Olson v. Norman

• Decision Date: 15 September 1987
• Docket Number: Nos. 86-2027,86-2079 and 87-1176,s. 86-2027
• Citation: 830 F.2d 811
• Parties: , Medicare&Medicaid Gu 36,673 Diane OLSON; Lorrie Greene, by her legal guardians, Michael and Jacquolyn Wright; and Jennifer Kay Bechen, individually and on behalf of all other similarly situated, Plaintiffs-Appellees, v. Nancy A. NORMAN, Commissioner, Iowa Department of Human Services, * Defendant-Appellant, v. Otis R. BOWEN, Secretary, United States Department of Health and Human Services, Third Party Defendant-Appellant. Diane OLSON; Lorrie Greene, by her legal guardians, Michael and Jacquolyn Wright; and Jennifer Kay Bechen, individually and on behalf of all other similarly situated, Plaintiffs-Appellees, v. Nancy A. NORMAN, Commissioner, Iowa Department of Human Services, Defendant-Appellee, v. Otis R. BOWEN, Secretary, United States Department of Health and Human Services, Third Party Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 811

830 F.2d 811

19 Soc.Sec.Rep.Ser. 338, Medicare&Medicaid Gu 36,673

Diane OLSON; Lorrie Greene, by her legal guardians, Michael

and Jacquolyn Wright; and Jennifer Kay Bechen,

individually and on behalf of all other

similarly situated, Plaintiffs-Appellees, v. Nancy A. NORMAN, Commissioner, Iowa Department of Human

Services, ^* Defendant-Appellant, v. Otis R. BOWEN, Secretary, United States Department of Health and Human Services, Third Party Defendant-Appellant.

Diane OLSON; Lorrie Greene, by her legal guardians, Michael

and Jacquolyn Wright; and Jennifer Kay Bechen,

individually and on behalf of all other

similarly situated, Plaintiffs-Appellees, v. Nancy A. NORMAN, Commissioner, Iowa Department of Human

Services, Defendant-Appellee, v. Otis R. BOWEN, Secretary, United States Department of Health and Human Services, Third Party Defendant-Appellant.

Nos. 86-2027, 86-2079 and 87-1176.

United States Court of Appeals,

Eighth Circuit.

Submitted June 12, 1987.

Decided Sept. 15, 1987.

Kristi A. Schmidt, Dept. of Health & Human Services, Kansas City, Mo., for H.H.S.

Daniel W. Hart, Asst. Atty. Gen., Des Moines, Iowa, for the State.

Christine Whittaker, Washington, D.C., for the Dept. of Justice.

Martin Ozga, Des Moines, Iowa, for plaintiffs-appellees Olson, et al.

Before McMILLIAN, JOHN R. GIBSON, Circuit Judges, and MURPHY, ^** District Judge.

DIANA E. MURPHY, District Judge.

The Secretary of the United States Department of Health and Human Services (the Secretary) and the Commissioner of the Iowa Department of Human Services (the Commissioner) appeal from orders of the district court granting summary judgment and a permanent injunction to the plaintiff class. ¹ Olson v. Reagen, 631 F.Supp. 154 (S.D.Iowa 1986), as amended 669 F.Supp. 282 (1986). The Commissioner terminated plaintiffs' Medicaid ² benefits pursuant to Iowa standards, developed to meet federal directives. The district court found these standards and directives contrary to the Medicaid statute and enjoined the Commissioner and the Secretary from terminating, denying, or reducing Medicaid benefits on the challenged grounds. The Secretary also appeals from district court orders directing him to pay attorneys' fees to both the plaintiffs and the Commissioner. ³ Orders of June 11, 1986 and January 22, 1987. We affirm the judgment on the merits and reverse in part the award of attorneys' fees. We remand for further proceedings on the issue of fees.

I.

In December 1984, before the challenged terminations of benefits, plaintiff Diane Olson lived with her four children in Coon Rapids, Iowa. Olson's son, Jamie Jackson, received Social Security benefits on the account of his late father. Olson and her other three children received AFDC and Medicaid. Plaintiff Lorrie Greene was a sixteen year-old mother who lived with her one year-old daughter, Kira, and her legal guardians, Michael and Jacquolyn Wright, in Shenandoah, Iowa. The Wrights had unspecified resources; Greene and her daughter received AFDC and Medicaid. Plaintiff Jennifer Kay Bechen was an eighteen year-old mother who lived with her son, Jesse Sharkey, and her parents in Dubuque, Iowa. Bechen's parents had unspecified resources; Bechen and her son received AFDC and Medicaid. In late 1984, the commissioner informed the plaintiffs that they and their children were no longer eligible for AFDC or Medicaid because changes in federal law required the inclusion of Jamie Jackson, the Wrights, and Bechen's parents in plaintiffs' respective filing units. Plaintiffs appealed and, after their appeals were dismissed, brought this action.

Plaintiffs Olson and Greene brought this action for declaratory and injunctive relief against the Commissioner; the court subsequently permitted Bechen to intervene as a plaintiff. On April 11, 1985, the district court issued a preliminary injunction, temporarily protecting the plaintiffs' Medicaid eligibility. On May 7, 1985, the Commissioner filed a "third-party cross-complaint" against the Secretary. On March 14, 1986, after two amendments to the complaint, the district court granted class certification and entered judgment in favor of the plaintiff class. On June 11, 1986, after considering various motions, the court amended the class definition and entered final judgment. The court also held that the plaintiffs had prevailed against the Commissioner and that both plaintiffs and the Commissioner had prevailed against the Secretary. Finally, on January 22, 1987, the court entered a final order directing the Secretary to pay costs and attorneys' fees to the other parties.

II.

Title XIX of the Social Security Act establishes a cooperative state-federal program, commonly known as Medicaid, which provides medical assistance to needy persons "whose income and resources are insufficient to meet the costs of necessary medical services." 42 U.S.C. Sec. 1396. States that choose to establish Medicaid programs receive federal reimbursement for a portion of the cost of providing federally-authorized services; they must also comply with federal Medicaid guidelines.

Central to the instant dispute is the requirement that participating states provide Medicaid benefits to "categorically needy" individuals. ⁴ 42 U.S.C. Sec. 1396a(a)(10)(A), 42 C.F.R. Sec. 435.100-.231. The categorically needy include those who receive Aid for Families with Dependent Children (AFDC), under Title IV-A of the Social Security Act, 42 U.S.C. Sec. 601 et seq., and those "who would be eligible for AFDC except for an eligibility requirement used in that program that is specifically prohibited under [Medicaid]." 42 U.S.C. Sec. 1396a(a)(10)(A)(i)(I); 42 C.F.R. Sec. 435.113.

A state participating in Medicaid must develop a state plan consistent with the requirements of 42 U.S.C. Sec. 1396a. This plan must

include reasonable standards ... for determining eligibility for and the extent of medical assistance under the plan which (B) provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient and ...

(D) do not take into account the financial responsibility of any individual for any applicant or recipient or assistance under the plan unless such applicant or recipient is such individual's spouse or such individual's child who is under age 21 or ..., is blind or permanently and totally disabled,....

42 U.S.C. Sec. 1396a(a)(17).

"[S]ubsection (17)(B) delegates to the Secretary broad authority to prescribe standards setting eligibility requirements for state medicaid plans." Herweg v. Ray, 455 U.S. 265, 274, 102 S.Ct. 1059, 1066, 71 L.Ed.2d 137 (1982). In particular, the Secretary's definition of what income and resources are "available" to applicants or recipients is "entitled to more than mere deference or weight." Id. (citations omitted). The Secretary may, consistent with the statute, "deem" or assume certain resources available regardless of whether they are actually available. See Schweiker v. Gray Panthers, 453 U.S. 34, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981) (upholding regulations deeming spouse's income available to applicant even when applicant and spouse cease to share the same household). Subsection (17)(D), however, precludes a state from "deeming," as income available to a Medicaid applicant, income from persons other than the applicant's spouse, or parent if the applicant is under twenty-one, blind, or disabled. 42 U.S.C. Sec. 1396a(a)(17)(D); Herweg, 455 U.S. at 275 n. 13, 102 S.Ct. at 1067 n. 13, (subsection (17)(D) "prohibits the States from considering the financial responsibility of any individual for the Medicaid applicant unless that individual is the applicant's spouse or parent.")

Until 1984, the named plaintiffs in this action were all AFDC recipients categorically entitled to Medicaid benefits under 42 U.S.C. Sec. 1396a(a)(10)(A)(i)(I). They were eligible for AFDC because the program permitted them to exclude from their AFDC "filing units" certain family members whose income and resources would make their families ineligible for AFDC benefits. For example, Olson's family of five would have been ineligible for AFDC if Jamie Jackson's $493.00 in monthly social security benefits was considered family resources; by excluding Jamie and his income from the filing unit, however, Olson and her other three children were able to obtain AFDC.

In 1984, however, Congress limited the ability of families to control the composition of the filing unit. The Deficit Reduction Act of 1984, P. Law No. 98-369, 98 Stat. 1145 (DEFRA), amended numerous federal laws, including both the AFDC statute and the Medicaid statute. ⁵ DEFRA Sec. 2640(a), now codified at 42 U.S.C. Sec. 602(a)(38) and (39), provides that a state plan for aid to needy families with children must, in determining a child's eligibility for AFDC benefits, include as members of the child's filing unit

(A) any parent of such child, and

(B) any brother or sister of such child, if such brother or sister meets the conditions [for a "dependent child"] described in clauses (1) and (2) of section 606(a) of this title or in section 607(a) of this title (if such section is applicable to the State),

if such parent, brother, or sister is living in the same home as the dependent child, and any income available for such parent, brother, or sister shall be included in making such determination and applying such paragraph with respect to the family....

42 U.S.C. Sec. 602(a)(38). It also provides that the plan must, in determining the eligibility of a child "whose parent or legal guardian is under the age of 18 ... include any income of such minor's own parents or legal guardians who are living in the same home as such minor and dependent child, to the same extent that income of a stepparent is included under paragraph (31)." 42 U.S.C. Sec. 602(a)(39). Paragraph 31 sets out a complex formula for determining whether "excess...