Johnson v. Guhl

• Decision Date: 24 September 2001
• Docket Number: No. CIV. A. 99-5403(DMC).,CIV. A. 99-5403(DMC).
• Citation: Johnson v. Guhl, 166 F.Supp.2d 42 (D. N.J. 2001)
• Parties: Donald H. JOHNSON, et al., Plaintiff, v. Michele K. GUHL, Commissioner, State of New Jersey, Department of Human Services, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

Page 42

166 F.Supp.2d 42

Donald H. JOHNSON, et al., Plaintiff, v. Michele K. GUHL, Commissioner, State of New Jersey, Department of Human Services, et al., Defendants.

No. CIV. A. 99-5403(DMC).

United States District Court, D. New Jersey.

September 24, 2001.

Shirley B. Whitenack, Schenck, Price, Smith & King, LLP, Morristown, NJ, for Plaintiffs.

Edwin C. Eastwood, Jr., Edwin C. Eastwood, North Bergen, NJ, Donald L. Berlin, Berlin, Kaplan, Dembling & Burke, Morristown, NJ, Daniel W. O'Mullan, Morris County Counsel, Whippany, NJ, Juan

Carlos Fernandez, Office of the County Counsel, Newark, NJ, for Defendants.

AMENDED OPINION

CAVANAUGH, District Judge.

This matter comes before the Court on Plaintiffs' motion for declaratory judgment and injunctive relief. This case involves a challenge by Plaintiffs of certain provisions of the New Jersey Medicaid plan governing Medicaid eligibility for coverage of the cost of long-term care as inconsistent with federal Medicaid law. Through this application Plaintiffs essentially seek declaratory judgment and injunctive relief to the following effect: (1) that the Court declare that the policy adopted by the Division of Medical Assistance and Health Services ("DMAHS") regarding the treatment of Community Spouse Annuity Trusts ("CSAT") at issue that resulted in the denial of Medicaid eligibility, is unenforceable and enjoin the Defendants from applying it to the Plaintiffs; and (2) that the Court declare that Defendants' failure to promulgate an undue hardship waiver provision and failure to remove the requirement that New Jersey be named first remainder beneficiary to the trusts at issue are violative of federal law and to require the State of New Jersey to adopt appropriate regulations consistent with federal law. Pursuant to Fed.R.Civ.P. 78 oral argument was heard on August 9, 2001. For the reasons expressed below, Plaintiffs' application for declaratory judgment and injunctive relief is denied in its entirety.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

The pertinent and undisputed facts are as follows. The Plaintiffs in this matter are comprised of couples with one spouse residing in a long-term care facility in the State of New Jersey ("institutionalized spouse") while the other spouse resides in the community ("community spouse"). (See Second Amended Compl. at ¶ 4). The community spouses are beneficiaries of Community Spouse Annuity Trusts ("CSATs"), which are at the center of this controversy. At the time the complaint was filed, some of the institutionalized spouses had been denied Medicaid eligibility based on the execution of these trusts for which Plaintiffs had filed fair hearing appeals. Other Plaintiffs had Medicaid applications pending. Eventually those with pending Medicaid applications were subsequently denied eligibility. In an Opinion and Order filed on April 7, 2001, the Honorable William G. Bassler, U.S.D.J. dismissed the Plaintiffs with prospective Medicaid applications. The following institutionalized Plaintiffs including their respective spouses remain in this matter: Juanita L. Johnson,¹ Marie L. Hicks, Phyllis R. Schaible, Stanley Prystasch, Norman V. Silbernagel, and Dorothy R. Mariani.

In their second amended complaint,² Plaintiffs challenge the treatment of the CSATs as countable resources in determining Medicaid eligibility and seek immunity from its application to them. When Plaintiffs applied for Medicaid benefits they were denied eligibility based on the fact that the Plaintiff couples had executed private annuitized trusts for the sole benefit of the community spouse, which were found by the DMAHS to be countable resources based on a recent policy statement issued by the Health Care and Financing Administration ("HCFA"). The inclusion of these trusts resulted in the denial of Medicaid eligibility. Shortly after being denied eligibility, Plaintiffs were given the option of converting the private annuitized trusts to commercial annuities in order to meet the eligibility requirements. Plaintiffs declined to exercise this option.

In this application, Plaintiffs claim that Defendants'³ new treatment of CSATs constitutes impermissible rule making in violation of 5 U.S.C. § 553 and N.J.S.A. 52:14B-1 et seq. (Fourth Count). Plaintiffs also allege violations of New Jersey law pursuant to N.J.S.A. 30:4D-7 and N.J.S.A. 10:71-2.3 (Sixth Count). Plaintiffs seek a declaration from this Court that the policy adopted by the DMAHS is unenforceable based on Defendants failure to comply with federal and state rule making procedures (Second Count). Plaintiffs also claim that Defendants should be equitably estopped from taking a different position with respect to the treatment of CSATs because Plaintiffs relied on Defendants' prior treatment of the trust as excludable. (Fifth Count). Further, Plaintiffs allege that Defendants violated 42 U.S.C. §§ 1396p et seq. and 1396a(a)(18) (First Count and Fourth Count) by failing to implement regulations governing undue hardship hearings and by requiring that the State of New Jersey be named first remainder beneficiary to the CSATs. See 42 U.S.C. § 1983. Plaintiffs also seek attorneys fees under 42 U.S.C. § 1983.

In Johnson v. Guhl, 91 F.Supp.2d 754 (D.N.J.2000) ("Johnson I") filed on April 7, 2001, Judge Bassler addressed many of the issues raised in the instant application in the context of Plaintiffs' application for a preliminary injunction and Defendants' motion to dismiss.⁴ The Court made the following determinations that are pertinent to the instant application: (1) Defendants are likely to prevail on the issue that their change in policy in mid-July of 1999 requiring assets placed in CSATs to be treated as countable resources by the New Jersey Medicaid agency is a permissible construction of the federal Medicaid statute, 42 U.S.C. § 1396p et seq. and that the state agency's treatment of the trusts is consistent with HCFA's Guidelines; (2) while Plaintiffs are likely to prevail on their claim regarding Defendants failure to implement undue hardship procedures as required by 42 U.S.C. § 1396p(c)(2)(D), there was no showing of immediate irreparable harm to warrant injunctive relief and (3) Plaintiffs had a likelihood of success on the merits on their claim that the State's condition of naming the state the first remaining beneficiary of a CSAT was "more restrictive" than federal law permitted, but that there was no threat of immediate irreparable harm. Additionally, the Court dismissed Plaintiffs' claims alleging due process violations (Third Count) and equal protection violations (part of Fifth Count).

II. MEDICAID

The Medicaid Act is a federal-state cooperative program established by Title XIX of the Social Security Act of 1965, 42 U.S.C. § 1396 et seq. The Medicaid program is funded in large part by the federal government and administered by the states. See Alexander v. Choate, 469 U.S. 287, 289 n. 1, 105 S.Ct. 712, 83 L.Ed.2d 661 (1985). States voluntarily participate in the program and must adopt plans that comply with requirements imposed by federal statues and regulations. See Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). Consequently, Medicaid is "basically administered by each state within certain broad requirements and guidelines." West Virginia Univ. Hosps. Inc. v. Casey, 885 F.2d 11, 15 (3d Cir.1989).

Prior to tackling the issues before it, this Court agrees with Judge Bassler's observation that the Medicaid Act has been referred to as one of the "most completely impenetrable tests within human experience" and "dense reading of the most tortuous kind." Johnson, 91 F.Supp.2d at 760 (citing Rehabilitation Ass'n of Va. v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir.1994)).

a. Treatment of Transfers of Assets and Trusts

At the center of the action is Defendants' treatment of CSATs. The CSATs at issue are private annuitized trusts created by the couple's combined assets created for the "sole benefit of" ("sbo") the community spouse. The treatment of the transfer of assets in creating such trusts is governed by federal statutory law, 42 U.S.C. § 1396p et seq. and federal guidelines promulgated by HCFA in its State Medicaid Manual and administered by the Department of Health and Human Services ("HHS"), which are implemented by the states through their own rules and regulations.⁵ In New Jersey the DMAHS is responsible for administering the program, N.J.S.A. 30:4D-4, with the assistance of the county boards of social services ("CBSS").

Prior to 1988, a married individual who was institutionalized was required to "spend down" all of the couple's jointly held assets in order to become eligible for Medicaid benefits. H.R.Rep. No. 100-105(II), 100th Cong., 2nd Sess., at 65-67 (1988), reprinted in 1988 U.S.C.C.A.N. 857, 888-90. That policy had the effect of forcing the community spouse to "spend down" virtually all of the marital assets before the institutionalized spouse could be eligible for Medicaid and resulted in "community spouses" having to sue their institutionalized spouses for support or become prematurely institutionalized themselves. See 1988 U.S.C.C.A.N. at 892; Torch, Spousal Impoverishment or Enrichment? An Assessment of Asset and Income Transfers by Medicaid Applicants, 4 Elder L.J. 459, 460-61 (1996).

In an attempt to prevent the "pauperization" of the community spouse, Congress enacted the Medicare Catastrophe Coverage Act ("MCCA") of 1988, 42 U.S.C. § 1396r-5,⁶ and the Omnibus Budget Reconciliation Act ("OBRA"), 42 U.S.C. § 1396p.⁷ In addition to the foregoing, the enactment of the MCCA sought to close the loophole where a couple could shelter their assets by transferring them into the community spouses name while the institutionalized spouse received Medicaid benefits. See Johnson, 91 F.Supp.2d at 761.

In determining Medicaid eligibility, the MCCA requires that all of the couple's resources be considered. See 42 U.S.C. § 1396r-5(c)(1)(A)...