West Virginia v. U.S. Dept. Health and Human Serv.

• Decision Date: 07 May 2002
• Docket Number: No. 01-1443.,01-1443.
• Citation: 289 F.3d 281
• Parties: State of WEST VIRGINIA; Darrell V. McGraw, Jr., Plaintiffs-Appellants, v. U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES, Defendant-Appellee, and Donna E. Shalala Secretary, United States Department of Health and Human Services; Nancy-Ann Min Deparle, Administrator, Health Care Financing Administration, Defendants. Robert A. Bailey, Amicus Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

289 F.3d 281

State of WEST VIRGINIA; Darrell V. McGraw, Jr., Plaintiffs-Appellants, v. U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES, Defendant-Appellee, and Donna E. Shalala Secretary, United States Department of Health and Human Services; Nancy-Ann Min Deparle, Administrator, Health Care Financing Administration, Defendants.

Robert A. Bailey, Amicus Curiae.

No. 01-1443.

United States Court of Appeals, Fourth Circuit.

Argued October 31, 2001.

Decided May 7, 2002.

COPYRIGHT MATERIAL OMITTED

ARGUED: Silas Bent Taylor, Senior Deputy Attorney General, West Virginia Attorney General's Office, Charleston, West Virginia, for Plaintiffs-Appellants.

Mark Bernard Stern, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C., for Defendant-Appellee.

ON BRIEF: Stuart E. Schiffer, Acting Assistant Attorney General, Charles T. Miller, United States Attorney, Michael S. Raab, Vesper Mei, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C., for Defendant-Appellee.

Michael A. Bailey, Clarksburg, West Virginia, Amicus Curiae.

Before WILLIAMS and TRAXLER, Circuit Judges, and MALCOLM J. HOWARD, United States District Judge for the Eastern District of North Carolina, sitting by designation.

Affirmed by published opinion. Judge TRAXLER wrote the opinion, in which Judge WILLIAMS and Judge HOWARD joined.

OPINION

TRAXLER, Circuit Judge.

The State of West Virginia brought this action against the United States Department of Health and Human Services and its Secretary (together, "HHS") challenging, on Tenth Amendment grounds,¹ the constitutionality of amendments to the federal Medicaid program that require West Virginia to adopt a program to recover certain Medicaid expenditures from the estates of deceased Medicaid beneficiaries. The district court granted summary judgment in favor of HHS, see West Virginia v. United States Dep't of Health & Human Servs., 132 F.Supp.2d 437 (S.D.W.Va.2001), and West Virginia appeals. We affirm.

I.

A.

The Medicaid program, 42 U.S.C.A. §§ 1396, 1396a-v (West 1992 and Supp. 2001), established as part of the Social Security Act in 1965, "is a cooperative federal-state public assistance program that makes federal funds available to states electing to furnish medical services to certain impoverished individuals." Mowbray v. Kozlowski, 914 F.2d 593, 595 (4th Cir.1990); see also Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980). If a state elects to participate in the Medicaid program, it must submit a Medicaid plan to HHS for approval. If the plan is approved by HHS, the state is then entitled to reimbursement from the federal government of a certain percentage of the costs of providing medical care to eligible individuals — the "Federal medical assistance percentage" ("FMAP").² 42 U.S.C.A. § 1396b(a)(1) (West Supp.2001); see generally Atkins v. Rivera, 477 U.S. 154, 156-57, 106 S.Ct. 2456, 91 L.Ed.2d 131 (1986). If a state fails to comply with the requirements imposed by the Medicaid Act or by HHS, the state risks the loss of all or a part of its FMAP. See 42 U.S.C.A. § 1396c (West 1992); Bowen v. Massachusetts, 487 U.S. 879, 885, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988). West Virginia currently receives more than $1 billion in Medicaid funds from the federal government each year.

When determining whether an individual is eligible for Medicaid benefits, the value of the individual's home is usually excluded.³ As the district court explained, the effect of this exclusion is to allow "someone with a potentially valuable asset to receive benefits along with those who have greater financial need. Congress addressed this anomaly through estate recovery." West Virginia, 132 F.Supp.2d at 440 (footnote omitted).

Before 1993, the Medicaid Act permitted states, under certain circumstances, to recover medical costs paid by Medicaid from the beneficiary's estate. In 1993, however, in the face of rapidly escalating medical-care costs, Congress amended the act to require states to recover certain Medicaid costs from the estates of certain deceased beneficiaries. See Omnibus Budget Reconciliation Act of 1993, Pub.L. No. 103-66, § 13612, 107 Stat. 312, 627-28 (codified at 42 U.S.C.A. § 1396p(b)(1) (West Supp. 2001)). In West Virginia, potential beneficiaries are required to "spend down" their income and assets before they become eligible for benefits. Thus, the home (exempted from eligibility requirements) typically is the only significant asset subject to the estate recovery provisions.

In general terms, the estate recovery provisions apply only to individuals who are permanently institutionalized or who began receiving nursing-home or other long-term care services after age 55. See 42 U.S.C.A. § 1396p(b)(1) (West Supp. 2001). The provisions do not take effect while there is a surviving spouse or dependent child of the beneficiary, see 42 U.S.C.A. § 1396p(b)(2) (West Supp.2001), and may be waived in cases where they "would work an undue hardship," see 42 U.S.C.A. § 1396p(b)(3) (West Supp.2001). Potential Medicaid beneficiaries are informed of the estate recovery provisions before they elect to accept Medicaid benefits. See J.A. 298-99.

From the funds collected from the estates, the federal government is credited with a percentage equal to the state's FMAP, and the state retains the balance. When the mandatory estate recovery provisions were enacted, Congress expected that the federal government would realize savings of $300 million over five years. The federal government has in fact realized even greater savings — more than $100 million in 1999 alone. See J.A. 53; Brief of Appellee at 7-8.

Sixteen thousand West Virginians receive Medicaid services that subject them to the mandatory estate recovery program. The annual cost of providing these services is approximately $425 million, of which approximately $320 million is paid by the federal government. See Brief of Appellant at 17. The average estate recovery claim in West Virginia is approximately $50,000.00, but the amount actually recovered averages only $14,000. In West Virginia, the estate recovery program yields gross proceeds of approximately $2.5 million annually, approximately 75% of which must be credited to the federal government. See Brief of Appellant at 12-13, n. 8. The annual amount recovered in West Virginia through the estate recovery program is thus approximately two-tenths of one-percent of the more than $1 billion in Medicaid funds received by the state each year.

B.

Simply put, the State of West Virginia believes that the estate recovery program is bad public policy that yields little in terms of dollars actually recovered but creates substantial non-financial problems, such as "widespread clinical depression in aged and disabled nursing home residents." Brief of Appellant at 11. The program generally affects the poorest segment of the elderly population, those who cannot afford to buy long-term care insurance and those who cannot afford or do not appreciate the need for the legal advice necessary to engage in the various forms of estate-planning that can protect certain assets while retaining Medicaid eligibility. During oral argument, West Virginia described the program as a "betrayal of the New Deal," in that the federal government promised it would take care of its citizens, yet never suggested that the elderly and destitute would later be required to forfeit the homes for which they had worked so diligently.

West Virginia officials thus initially resisted implementing the estate recovery program, and no legislation was passed in the 1994 legislative session, as required by the 1993 Medicaid amendments. See Omnibus Budget Reconciliation Act of 1993, Pub.L. No. 103-66, § 13612(d), 107 Stat. 312, 628-29. Thereafter, HHS notified West Virginia that it would initiate "compliance proceedings" against the state that "could result in West Virginia losing all or part of its Federal financial participation in the State's Medicaid Program." J.A. 155.

The HHS warning had its desired effect, and the West Virginia legislature during the next legislative session authorized an estate recovery program. See W. Va.Code § 9-5-11c. West Virginia's opinion about the estate recovery program, however, did not change, and the legislation authorizing the program also directed West Virginia's attorney general to "commence an action in a court of competent jurisdiction to test the validity, constitutionality, and the ability of the Congress of the United States to mandate the implementation" of the estate recovery program. W. Va.Code § 9-5-11c(g). Complying with that statutory directive, West Virginia's attorney general brought this action.

II.

As a general rule, Congress may use its broad powers under the Spending Clause to induce the states to behave in a certain way, by offering federal funds to states that agree to certain congressionally imposed conditions. See New York v. United States, 505 U.S. 144, 168, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992) (explaining that attaching conditions to funds disbursed under the Spending Clause is a "permissible method of encouraging a State to conform to federal policy choices"); Maryland Psychiatric Soc'y, Inc. v. Wasserman, 102 F.3d 717, 719-20 (4th Cir.1996) ("By virtue of its spending power, Congress is permitted to condition receipt of federal funds upon certain state actions."). As the Supreme Court has explained, this use of the spending powers respects the autonomy of the states and the limited authority conferred on the federal government by the Constitution:

[T]he residents of the State retain the ultimate decision as to whether or not the State will comply [with the conditions imposed on the receipt of federal funds]. If a State's citizens view federal policy as sufficiently contrary to local interests, they may elect to decline a federal grant. If state residents would prefer their government to devote its attention...