Mackey v. Dep't of Human Servs., Docket No. 288966.

Decision Date07 September 2010
Docket NumberDocket No. 288966.
PartiesMACKEY v. DEPARTMENT OF HUMAN SERVICES.
CourtCourt of Appeal of Michigan — District of US

OPINION TEXT STARTS HERE

Rizzo & Associates, PLC (by John J. Rizzo III), Traverse City, for petitioner.

Michael A. Cox, Attorney General, B. Eric Restuccia, Solicitor General, and Jonathan S. Ludwig, Assistant Attorney General, for respondent.

Before: MURRAY, P.J., and SAAD and M.J. KELLY, JJ.

MURRAY, P.J.

Respondent, the Department of Human Services (DHS), appeals on leave granted the circuit court order reversing the hearing referee's decision that the DHS properly imposed a Medicaid benefit divestment penalty on petitioner, Elizabeth Marden.1 We conclude that the circuit court's ruling was in error because the circumstances of petitioner's investment in a closely held L.L.C. rendered the transaction a transfer for less than fair market value. Accordingly, the circuit court's order is reversed.

I. FACTS AND PROCEEDINGS

The underlying facts are not in dispute. On November 29, 2005, petitioner and her husband applied for Medicaid, but they failed to disclose certain annuity contracts they held, which, had they been disclosed, would have rendered them ineligible for Medicaid benefits. On November 9, 2006, Mr. Marden died. Shortly thereafter, petitioner's case was due for redetermination, but was closed when she failed to return the required form.

On January 11, 2007, petitioner again applied for Medicaid, but was denied eligibility the following June because she had too much money in her bank account. After her second application had been denied, petitioner received close to $100,000 in payouts as a result of her husband's death. In preparation for submitting a third request for Medicaid benefits, petitioner's daughter and attorney-in-fact, Betsy Mackey, formed the Marden Family L.L.C. Mackey was assigned, in her own name, 100 investment (nonvoting) units of the L.L.C. and all 100 voting units. Petitioner was assigned 111,460 investment units, for which she (through Mackey's power of attorney) paid the L.L.C. $111,460. The same day, Mackey, as sole voting member of the L.L.C., acted to disallow any transfer of investment units during a two-year holding period. Thus, under the L.L.C.'s operating agreement, petitioner could not sell, transfer, or liquidate her units for two years from the date of investment without a supermajority of the voting members. After two years, the agreement permitted sale of the units and guaranteed compounding two percent interest on the amount paid for the units from the date of purchase to the date of sale. During the two years, petitioner would not receive any payments from the L.L.C.

That September, petitioner again applied for Medicaid, including a retroactive application for the month of August (the month the L.L.C. was created). The DHS found that petitioner was eligible for Medicaid, but applied a divestment penalty,2 refusing to pay for long-term-care services for 18 months and 23 days. Petitioner appealed the DHS determination, and the hearing referee found that petitioner had not received fair market value for her money, and affirmed the decision of the DHS to apply the divestment penalty. Specifically, the hearing referee found that because petitioner's investment within the five-year “look-back” period rendered an otherwise available cash asset unavailable for two years, the investment was for less than fair market value and a divestment penalty was appropriate. Additionally, the hearing referee rejected petitioner's argument that the investment was a permissible conversion of the annuity proceeds 3 since the annuity was actually cashed out—and was thus available as a cash asset—before it was invested in the L.L.C.

Petitioner then appealed to the circuit court, which reversed the hearing referee, holding that petitioner's purchase of the L.L.C. shares was not a divestment because she received fair market value for her money. In reaching this conclusion, the court initially observed that federal law permits certain annuity purchases and asset transfers for a spouse's benefit in order to circumvent countable asset provisions and qualify for Medicaid long-term-care benefits,4 and noted that this was the third case wherein the DHS ruled that an applicant's investment in a closely held L.L.C. guaranteeing compound interest after a set period of time was a divestment.5 As in the prior case it had decided, the court ruled that

the purchase of stock in the family limited liability company in this case was not, by definition, a “divestment” because the transfer was not “for less than fair market value.” In fact, the value of the asset did not change—the asset merely took another form—a form that legally made it unavailable and uncountable. Based on the authority cited herein, not only is the value of the stock not countable, but the income stream from that investment is also not countable. Accordingly, the court reversed the hearing referee's decision and determined that petitioner was entitled to long-term-care benefits without a divestment penalty.

We granted the DHS's application for leave to appeal, Marden v. Dep't of Human Servs., unpublished order of the Court of Appeals, entered March 18, 2009 (Docket No. 288966), and now reverse.

II. ANALYSIS
A. GENERAL MEDICAID BACKGROUND

In 1965, Congress enacted Title XIX of the Social Security Act, commonly known as the Medicaid act. See 42 USC 1396 et seq. This statute created a cooperative program in which the federal government reimburses state governments for a portion of the costs to provide medical assistance to low-income individuals. Cook v. Dep't of Social Servs., 225 Mich.App. 318, 320, 570 N.W.2d 684 (1997). Participation in Medicaid is essentially need-based, with states setting specific eligibility requirements in compliance with broad mandates imposed by federal statutes and regulations.6 Id.; see also Atkins v. Rivera, 477 U.S. 154, 156–157, 106 S.Ct. 2456, 91 L.Ed.2d 131 (1986), Nat'l Bank of Detroit v. Dep't of Social Servs., 240 Mich.App. 348, 354–355, 614 N.W.2d 655 (2000), and Gillmore v. Illinois Dep't of Human Servs., 218 Ill.2d 302, 305, 300 Ill.Dec. 78, 843 N.E.2d 336 (2006).

Like many federal programs, since its inception the cost of providing Medicaid benefits has continued to skyrocket. The act, with all of its complicated rules and regulations, has also become a legal quagmire that has resulted in the use of several “loopholes” taken advantage of by wealthier individuals to obtain government-paid long-term care they otherwise could afford. The Florida District Court of Appeal accurately described this situation, and Congress's attempt to curb such practices:

After the Medicaid program was enacted, a field of legal counseling arose involving asset protection for future disability. The practice of “Medicaid Estate Planning,” whereby “individuals shelter or divest their assets to qualify for Medicaid without first depleting their life savings,” is a legal practice that involves utilization of the complex rules of Medicaid eligibility, arguably comparable to the way one uses the Internal Revenue Code to his or her advantage in preparing taxes. See generally Kristin A. Reich, Note, Long–Term Care Financing Crisis—Recent Federal and State Efforts to Deter Asset Transfers as a Means to Gain Medicaid Eligibility, 74 N.D. L.Rev. 383 (1998). Serious concern then arose over the widespread divestiture of assets by mostly wealthy individuals so that those persons could become eligible for Medicaid benefits. Id.; see also Rainey v. Guardianship of Mackey, 773 So.2d 118 (Fla. 4th DCA 2000). As a result, Congress enacted several laws to discourage the transfer of assets for Medicaid qualification purposes. See generally Laura Herpers Zeman, Estate Planning: Ethical Considerations of Using Medicaid to Plan for Long–Term Medical Care for the Elderly, 13 Quinnipiac Prob. L.J. 187 (1988). Recent attempts by Congress imposed periods of ineligibility for certain Medicaid benefits where the applicant divested himself or herself of assets for less than fair market value. 42 U.S.C. § 1396p(c)(1)(A); 42 U.S.C. § 1396p(c)(1)(B)(i); Fla. Admin. Code R. 65A–1.712(3). More specifically, if a transfer of assets for less than fair market value is found within 36 months of an individual's application for Medicaid, the state must withhold payment for various long-term care services, i.e., payment for nursing home room and board, for a period of time referred to as the penalty period. Fla. Admin. Code R. 65A–1.712(3). Medicaid does not, however, prohibit eligibility altogether. It merely penalizes the asset transfer for a certain period of time. See generally Omar N. Ahmad, Medicaid Eligibility Rules for the Elderly Long–Term Care Applicant, 20 J. Legal Med. 251 (1999). [ Thompson v. Dep't of Children & Families, 835 So.2d 357, 359–360 (Fla.App., 2003).]

In Gillmore the Illinois Supreme Court recognized this same history, noting that over the years (and particularly in 1993), Congress enacted certain measures to prevent persons who were not actually “needy” from making themselves eligible for Medicaid:

In 1993, Congress sought to combat the rapidly increasing costs of Medicaid by enacting statutory provisions to ensure that persons who could pay for their own care did not receive assistance. Congress mandated that, in determining Medicaid eligibility, a state must “look-back” into a three- or five- year period, depending on the asset, before a person applied for assistance to determine if the person made any transfers solely to become eligible for Medicaid. See 42 U.S.C. § 1396p(c)(1)(B) (2000). If the person disposed of assets for less than fair market value during the look-back period, the person is ineligible for medical assistance for a statutory penalty period based on the value of the assets transferred. See 42 U.S.C. § 1396p(c)(1)(A) (2000). [ G...

To continue reading

Request your trial
15 cases
  • Vansach v. Dep't of Health & Human Servs. (In re Estate of Vansach)
    • United States
    • Court of Appeal of Michigan — District of US
    • May 22, 2018
    ...requirements in compliance with broad mandates imposed by federal statutes and regulations."4 Mackey v. Dep’t of Human Servs. , 289 Mich.App. 688, 693, 808 N.W.2d 484 (2010). "To be eligible for Medicaid long-term-care benefits in Michigan, an individual must meet a number of criteria, incl......
  • Hegadorn v. Dep't of Human Servs. Dir., Docket No. 156132
    • United States
    • Michigan Supreme Court
    • May 9, 2019
    ...benefits, they were required to reduce their countable incomes and assets to or below $ 2,000. See Mackey v. Dep't of Human Servs. , 289 Mich. App. 688, 698, 808 N.W.2d 484 (2010) ; BEM 400 (July 1, 2014), p. 7; BEM 402 (April 1, 2014), p. 4.As the United States Supreme Court has noted, "[b......
  • In re Gorney Estate
    • United States
    • Court of Appeal of Michigan — District of US
    • February 4, 2016
    ...state governments for a portion of the costs to provide medical assistance to low-income individuals.” Mackey v. Dep't. of Human Servs., 289 Mich.App. 688, 693, 808 N.W.2d 484 (2010) (citation omitted). In 1993, Congress required states to implement Medicaid estate recovery programs. See Om......
  • Zahner v. Sec'y Pa. Dep't of Human Servs.
    • United States
    • U.S. Court of Appeals — Third Circuit
    • September 2, 2015
    ...as ... investment products.” Id. at 259, 115 S.Ct. 810 (citations omitted).DHS relies, in part, upon Mackey v. Dep't of Human Servs., 289 Mich.App. 688, 808 N.W.2d 484 (2010), and Miller v. State Dep't of Soc. & Rehab. Servs., 275 Kan. 349, 64 P.3d 395 (2003), to argue that the plaintiffs' ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT