Winter v. Miller, 81-1387

• Decision Date: 20 April 1982
• Docket Number: No. 81-1387,81-1387
• Citation: 676 F.2d 276
• Parties: Caroline WINTER, et al., Plaintiffs-Appellees, v. Jeffrey C. MILLER, Director, Illinois Department of Public Aid, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 276

676 F.2d 276

Caroline WINTER, et al., Plaintiffs-Appellees, v. Jeffrey C. MILLER, Director, Illinois Department of Public Aid, et al., Defendants-Appellants.

No. 81-1387.

United States Court of Appeals Seventh Circuit.

Argued Nov. 12, 1981.

Decided April 20, 1982.

Ellen P. Brewin, Sp. Asst. Atty. Gen., Chicago, Ill., for defendants-appellants.

James D. Weill, Legal Asst. Found. of Chicago, Chicago, Ill., for plaintiffs-appellees.

Before CUMMINGS, Chief Judge, WOOD, Circuit Judge, and GRANT, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

The Supplemental Security Income Act for the Aged, Blind, and Disabled (Supplemental Security Income Act), 42 U.S.C. §§ 1381 et seq., enacted in 1974, changed eligibility standards for Medicaid recipients. The change threatened to lengthen the Medicaid rolls and place immediate fiscal pressures on the states. To ease these pressures, Congress added § 209(b), 42 U.S.C. § 1396a(a), (f), to the Act. Section 209(b) gave states a choice: adopt the new standard or retain their eligibility standard in existence on January 1, 1972. The issue presented in this appeal is whether the Illinois Department of Public Aid may retain a standard under § 209(b) which it applied on January 1, 1972, but which may have violated federal Medicaid regulations as they existed on January 1, 1972.

I.

The Medicaid program, enacted in 1965 as Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., provides federal subsidies to states financing medical assistance to indigent families with dependent children, and to blind, disabled, or elderly individuals. Though a participating state must submit a plan for approval to the Secretary of the Department of Health and Social Services, and adhere to federal Medicaid regulations, each state is given wide discretion in operating its program. The state plays a prominent role in setting "reasonable standards ... for determining eligibility ... for medical assistance." 42 U.S.C. 1396a(a)(17); Schweiker v. Gray Panther, 453 U.S. 34, 101 S.Ct. 2633, 2636, 69 L.Ed.2d 460 (1981).

Two types of recipients have traditionally received Medicaid assistance. The first, commonly called the "categorically needy," also received general welfare benefits under one of four other federal programs: Old Age Assistance, 42 U.S.C. §§ 301 et seq., Aid to Families with Dependent Children, 42 U.S.C. §§ 601 et seq., Aid to the Blind, 42 U.S.C. §§ 1201 et seq., and Aid to the Permanently and Totally Disabled, 42 U.S.C. §§ 1351 et seq. The Medicaid laws required all participating states to provide benefits to the categorically needy.

In addition, a state could provide benefits to the "medically needy." The medically needy are those who had large medical expenses but incomes above the maximum for eligibility for general welfare programs. This left them with a disposable income below the categorically needy level after their medical bills were paid. Providing relief to the medically needy was optional even for states electing to participate in the general Medicaid program. However, having elected to supply benefits to both groups, a state had to use the same eligibility standards for each. A state providing benefits to both could not apply more stringent income standards to the medically needy than to the categorically needy. Caldwell v. Blum, 621 F.2d 491, 495 (2nd Cir. 1980). The regulation embodying this rule, 45 C.F.R. § 248.21(a)(3)(i)(b) (1972), is the object of controversy in this lawsuit. ¹

Since the medically needy had incomes above the eligibility under the categorical assistance branch of the program, the Medicaid laws required them to "spend down" their income as a condition to receiving Medicaid benefits. "(F)amilies with incomes above the eligibility level would receive medicaid coverage only after incurring medical expenses equal to the amount by which their total income exceeded the medicaid standard; they would be required to 'spend-down' by this amount to establish their eligibility for medicaid." H.Rep. No. 92-231, 92d Cong., 1st Sess. (1971), reprinted in (1972) U.S. Code Cong. & Ad. News 4989, 5061.

The spend down concept was incorporated into the Medicaid Act at its origin. Williams v. St. Clair, 610 F.2d 1244, 1247 (5th Cir. 1980). The requirement placed the medically needy at parity with the categorically needy. After the medically needy spent down excess income, all Medicaid recipients had the same amount of income to spend on non-medical commodities and services.

In 1974, the newly enacted Supplemental Security Income Act brought major changes in the administration of Medicaid programs. The Act was aimed at federalizing the three general welfare programs for the aged, blind, and disabled. Under the Act, the federal government assumed full responsibility for the programs, which had been formerly operated through cooperative state-federal financing and administrative efforts. By raising benefits and lowering eligibility criteria, the Act allowed more people with higher incomes to receive general welfare aid. However, as eligibility for Medicaid benefits was tied to eligibility for general welfare benefits, the Act threatened to swell the Medicaid rolls and place a large and immediate fiscal burden on participating states. The problem was so severe that Congress, fearing an exodus of participating states in 1974, added § 209(b) to the Act, 42 U.S.C. § 1396a(f), to stave off mass withdrawals from the program. See S.Rep. No. 553, 93rd Cong., 1st Sess., 56 (1973); see also Gray Panthers, 453 U.S. at 38, 101 S.Ct. at 2637. The addition allowed states to retain prior Medicaid eligibility standards. It provided:

Notwithstanding any other provision of this subchapter ... no State not eligible to participate in the State plan program established under subchapter XVI of this chapter shall be required to provide medical assistance to any aged, blind, or disabled individual ... for any month unless such State would be (or would have been) required to provide medical assistance to such individual for such month had its plan for medical assistance approved ... and in effect on January 1, 1972, been in effect in such month....

42 U.S.C. § 1396a(f).

The use of § 209(b) was made optional. The state could retain the income ceiling for eligibility it used on January 1, 1972 or adopt the higher federal limit governing general welfare eligibility under the Supplemental Security Income Act. However, § 209(b) required states to operate a program assisting the medically needy. Providing Medicaid coverage to the medically needy was no longer optional for states using the § 209(b) option. In pertinent part, § 209(b) provides:

any ... individual shall be deemed eligible for medical assistance under such State plan if (in addition to meeting such other requirements as are or may be imposed under the State plan) the income of any such individual ... (after deducting ... incurred expenses for medical care as recognized under State law) is not in excess of the standard for medical assistance established under the State plan as in effect on January 1, 1972.

42 U.S.C. § 1396a(f).

Like the pre-Supplemental Security Income Act program for the medically needy, § 209(b) incorporated a spend down requirement before applicants could receive Medicaid benefits. The medically needy still had to spend down excess income to the level which the state used in January, 1972 to determine eligibility for Medicaid benefits. This spend down requirement gave Medicaid coverage to those receiving general welfare benefits under the expanded eligibility standards of the Supplemental Security Income Act. Without the mandatory spend down provision, many receiving general welfare benefits under the Supplemental Security Income Act would not receive Medicaid benefits in states operating under § 209(b), despite their acknowledged need for general public assistance.

Illinois, along with fifteen other states, elected the § 209(b) option. Gray Panthers, 453 U.S. at 39, 101 S.Ct. at 2638 n.6. Eligibility for Medicaid is therefore determined by 1972 standards. Using 1972 figures, Illinois set $168 per month as the maximum income level for those receiving general welfare benefits from the federal government and as the level to which others with greater incomes must spend down their income.

Although federal regulations in 1972 clearly required the state to treat the categorically and medically needy alike, Illinois used two methods of measuring income, applying one to the medically needy and the other to the categorically needy, to determine eligibility for Medicaid benefits. The plaintiffs assert that because Illinois used two measures, eligibility requirements were more strict for some medically needy applicants. It follows, the plaintiffs argue, that because the system contravened federal regulations in 1972, its use today is invalid.

This discrepancy in eligibility standards arose because on January 1, 1972, Illinois computed its income ceiling for the categorically needy based upon an applicant's individual needs while it based eligibility for the medically needy on an inflexible income standard. In 1972, Illinois composed hypothetical budgets for individuals applying for categorical assistance under programs for the blind, aged, disabled, or families with dependent children. The budget could include more than fifty items recognized by the state as essential for subsistence. The state computed a budget for each individual based upon his personal needs, compared the hypothetical budget with the applicant's actual income, and if the budget exceeded his income, awarded general welfare benefits in the amount of the difference. Eligibility for general welfare benefits also left recipients eligible for Medicaid benefits. While the highest budget was $916 monthly, the budget at the 90th percentile, the level which the incomes of ninety percent of those receiving categorical...