Strand v. Rasmussen

• Decision Date: 17 July 2002
• Docket Number: No. 01-0146.,01-0146.
• Citation: 648 N.W.2d 95
• Parties: Marcia STRAND, Guardian of David M. Strand, Ward, Appellant, v. Jessie K. RASMUSSEN, Director of Iowa Department of Human Services, Appellee.
• Court: Iowa Supreme Court

648 N.W.2d 95

Marcia STRAND, Guardian of David M. Strand, Ward, Appellant, v. Jessie K. RASMUSSEN, Director of Iowa Department of Human Services, Appellee.

No. 01-0146.

Supreme Court of Iowa.

July 17, 2002.

John W. Kocourek, Council Bluffs, for appellant.

Thomas J. Miller, Attorney General, and Daniel W. Hart, Assistant Attorney General, for appellee.

CADY, Justice.

The primary issue we face in this appeal is whether an irrevocable trust created with funds received from the settlement of a malpractice action brought on behalf of a mentally retarded individual by his conservator-parents is properly included as an asset under Iowa Administrative Code rule 441-75.9(1) (1997) for the purpose of determining eligibility for state Medicaid benefits. The Department of Human Services (Department) found the trust was an available resource and the amount of the trust exceeded the applicable resource limits proscribed by federal Medicaid law for determining whether an applicant was sufficiently needy to be entitled to Medicaid benefits by the department. On judicial review, the district court upheld the denial of benefits. On our review, we find the Department correctly applied federal and state law in concluding the trust in this case constituted a prohibited Medicaid qualifying trust. We therefore affirm the decision to cancel Medicaid benefits to David M. Strand.

I. Background Facts and Proceedings.

David M. Strand (David Jr.) was born to David L. (David Sr.) and Marcia L. Strand on April 8, 1976. David Jr. sustained extensive brain damage during the delivery process. Consequently, he has been profoundly mentally retarded since birth. David Sr. and Marcia filed a malpractice action against the doctor who delivered David Jr. and the hospital. The lawsuit was eventually settled, and a conservatorship was created to manage the settlement funds. David Sr. and Marcia were appointed as conservators. In 1982 David Sr. and Marcia entered into a trust agreement with First Northwestern Trust Co. of Nebraska to manage the settlement funds. Pursuant to court order, the conservatorship reimbursed David Sr. and Marcia $14,668.63 for medical expenses they incurred in connection with David Jr.'s permanent disability after his birth. Under the trust agreement, the bank was named trustee. David Jr. was named beneficiary. David Sr. and Marcia were named grantors and residuary beneficiaries. The trust agreement granted the trustee "sole discretion" to distribute as much of the principal as the trustee believed necessary for David Jr.'s benefit. The only restriction imposed on the trustee's discretion was that written court approval be obtained prior to expending any funds from the trust.

In 1985 the trust was amended to permit the trustee to distribute up to $2000 each year to David Jr. without court approval. The trustee had to obtain prior court approval if the trustee desired to distribute more than $2000 in any year. This sum was in addition to other payments the trustee was specifically authorized to distribute, such as health insurance policy premiums for David Jr. Furthermore, the trust was amended to authorize the trustee to reimburse David Sr. and Marcia $1658.80 for an Odessey bicycle they purchased for David Jr. In the years that followed, additional disbursements were made for a variety of uses. The purchases ranged from the construction of a swimming pool for the Strands' home for $11,435.70 on May 24, 1994, to family vacations, furniture, clothing, toys, and other household items. Trust funds were also used for the personal care and support of David Jr.

David Jr. has continuously lived with his parents in the family home since birth. Instead of placing David Jr. in a residential care facility, Marcia has lovingly been his primary caregiver. The Iowa Foundation for Medical Care has certified David Jr. to be in need of long-term care in an intermediate care facility for the mentally retarded (ICF/MR).

Due to his disability, David Jr. receives social security income (SSI). On December 11, 1997, Marcia applied, on behalf of David Jr., for state supplemental assistance under the "Medicaid waiver services" provisions. The department provides Medicaid waiver services to disabled individuals who wish to receive care in their own home instead of in a medical institution. See id. r. 441—83 (preamble). These services are referred to as "waiver services" because only those individuals who have received a waiver of the federal requirement of residing in a medical institution are entitled to Medicaid benefits. Id. Moreover, an individual whose primary disability is mental retardation (MR) must satisfy certain eligibility criteria, including financial resource limits delineated under federal law, and demonstrate a need for one of the home and community-based services (HCBS) provided under the state Medicaid MR waiver program. Id. r. 441-83.61 (1998).

In the application for waiver services, Marcia revealed the irrevocable trust as a resource. The Department initially approved Marcia's application, and David Jr. began receiving Medicaid benefits. The Department assumed the trust funds did not exceed the applicable federal resource limits of $2000 for categorically needy programs such as MR waiver services.¹ 20 C.F.R. § 416.1205(c) (1985) (resource limitations). At the time of the Department's review, the trust principal totaled $304,702.52. Upon learning Marcia planned to build a HCBS home with trust funds to accommodate David Jr.'s disability, however, the Department further investigated the trust agreement. The Department subsequently determined the entire trust corpus was a resource that could be made available to David Jr. at any time by the trustee. Because $304,702.52 far exceeded the eligibility resource limits of $2000, the Department deemed David Jr. ineligible for state Medicaid benefits. The Department then canceled David Jr.'s Medicaid benefits for MR waiver services, effective March 1, 1999.²

Marcia timely appealed the Department's decision. A hearing was later held before an administrative law judge (ALJ). The ALJ held the irrevocable trust established for David Jr. constituted a Medicaid qualifying trust (MQT) under Iowa Administrative Code rule 441-75.9(1) (1997). Like the Department, the ALJ found the trust agreement provided unfettered discretion to the trustee, resulting in the availability of the entire trust corpus to David Jr. The ALJ also concluded David Jr.'s trust was not exempt from treatment as a MQT. See id. ("Trusts ... established prior to April 7, 1986, solely for the benefit of a mentally retarded person who resides in an intermediate care facility for the mentally retarded, are exempt."). The ALJ rejected Marcia's contention that her home was the functional equivalent of an ICF/MR under the MR waiver services program, thereby entitling her to exempt status. Lastly, the ALJ preserved Marcia's argument that rule 441-75.9(1) is unconstitutional because it unfairly treats mentally retarded persons residing in an ICF/MR differently from those living at home.³

Marcia's subsequent request for an exception to the state Medicaid regulations pursuant to rule 441-75.23(5)(d) was also denied by the ALJ. See id. r. 441-75.23(5)(d) (An exception exists to the medical assistance eligibility rules if "[t]he denial of eligibility would work an undue hardship as set forth in 75.15(3)."). She then filed a petition for judicial review. In addition to the two issues ruled on by the ALJ, Marcia raised several new issues. For the first time, she claimed the Department was bound by its initial determination that the trust was not a MQT. Additionally, Marcia developed her constitutional challenge in greater detail, specifically raising an Equal Protection Clause violation.

The district court denied the judicial review petition. It found the ALJ correctly applied federal and state law in concluding the trust established with the medical malpractice settlement funds constituted a MQT. Additionally, the court agreed the ICF/MR exemption of rule 441-75.9(1) did not apply. The district court did not address the constitutional or estoppel arguments, and Marcia did not request an enlargement of the ruling.

Marcia appeals. She contends the district court erred in finding rule 441-75.9(1) applied to the trust in this case, and in failing to grant an exemption. Although these issues were raised before and decided by the ALJ and district court, the Department contends Marcia is now advancing arguments different from those raised in the underlying proceedings to support the two issues. Marcia again raises the estoppel and constitutional challenges set forth in the petition for judicial review. However, she is now alleging a Due Process Clause violation as well as an Equal Protection Clause infraction. Because these latter issues were not properly presented below, the Department asserts, they are not preserved for appellate review.

II. Standard of Review.

We review a decision by a district court on a petition for judicial review of an individual's eligibility for Medicaid benefits for errors at law. See TLC Home Health Care, L.L.C. v. Iowa Dep't of Human Servs., 638 N.W.2d 708, 711 (Iowa 2002)

; Ahrendsen v. Iowa Dep't of Human Servs., 613 N.W.2d 674, 676 (Iowa 2000). We will uphold the district court's decision if we find the court properly applied the law. TLC Home Health Care, L.L.C., 638 N.W.2d at 710; Ahrendsen, 613 N.W.2d at 676. In determining whether "our conclusions [are] align[ed] with those of the district court," we look to the standards of agency review found in Iowa Code section 17A.19(8) (1999). Al-Khattat v. Eng'g & Land Surveying Examining Bd., 644 N.W.2d 18, 23 (Iowa 2002). Thus, we will affirm the department's action as long as it is supported by substantial evidence, and does not involve an arbitrary, unreasonable, or capricious decision. Id. Lastly, we accord substantial deference to the...