Johnson v. Guhl
| Decision Date | 06 February 2004 |
| Docket Number | No. 01-3774.,01-3774. |
| Citation | 357 F.3d 403 |
| Parties | Donald H. JOHNSON; Juanita L. Johnson; Eugene V. Mariani; Dorothy Mariani; Mary Lou Fleming; William R. Fleming; William C. Schaible; Phyllis R. Schaible, by her Court Appointed Guardian; Lois Benedetto; Gerald Benedetto; Donna R. Banks; Charles V. Banks, Estate of; Raymond O. Denman, Jr.; Frances C. Denman; Charles N. Hicks; Marie L. Hicks; Ann B. Silbernagel; Norman V. Silbernagel; Anna Prystasch; Stanley Prystasch; Mary Mackron; Anthony Mackron, Estate of; Janet Whalon; Harold B. Whalon, Jr.; Beradine Weiser; Richard C. Weiser; Grace Laforge; Blace Laforge; John Fillmore; Mary Fillmore; John Doe, (1-5 fictitious names); Jane Doe, (1-5 fictitious names); Robert Gross; George Allen; Social Services; Thomas Koelhoffer; Frances Koelhoffer; William Kelly; Kathryn Kelly; Marcella Finkel; Jack Finkel; Edna Allen; Willard Nickerson; Ethel Nickerson; Geraldine Ann Sahl; George J. Sahl; Margaret Bakerian; Vasgen Bakerian; Charles Derrot; Louise Derrot; Miguel Obregon; Onelia Obregon; Roy W. McDowell; June M. McDowell; Joseph Mezzo; Carmella Mezzo; Mathilda Gross v. Michelle K. GUHL, Commissioner; State of New Jersey, Department of Human Services, Margaret A. Murray, Director, Division of Medical Assistance and Health Service; John Roe, (1-5 fictitious names) their agents, servants, employees, and/or assigns, jointly, severally or in the alternative; Edward Testa, Director, Bergen County Board of Social Services; Elizabeth Lehmann, Director, Morris County Board of Social Services; James Williams, Director, Essex County Board of Social Services; Jane Roe, Director, ABC County Board of Social Services, (1-5 fictitious names); Essex County Board of Chosen Freeholders Essex County Board of Social Services; Donald H. Johnson, Juanita L. Johnson, William C. Schaible, Phyllis R. Schaible, Charles N. Hicks, Marie L. Hicks, Ann B. Silbernagel, Norman V. Silbernagel, Anna Prystasch, Stanley Prystasch, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Donald M. McHugh, (Argued), McHugh & Macri, East Hanover, National Academy of Elder Law Attorneys, New Jersey Chapter, Eugene Rosner, Clark, for Appellants.
David Samson, Attorney General of New Jersey, Michael J. Haas, Assistant Attorney General, M. Elizabeth Doyle (Argued), Deputy Attorney General, Office of Attorney General of New Jersey, R.J. Hughes Justice Complex, Trenton, for Appellees, Commissioner and State Divisions.
Edwin C. Eastwood, Jr., Law Offices of Edwin C. Eastwood, Jr., North Bergen, for Appellee, Edward Testa.
Daniel W. O'Mullan, O'Mullan & Brady, Whippany, for Appellee, Elizabeth Lehmann.
Before SCIRICA,* Chief Judge, AMBRO and WEIS, Circuit Judges.
Medicaid is a federal assistance program, administered by the states, that helps individuals with below a certain level of assets pay for medical expenses.1 Because Medicaid is available only to the needy, creative lawyers and financial planners have devised various ways to "shield" wealthier claimants' assets in determining Medicaid eligibility. In this context, we decide, among other issues, whether New Jersey has correctly interpreted federal law to preclude use of a private annuity trust to shield assets.
Plaintiffs in this case are elderly couples in which one spouse resides in a nursing home (the "institutionalized spouse") and the other resides in the community (the "community spouse"). Plaintiffs, New Jersey residents, sought and were denied Medicaid benefits because their assets exceed a level qualifying them for Medicaid eligibility. They challenge their benefits denials under 42 U.S.C. § 1983, and seek both injunctive relief and a declaratory judgment. The District Court held, inter alia, that New Jersey did not violate federal law in denying plaintiffs benefits and thus dismissed their complaint.
Whether plaintiffs are entitled to Medicaid benefits depends on how we view certain private trusts they established for the community spouses' benefit. Those trusts, known as Community Spouse Annuity Trusts ("CSATs"), are designed to provide a stream of annuity payments to the community spouse for the duration of his or her life. From 1994 to 1999, New Jersey did not consider the corpus of these CSATs as "countable" assets — that is, among plaintiffs' available resources for Medicaid eligibility purposes — so long as, on the community spouse's death, New Jersey would be the first beneficiary of the CSAT to the extent that the State paid benefits on behalf of the institutionalized spouse ("state payback" or "state-payback requirement"). Thus, New Jersey effectively permitted Medicaid claimants to use CSATs to shield a couple's assets from Medicaid eligibility determinations during the community spouse's lifetime. New Jersey would then be reimbursed for benefits paid if any funds remained in the CSAT after the community spouse's death. If no funds remained, New Jersey would recover nothing.
In 1999 New Jersey changed its position on the countability of CSATs, largely in response to an earlier interpretive letter from an employee of the Department of Health and Human Services ("HHS") stating that trusts such as CSATs should be considered countable assets. With this change New Jersey considers CSATs among Medicaid claimants' assets when determining their total resources for eligibility purposes. Thus, CSATs can no longer be used to shelter assets.2 New Jersey has taken a similar position with respect to commercial annuities.3
Plaintiffs applied for Medicaid benefits during the period that New Jersey was implementing its CSAT policy change. They claim that, during this period, New Jersey delayed in processing their pending Medicaid applications for anywhere between eight and eighteen months. When New Jersey finally determined plaintiffs' eligibility, applying its "new" policy, it deemed their asset levels too high to qualify for Medicaid benefits because it included their CSATs as available assets. Plaintiffs dispute that the corpus of their CSATs should be counted among their assets.
Recognizing the difficulties its policy change caused plaintiffs (who had established CSATs expecting pre-1999 policy to apply), New Jersey advised that it would allow them to replace their CSATs with commercial annuities. As a compromise to plaintiffs, the State would treat these annuities as non-countable (whereas for other Medicaid claimants the State treats commercial annuities as countable), so long as plaintiffs included a state-payback provision in the annuities. Plaintiffs, however, did not accept this settlement.4
After New Jersey held their CSATs countable (thereby making them ineligible for Medicaid), plaintiffs sought to prove that New Jersey's denial of benefits would cause them "undue hardship." Under federal law, if denial of Medicaid benefits to a claimant causes undue hardship, the state must provide benefits, even though the claimant would otherwise not be so entitled. Federal law requires states to establish hearing procedures by which individuals can present their undue hardship claims. But at that time New Jersey had not promulgated these procedures, leaving plaintiffs without any administrative avenue for undue hardship relief.
As a result of these circumstances, plaintiffs filed suit in the District Court. They challenged, inter alia, New Jersey's determination that their CSATs are countable resources, the state-payback requirement for CSATs deemed not countable, and New Jersey's failure to promulgate procedures for undue hardship hearings required by federal law. The District Court (per Judge Bassler) denied relief and dismissed certain of their claims (though both actions were without prejudice in part). First, it held plaintiffs' CSATs countable under federal law. Second, although the Court believed that New Jersey's state-payback requirement violates federal law by imposing Medicaid eligibility criteria more stringent than those imposed by the Medicaid Act (i.e., that Medicaid claimants with CSATs name New Jersey first beneficiary, when federal law imposes no such requirement), the Court saw no risk of irreparable harm because New Jersey ceased to require state paybacks for CSATs post-1999 when it began to deem CSATs countable assets. Finally, the Court confirmed that plaintiffs must be afforded an opportunity for an undue hardship hearing (and that New Jersey had failed to promulgate procedures for such a hearing). However, because New Jersey conceded its obligation and had committed to promulgating regulations for hearings, the Court held that its failure to do so thus far posed no risk of irreparable harm. Judge Bassler left open the possibility that plaintiffs could return to federal court if New Jersey failed to implement its promised procedures.
In the meantime, despite the absence of officially promulgated procedures, New Jersey offered plaintiffs the opportunity to plead undue hardship in conformity with federally mandated standards. The State sent "amended" denial letters to plaintiffs in December 1999 notifying them of their right to apply for undue hardship exceptions. Plaintiffs declined to do so, however.5
In 2001, New Jersey's undue-hardship regulations became effective. Plaintiffs believe those regulations are inadequate, however, because they fail to specify a time in which the State must hold a hearing, thereby violating a federal Medicaid regulation requiring a "timely process for determining whether an undue hardship waiver will be granted." Health Care Financing Administration (now Centers for Medicare & Medicaid Services)("HCFA") Transmittal No. 64 § 3259.8C.
Plaintiffs returned to the District Court. This time the Court (with Judge Cavanaugh now presiding) denied their motion for, inter alia, injunctive relief and dismissed their complaint. It again held plaintiffs' CSATs...
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