Morris v. Okla. Dep't of Human Servs.

• Decision Date: 09 July 2012
• Docket Number: No. 10–6241.,10–6241.
• Parties: Leroy MORRIS; Leroy Morris, as personal representative of the Estate of Glenda Morris, deceased, Plaintiffs–Appellants, v. OKLAHOMA DEPARTMENT OF HUMAN SERVICES, State of Oklahoma, ex rel.; Howard H. Hendrick, Director of Oklahoma Department of Human Services; Oklahoma Health Care Authority, State of Oklahoma, ex rel.; Mike Fogarty, Director of Oklahoma Health Care Authority, Defendants–Appellees. OM Financial Life Insurance Company, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

685 F.3d 925

Leroy MORRIS; Leroy Morris, as personal representative of the Estate of Glenda Morris, deceased, Plaintiffs–Appellants,

v.OKLAHOMA DEPARTMENT OF HUMAN SERVICES, State of Oklahoma, ex rel.; Howard H. Hendrick, Director of Oklahoma Department of Human Services; Oklahoma Health Care Authority, State of Oklahoma, ex rel.; Mike Fogarty, Director of Oklahoma Health Care Authority, Defendants–Appellees.

OM Financial Life Insurance Company, Amicus Curiae.

No. 10–6241.

United States Court of Appeals,Tenth Circuit.

July 9, 2012.

Michael Craig Riffel (Katresa J. Riffel and Jessica L. Caruthers with him on the briefs), Mitchel, Gaston, Riffel & Riffle, PLLC, Enid, OK, for the Plaintiffs–Appellants.

Travis Smith (Lynn Rambo–Jones, Christopher J. Bergin, and Richard W. Freeman, Jr., with him on the briefs), Oklahoma Department of Human Services, Office of General Counsel, Oklahoma City, OK, for the Defendants–Appellees.

Stephen H. Kaufman and Eric J. Pelletier, Offit Kurman, P.A., Owings, MD, filed a brief for Amicus Curiae OM Financial Life Insurance Company, on behalf of Appellants.

Before LUCERO, MATHESON, and FREUDENTHAL,^* Circuit Judges.

LUCERO, Circuit Judge.

The Medicare Catastrophic Coverage Act of 1988 (“MCCA”) allows the spouse of an applicant for long-term care benefits to keep a certain amount of resources without affecting the applicant's eligibility. See42 U.S.C. § 1396r–5(c)(2) & (f)(2). This Community Spouse Resource Allowance (“CSRA”) permits an “institutionalized spouse” to obtain Medicaid assistance for nursing home or similar care without leaving his or her spouse, deemed by Medicaid the “community spouse,” completely destitute. See§ 1396r–5(h). A separate provision states that an annuity is not treated as an available resource for purposes of Medicaid eligibility if the annuity meets certain requirements. See§ 1396p(c)(1)(G). Additional provisions govern the transfer of resources between spouses. See§§ 1396r–5(f)(1) & 1396p(c)(2)(B)(i). The question presented in this appeal lies at the junction of these provisions.

Leroy and Glenda Morris brought suit under § 1983 and the Supremacy Clause to challenge the Oklahoma Department of Human Services' (“OKDHS”) denial of Mrs. Morris' application for Medicaid benefits as inconsistent with federal law. After calculating the couple's resources and the CSRA, OKDHS determined that the Morrises were ineligible for benefits. In an effort to “spend down” their excess resources, the Morrises purchased an actuarially sound annuity payable to Mr. Morris. Despite this purchase, OKDHS determined that Mrs. Morris remained ineligible. It reasoned that Mrs. Morris could not spend her share of the couple's resources on an annuity payable to Mr. Morris, or in the alternative, that Mrs. Morris was subject to a transfer penalty for transferring to Mr. Morris a sum in addition to the CSRA. The district court granted summary judgment in favor of OKDHS, upholding the agency's application of the Medicaid statutes.

Exercising jurisdiction under 28 U.S.C. § 1291, we reverse and remand for further proceedings. As the federal agency charged with administering Medicaid has noted, a couple may convert joint resources—which may affect Medicaid eligibility—into income for the community spouse—which does not impact eligibility—by purchasing certain types of annuities. This result is not dependent on the CSRA provisions, which provide an independent basis for sheltering certain resources. In other words, a couple may purchase a qualifying annuity payable to the community spouse in addition to the community spouse's retention of the CSRA. We further hold that § 1396r–5(f)(1)'s limit on spousal transfers applies only after a state agency has declared the institutionalized spouse eligible for Medicaid benefits. Although we understand the district court's concerns regarding the exploitation of what can only be described as a loophole in the Medicaid statutes, we conclude that the problem can only be addressed by Congress.

I

A

Medicaid is a program administered cooperatively by states and the federal government to provide “health care to persons who cannot afford such care.” Brown v. Day, 555 F.3d 882, 885 (10th Cir.2009). “Because spouses typically possess assets and income jointly and bear financial responsibility for each other, Medicaid eligibility determinations for married applicants have resisted simple solutions.” Wis. Dep't of Health & Family Servs. v. Blumer, 534 U.S. 473, 479, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002). Prior to the MCCA, “each spouse was treated as a separate household.” Johnson v. Guhl, 91 F.Supp.2d 754, 761 (D.N.J.2000). Jointly held resources to which a spouse had unrestricted access were considered available to that spouse for eligibility purposes, but assets solely held by the community spouse were treated as unavailable to the institutionalized spouse. Blumer, 534 U.S. at 479–80, 122 S.Ct. 962. This system produced “unintended consequences,” as many “community spouses were left destituteby the drain on the couple's assets necessary to qualify the institutionalized spouse for Medicaid,” whereas “couples with ample means could qualify for assistance when their assets were held solely in the community spouse's name.” Id. at 480, 122 S.Ct. 962.

By passing the MCCA, Congress intended to “protect community spouses from ‘pauperization’ while preventing financially secure couples from obtaining Medicaid assistance.” H.R.Rep. No. 100–105, pt. 2, at 65 (1987). The current version of the statute no longer looks to the nominal ownership of resources or to “any State laws relating to community property or the division of marital property.” § 1396r–5(b)(2). Instead, after subtracting the CSRA, Medicaid administrators must count all remaining “resources held by either the institutionalized spouse, community spouse, or both” as “available to the institutionalized spouse.” § 1396r–5(c)(2)(A).

The MCCA also addresses the transfer of resources between spouses. Although the statute generally disallows transfers for less than fair market value up to two years prior to a Medicaid application, it exempts spousal transfers from this prohibition. § 1396p(c)(2)(B)(i). This provision appears to allow for unlimited transfers between spouses. However, a separate provision, § 1396r–5(f)(1), sets a cap on the amount that a spouse can transfer “after the date of the initial determination of eligibility.” The latter states:

An institutionalized spouse may, without regard to [§ 1396p(c)(1) ], transfer an amount equal to the [CSRA], but only to the extent the resources of the institutionalized spouse are transferred to (or for the sole benefit of) the community spouse. The transfer under the preceding sentence shall be made as soon as practicable after the date of the initial determination of eligibility....

§ 1396r–5(f)(1).

B

For a married long-term care applicant, the process of receiving Medicaid coverage generally begins with a request for assessment. At the beginning of the first continuous period of institutionalization ¹ of the institutionalized spouse, the couple may request that the state assess the “total value of the resources to the extent either the institutionalized spouse or the community spouse has an ownership interest,” and a “spousal share,” equal to half of that amount. § 1396r–5(c)(1)(A) & (B). For many couples the “spousal share” will be used to establish the CSRA—the amount of resources the community spouse may keep without affecting the institutionalized spouse's eligibility. See§ 1396r–5(f)(2)(A)(ii) & (c)(2)(B). This resource assessment can, but need not, occur as “part of an application for medical assistance.” § 1396r–5(c)(1)(B).

The next subsection of this statute discusses resource allocation at the “time of application for benefits.” § 1396r–5(c)(2). This subsection is entitled “Attribution of resources at time of initial eligibility determination.” Id. (emphasis added). At this point, “all the resources held by either the institutionalized spouse, community spouse, or both, shall be considered to be available to the institutionalized spouse,” but “only to the extent” that amount exceeds the CSRA. Id.

Finally, § 1396r–5(c)(4), titled “Separate treatment of resources after eligibility for benefits established,” provides that “after the month in which an institutionalized spouse is determined to be eligible for benefits ..., no resources of the community spouse shall be deemed available to the institutionalized spouse.” Id.

C

Importantly, the provisions set forth above refer only to resources. Although all of a couple's countable resources—except the CSRA—are treated as available to the institutionalized spouse at the time of the application for benefits, see§ 1396r–5(c)(2), a community spouse's income has no effect on an institutionalized spouse's eligibility. § 1396r–5(b)(1) (“[N]o income of the community spouse shall be deemed available to the institutionalized spouse.”).

The manner in which Medicaid treats annuities makes this asymmetry highly relevant. An annuity that is, inter alia, irrevocable, non-assignable, and actuarially sound, see§ 1396p(c)(1)(G), is generally not treated as a resource:

If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).

20 C.F.R. § 416.1201. In other words, the purchase of certain annuities may allow the conversion of disqualifying resources into exempt income.

The State Medicaid Manual acknowledges this issue and attempts to distinguish between annuities “validly purchased as part of a retirement plan [and] those which abusively shelter assets.” Health Care Fin. Admin., U.S. Dep't of Health & Human Servs., State Medicaid Manual 64 § 3258.11 (1994). ² This section of the manual is commonly referred to as ...