Norwest Bank of North Dakota, N.A. v. Doth

• Decision Date: 02 October 1998
• Docket Number: No. 97-3113,97-3113
• Citation: 159 F.3d 328
• Parties: NORWEST BANK OF NORTH DAKOTA, N.A., as Trustee of the Sonya Lotzer Trust and the Bobbi Lerud Trust, Appellant, v. David S. DOTH, in his official capacity as Commissioner of the Minnesota Department of Human Services, Appellee. The National Academy of Elder Law Attorneys, Amicus Curiae.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 328

159 F.3d 328

58 Soc.Sec.Rep.Ser. 783

NORWEST BANK OF NORTH DAKOTA, N.A., as Trustee of the Sonya

Lotzer Trust and the Bobbi Lerud Trust, Appellant, v. David S. DOTH, in his official capacity as Commissioner of

the Minnesota Department of Human Services, Appellee.

The National Academy of Elder Law Attorneys, Amicus Curiae.

No. 97-3113.

United States Court of Appeals,

Eighth Circuit.

Submitted March 9, 1998.

Decided Oct. 2, 1998.

James E. Nicolai, Moorhead, MN, argued, for Appellant.

Paul M. Lanskroener, Asst. Atty. Gen., St. Paul, MN, argued, for Appellee.

Before BEAM and HEANEY, Circuit Judges, and WATERS, ¹ District Judge.

ORDER

Appellee's petition for rehearing by the panel is granted. See 8th Cir. R. 35A(4). The clerk is directed to substitute the attached opinion for the opinion filed on July 31, 1998. The clerk shall vacate the judgment entered that date and enter a new judgment in accordance with the substituted opinion.

Appellee's suggestion for rehearing en banc is mooted by this order and the issuance of the substituted opinion.

OPINION

WATERS, District Judge.

Norwest Bank North Dakota, N.A. (Norwest) appeals from the district court's ² decision that the Minnesota Department of Human Services (DHS) is entitled to satisfaction of its existing Medicaid assistance liens prior to, or at the time of, the creation of a supplemental or special needs trust pursuant to the 1993 amendments to the Medicaid Act, 42 U.S.C.A. § 1396p(d)(4)(A) (Supp.1998). The sole question before the lower court was the timing of the payment of the lien. Norwest argues that, when a special needs trust is created, repayment for any Medicaid assistance provided by the state after October 1, 1993, comes only from funds remaining in the trust upon the beneficiary's death. We disagree and affirm.

I.

In 1993 the Medicaid Act was amended to provide for the creation of supplemental or special needs trusts (SNT). 42 U.S.C.A. § 1396p(d)(4)(A). This section provides that disabled persons under the age of 65 remain eligible for ongoing Medicaid assistance (MA) in spite of funds or other property held in an SNT, and can use SNT funds as a supplement to enhance the quality of their lives. The disabled person remains eligible for MA so long as the SNT contains a pay-back trust provision, i.e., a provision specifying that the total MA provided on or after October 1, 1993, will be paid back to the state after the beneficiaries' death from any funds remaining in the trust.

Norwest is the trustee of two SNTs created pursuant to the provisions of 42 U.S.C.A. § 1396p(d)(4)(A). The beneficiaries of the trusts are Sonya Lotzer and Bobbi Lerud. Sonya Lotzer (Lotzer) received serious and disabling organic brain injuries as a passenger in a car accident on October 8, 1995. Bobbi Lerud (Lerud) received serious and disabling paraplegic injuries as a passenger in a car accident on September 25, 1993.

To pay the ensuing medical expenses, both Lotzer and Lerud sought assistance under the Social Security Administration's Medicaid program. The DHS is the state agency charged with administering the Medicaid program. Medical assistance payments were made on behalf of both women under the Medicaid program. In applying for medical assistance, each woman was required to assign to the State of Minnesota "any medical care payments that I have a right to under automobile or health care insurance." Joint Appendix at 93 & 99. Each also agreed to "cooperate with the state in any legal action brought against a third party for payment of medical expenses." Id. With the exception of five day's care provided to Lerud between September 25 and 30, 1993, all MA provided to both trust beneficiaries was furnished on or after October 1, 1993.

Claims were filed against certain tortfeasors as a result of both accidents. Both cases were settled for the maximum amount of insurance available, $110,000 in Lotzer's case and $140,000 in Lerud's case. The DHS pursuant to 42 U.S.C.A. §§ 1396a(a)(25)(I) & 1396k and Minnesota Statutes Annotated § 256B.042 (West 1992), the state statute implementing the federal statutes, placed liens on the tort claims. At the time of the settlement, the DHS's liens equaled approximately $72,000 and $56,000, respectively.

As noted above, both Lotzer and Lerud created SNTs pursuant to 42 U.S.C.A. § 1396p(d)(4)(A) for the placement of their settlement funds. The creation of the trusts was approved by Minnesota state district court orders. While the settlements were being negotiated, Lotzer and Lerud, through their counsel, contacted the DHS. Lotzer and Lerud took the position that 42 U.S.C.A. § 1396p(d)(4)(A) required the repayment of the existing liens to be deferred until their deaths for all MA furnished on or after October 1, 1993. ³ The DHS disagreed.

The parties stipulated that all settlement funds would be placed in the SNTs and held by Norwest, as trustee, until the issue of the repayment of the existing liens could be resolved. Norwest then brought declaratory judgment actions in Minnesota federal district court on behalf of each trust beneficiary. The two cases were consolidated. On June 30, 1997, the district court held that repayment of the existing liens should not be deferred. See Norwest Bank North Dakota, N.A. v. Doth, 969 F.Supp. 532 (D.Minn.1997). The district court noted that, in the amendments, Congress addressed only the proper calculation of an individual's Medicaid eligibility and left, unaltered, the Social Security Act's comprehensive scheme permitting the states to require assignment of the MA recipient's right to payment for medical care from third parties. This appeal followed.

II.

Medicaid is a jointly financed federal-state program established under Title XIX of the Social Security Act, 42 U.S.C.A. §§ 1396-1396v. Medicaid pays for necessary medical care to certain needy individuals who do not have enough income or other resources to pay for the medical care they need. States choosing to participate in the Medicaid program must comply with the requirements set forth in the Medicaid Act and in regulations promulgated by the United States Secretary of Health and Human Services through the Health Care Financing Administration (HCFA) which administers Medicaid. Among other things, the states must submit for HCFA's approval a state Medicaid plan. See generally 42 U.S.C.A. § 1396a(a).

In 1993, Congress passed the Omnibus Budget Reconciliation Act of 1993, amending section 1917 of the Social Security Act, 42 U.S.C.A. § 1396p. The amendments allow disabled individuals under the age of 65 to create SNTs which will not disqualify them from receiving Medicaid.

Specifically, the SNT amendments, codified at, 42 U.S.C.A. § 1396p(d)(4)(A) (Supp.1998) provide as follows:

(d) Treatment of trust amounts. (1) For purposes of determining an individual's eligibility for, or amount of, benefits under a State plan under this title [42 U.S.C. §§ 1386 et seq.], subject to paragraph (4), the rules specified in paragraph (3) shall apply to a trust established by such individual.

(4) This subsection shall not apply to any of the following trusts:

(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3) [42 U.S.C.S. § 1382c(a)(3) ] ) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title [42 U.S.C.S. §§ 1396 et seq.].

Thus, funds in an SNT are not deemed to be available to an MA applicant or recipient for the purpose of determining MA eligibility or the amount of benefits. Nothing in the statute requires the trustee to preserve the State's interest in the trust corpus.

With respect to the effective date, the law provides: "[t]he amendments made by this section shall apply, except as provided in this subsection, to payments under title XIX of the Social Security Act for calendar quarters beginning on or after October 1, 1993, without regard to whether or not final regulations to carry out such amendments have been promulgated by such date." Omnibus Budget Reconciliation Act of 1993, Pub.L. No. 103-66, § 13611(e), 107 Stat. 627 (1993). The law also provided that the amendments shall not apply: (A) to medical assistance provided for services furnished before October 1, 1993; (B) with respect to assets disposed of on or before the date of the enactment of this Act; or (C) with respect to trusts established on or before the date of the enactment of this Act. Id.

States are directed by 42 U.S.C.A. § 1396k to require Medicaid recipients to assign to the State any rights the recipients may have to payment of medical care from third parties. Section 1396k provides in relevant part as follows:

(a) For the purposes of assisting in the collection of medical support payments and other payments for medical care owed to recipients of medical assistance under the State plan approved under this title [42 U.S.C.S. §§ 1396 et seq.], a State plan for medical assistance shall--

(1) provide that, as a condition of eligibility for medical assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required--

(A) to assign the State any rights, of the individual ... to payment for medical care from any third party.

42 U.S.C.A. § 1396k(a)(1)(A) (1992). The individual receiving the assistance also has the duty to "cooperate with the State in identifying, and providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan...." 42 U.S.C.A. § 1396k(a)(1)(C). Federal law also requires states to recover certain MA payments from MA recipients' estates after their...