1988) ("the 1988 Rule") (current version at Ind.Admin.Code tit. 405, r. 2-3-15 (1992)).

Specifically, the Department argues that the Court of Appeals improperly interpreted "utilization of some of the resources down to the limit of the standard resource allowance" to permit the application of incurred medical expenses as an offset to excess resources. The Department, applying the 1988 rule, posits that the term "utilization" means liquidating resources and actually making payment toward medical expenses to reduce resources to the maximum eligibility level by the first day of the month in order to qualify for Medicaid assistance for that month. The Department urges that under this interpretation, Payne, who did not liquidate resources or actually pay toward medical expenses by the first day of the months at issue, is therefore ineligible for Medicaid assistance for those months.

Payne responds that resource spend-down was permitted under the 1972 Rule, and that, as a result, the Department may not now, through application of the 1988 Rule, disallow resource spend-down because such a prohibition, under Section 209(b), would be impermissibly more restrictive of his Medicaid eligibility than Indiana's 1972 provisions. Accordingly, he urges that he should be allowed to apply his incurred but unpaid medical expenses as an offset to his resources in determining his eligibility for Medicaid assistance. Payne in effect calculates that each dollar of his resources above the standard allowance should be figuratively "erased" by applying a corresponding dollar from his medical expenses (reducing his otherwise eligible medical expenses by a like amount) until his resources "diminish" to the resource limitation level. Payne contends that the trial court's judgment on this issue in his favor was properly entered as a matter of law.

A determination of the status of Indiana legislation in 1972 is a question of law, one properly subject to de novo analysis upon judicial review. Stockton v. Department of Pub. Welfare (1988), Ind.App., 533 N.E.2d 148, 151. Moreover, while a reviewing court owes some deference to an administrative agency's conclusions of fact, no such deference need be accorded an agency determination of a matter of law. Board of Trustees of Pub. Employees' Retirement Fund of Ind. v. Miller (1988), Ind., 519 N.E.2d 732, 733.

Resolution of the state law question requires that we first interpret the 1972 Rule. In interpreting an administrative regulation, the rules applicable to construction of a statute apply to construction of the regulation. Empire Gas of Rochester, Inc. v. State (1985), Ind.App., 486 N.E.2d 1036, 1044; Indiana State Dep't of Welfare, Medicaid Div. v. Stagner (1980), Ind.App., 410 N.E.2d 1348, 1352. Therefore, just as a statute susceptible to more than one interpretation is ambiguous and open to construction, P.B. v. T.D. (1990), Ind., 561 N.E.2d 749, 750, an administrative regulation subject to multiple interpretations is likewise ambiguous and open to construction. The language of the 1972 Rule pertaining to "utilization of some of the resources down to the amount of the resource allowance" is ambiguous, thus...

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