Opinion
C.A. NO. 00A-05-006.
Submitted: November 29, 2000.
Decided: December 6, 2000.
Appeal From a Decision of the Delaware Department of Health and Social Services, Division of Social Services. Decision Reversed.
Motion to Supplement the Record. Granted.
Thomas Herlihy, III, Esquire, Herlihy, Harker Kavanaugh, Wilmington, Delaware, for the Appellant.
Lynn D. Wilson, Esquire, Department of Justice, Wilmington, Delaware, for the Appellee.
MEMORANDUM OPINION
This is the Court's decision on an appeal by William Dean, as husband and attorney-in-fact of Ethelda Dean, of a final decision of the Delaware Division of Social Services (DSS) denying Mrs. Dean's application for Medicaid benefits. Having reviewed the parties' submissions, as well as the record below, the Court concludes that the decision must be reversed.
POSTURE
Ethelda Dean, a resident of Parkview Nursing Home since January 1999, applied for Medicaid benefits to cover the costs of her long-term care. On July 15, 1999, DSS determined that Mr. and Mrs. Dean's resources exceeded the limit for Medicaid eligibility and that Mrs. Dean was therefore not eligible for Medicaid benefits at that time. On July 30, 1999, Mr. Dean reapplied for benefits on his wife's behalf. On February 23, 2000, DSS denied her application. At Mr. Dean's request, DSS conducted a hearing on the matter on April 26, 2000. On April 28, 2000, DSS issued its final decision denying Ethelda Dean's request for a reversal of the denial of her application for benefits. Dean filed a timely appeal to this Court. Briefing is complete, and the issues are ripe for decision.
FACTS
In January 1999, Ethelda Dean was admitted to Parkview Nursing Home. Her husband, William Dean, continued to live in the marital home in Wilmington. Ethelda Dean first applied for Medicaid assistance on April 22, 1999. To help determine his wife's eligibility for Medicaid benefits, William Dean sought from DSS an assessment of the couple's assets, referred to as a "snapshot" in Medicaid parlance. The snapshot revealed that as of July 15, 1999, the couple's assets totaled $183,724.41, not including the Deans' home, car or other noncountable resources. As the community spouse, Mr. Dean was entitled a community spouse resource allowance (CSRA) without jeopardizing his wife's eligibility for Medicaid. The maximum amount of the CSRA is one-half of the couple's combined countable resources, not to exceed an amount which Congress adjusts annually. In 1999, when Mrs. Dean applied for benefits, the cap was $81,960. DSS determined that Dean's countable assets equaled $91,862.21, significantly in excess of the statutory cap.
DSS Spousal Impoverishment Resource Calculation Sheet, included in Appendix to Opening Brief at A-40 through A-43. Subsequent references to this Appendix appear as "App. to Op. Br."
The issues in this case pertain to Mr. Dean's resources but not to his income. In Delaware, a married applicant's eligibility for Medicaid is "determined by considering the income of the institutionalized spouse only." State of Delaware Department of Health and Social Services, Division of Social Services Medical Assistance Program (Medicaid) Manual (DSSM) § 20990, included in Appendix to Reply Brief at C-46. Subsequent references to this Appendix appear as "App. to Rep. Br." The community spouse's income becomes an issue only when he or she does not receive sufficient income to cover the basic costs of living, in which case, he or she may seek to obtain a portion of the institutionalized spouse's income to help defray. necessary costs. Mr. Dean makes no such application.
Spousal Impoverishment Resource Sheet, App. to Op. Br. at A-40 through A-43.
Id.
On September 9, 1999, William Dean and his attorney met with Tamara Ince, a DSS case manager, to reapply for Medicaid on Ethelda Dean's behalf. At that time, it was determined that the Deans' countable resources had decreased to $135,704, apparently due in part to payment of nursing home costs. However, the total still exceeded the allowable limit by approximately $51,743, which DSS expected the Deans to spend on Mrs. Dean's nursing home costs. Dean indicated instead that he was purchasing a $53,000 annuity in order to spend down his resources to within the limit. Dean stated that he had cashed a certificate of deposit and had placed the funds in a checking account to pay for the annuity. Shortly thereafter, DSS again denied Mrs. Dean's application, and Mr. Dean requested a fair hearing.
At the hearing, Dale Krause, an attorney who specializes in "put[ting] together Medicaid annuities for purposes of Medicaid qualification," testified at the hearing that annuity rules are established by the federal Health Care Financing Administration (HCFA), which issued a document known as HCFA Transmittal 64 (Tr. 64). According to Krause, Tr. 64 provides that a properly structured annuity can be used to spend down resources in order to ensure Medicaid eligibility. Krause further stated that he had helped Dean prepare such an annuity.
Transcript of the Fair Hearing at 19. Subsequent references to the transcript appear as "Tr. at page no."
Krause testified that Mr. Dean's annuity was irrevocable, nonassignable, immediate and actuarially sound, thus rendering it a non-countable resource for purposes of Medicaid. Krause stated that Dean purchased the annuity "to guarantee Mr. Dean that he'll have X number of dollars coming over a specified period of time."
Tr. at 29.
Tamara Ince, the DSS case manager who had met with Dean to review his application, testified at the hearing on behalf of DSS. She stated that DSS typically expects excess resources to be spent on health care costs, not resource shelters such as annuities. She stated that after the amount of the community spouse resource allowance is determined, "all other resources are to be spent on a client's care or what we consider the spending out process." Ince also made it clear that DSS had concluded that Dean bought the annuity to protect his assets while simultaneously ensuring his wife's eligibility for Medicaid benefits:
Tr. at 4.
I was under the impression it was done in preparation of making him eligible for Medicaid and that was his sole purpose only. So, in that case we usually look at things of that nature. When a client spends down money or transfers money or gives money away for the sole purpose of becoming eligible for Medicaid when they actually have the resources to pay for nursing home care, we look at that as a transfer of assets. Um, again, in lieu of just being denied for being over resourced.
Tr. at 14.
This statement clearly reflects Ince's belief that the annuity was a transfer of assets that would subject the Deans to a penalty of delaying coverage for long-term care, as opposed to being found over-resourced and therefore ineligible. The hearing officer asked if he had to concern himself with the transfer of assets rule, and Dean's attorney led Ince into agreeing that there was no transfer problem because Dean did not transfer the $53,000 to a third party. He then led her to agree that the only issue is whether the annuity is countable or not.
Tr. at 15.
Tr. at 16-18.
On April 28, 2000, DSS issued its final decision upholding the denial of Ethelda Dean's application for Medicaid assistance. The hearing officer reasoned that Tr. 64 did not govern the case because Delaware does not operate a "medically needy" Medicaid program. He further found that the purchase of the annuity was an abusive shelter of assets calculated to ensure Mrs. Dean's eligibility for Medicaid. Mr. Dean filed a timely appeal to this Court.
STANDARD OF REVIEW
On appeal of a DSS decision, "[t]he Court shall decide all relevant questions and all other matters involved, and shall sustain any factual findings of the administrative hearing decision that are supported by substantial evidence of the record as a whole." Such review "necessarily aim[s] at the potential for misapplication of governing law by a State when determining the qualifications of applicants for Medicaid assistance."
Title 31 Del. C. § 520. See also Dolinger v. Delaware Dep't of Health and Social Services, Del.Super., C.A. No. 98A-06-003, Gebelein, J. (Jan. 7, 1999).
Bowden v. Delaware Dep't of Health Social Servs, Div. of Social Servs., Del.Super., C.A. No. 92A-08-1, Graves, J. (Aug. 25, 1993) (Letter Op.) at 4, aff'd sub nom. Parsons v. Delaware Dep't of Health Social Servs., Div. of Social Servs., Del.Supr., 642 A.2d 837, cert. denied 513 U.S. 203 (1994).
ISSUES
Dean argues first that the hearing officer erred as a matter of law when he concluded that Tr. 64 does not apply to Delaware's Medicaid program. Dean also argues that the hearing officer erred as a matter of law when he ruled that William Dean's annuity was a countable resource for purposes of Ethelda Dean's Medicaid eligibility. Finally, Dean asserts that DSS violated her rights under the due process clause and the commerce clause of the federal constitution.DSS responds that the hearing officer was correct in his rulings that Tr. 64 is inapplicable in Delaware and that Ethelda Dean was not eligible for Medicaid benefits because the Deans had excess resources. DSS also asserts that the Deans were afforded their full panoply of constitutional rights.
Because the statutory mandate requires this Court to decide "all relevant matters and all other matters involved," the Court reframes the issues in this case to ensure that all matters are addressed in a coherent manner. This Opinion addresses each of the following questions. First, does Tr. 64 apply to the case at bar? Second, if so, how does Tr. 64 affect an applicant's eligibility for Medicaid? Third, if Tr. 64 is applicable, does it require that a penalty be imposed on the Deans for the purchase of the $53,000 annuity? Fourth, is the $53,000 countable as a resource in determining Ethelda Dean's eligibility for Medicaid?
DISCUSSION
The Medicaid program was established in 1965 to provide federal funds to help pay for the medical treatment of needy persons. The federal government shares the costs of Medicaid with states that elect to take part in the program; in return, participating states must comply with the requirements imposed by the Act and by the Secretary of Health and Human Services, who administers the program through the Health Care Financing Administration (HFCA).
Title XIX of the Social Security Act, 42 U.S.C. § 1396 — 1396r.
Martin v. Ohio Dept. of Human Serv., Ohio Ct. App., 720 N.E.2d 576 (1998). See also West Virginia Univ. Hosps., Inc. v. Casey, 3d Cir., 885 F.2d 11, 15 (1989). (observing that the purpose of the Medicaid program is to provide a nationwide program of medical assistance for low income families and individuals).
See 42 U.S.C. § 1396a (1982 ed. and Supp. II); Schweiker v. Gray Panthers, 453 U.S. 34, 36-37 (1981).
Each state Medicaid program, which must be approved by the Secretary, is basically administered by the "state within certain broad requirements and guidelines." In Delaware, the Medicaid program is generally overseen by the Department of Health and Social Services, but is administered by the Division of Social Services (DSS). of the several types of programs a state may choose from, Delaware has opted for the Supplemental Security Income for the Aged, Blind and Disabled (SSI) program, with additional coverage under the optional categorically needy provision. Under this program, individuals who receive (or who qualify for) SSI are automatically eligible for Medicaid, while other applicants must meet additional state and federal requirements. As long as the state criteria comport with the federal regulations governing eligibility, they will be deemed valid and enforceable.
West Virginia Univ. Hosps., Inc. v. Casey, 885 F.2d at 15.
Milne v. Dept. of Health and Social Servs., Del.Super., 679 A.2d 1010, 1013 (1995).
See Bowden v. Delaware Dept. of Health and Social Servs., Div. of Social Servs., Del.Super., Graves, J. (Aug. 25, 1993).
Id. (citing Schweiker v. Gray Panthers, 453 U.S. 34, 36-37 (1981)).
Prior to 1988, a married person living in a nursing home had to "spend down" all of the couple's jointly held assets to the eligibility limit in order to receive assistance, often reducing both husband and wife to poverty from medical expenses. However, married couples often transferred their assets into the name of the spouse not seeking Medicaid benefits because only jointly held assets were considered to be available for the institutionalized spouse's medical needs.
Martin v. Ohio Dep't of Human Servs., Ohio Ct. App., 720 N.E.2d 576, 581 (1998).
Id.
Congress addressed both of these problems when it enacted § 1396r-5 of the Medicare Catastrophic Coverage Act of 1988 (MCCA). Pursuant to § 1396r-5(c)(1)(A), a "snapshot" of the total value of the couple's resources is taken prior to filing a formal application. To avoid impoverishment of the community spouse, he or she is entitled to a community spouse resource allowance (CSRA) without affecting the applicant's eligibility for Medicaid. This allowance is not available to pay for the care of the institutionalized spouse, and it need not be spent down in order for the institutionalized spouse to qualify. The cap on the CSRA is one-half of the couple's combined resources up to a limit which Congress adjusts annually. Any resources exceeding the CSRA (and the $2000 allocated to the institutionalized spouse) are deemed available for the care of the institutionalized spouse.
The parties agree that the issues in this case pertain to resources rather than income. In Delaware, "[i]ncome eligibility is determined by considering the income of the institutionalized spouse only." DSSM § 20990.
To assist caseworkers at the state level, the HCFA has issued a document entitled the State Medicaid Manual. At issue in the case at bar is the so-called "Transmittal 64" (Tr. 64), which is an amendment to the eligibility section of the State Medicaid Manual. Tr. 64 provides instructions to Medicaid caseworkers at the state level regarding trusts as well as transfers of assets for less than fair market value. At issue in the case at bar is Tr. 64, § 3258, Transfers of Assets for Less Than Fair Market Value, which was intended to "interpret § 1917(c) of the [Social Security] Act, as amended by § 13611 of the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993), on the treatment of transfers of assets for less than fair market value." HCFA guidelines such as Tr. 64, although not statutes or regulations, are entitled to deference by the courts as long as "they are consistent with the plain language and purposes of the statute and if they are consistent with prior administrative views." 1. Tr. 64 applies to Delaware's Medicaid program. The hearing officer in the case at bar found that Tr. 64 does not apply to Delaware's Medicaid program. He reasoned that because Delaware does not operate a "medically needy" Medicaid program which requires applicants to "spend down" their excess resources on medical costs in order to apply for Medicaid, Tr. 64 has no relevance in Delaware. DSS supports the hearing officer's finding, but offers no authority for it. In fact, the plain language of Tr. 64 contradicts this conclusion. The introductory section of Tr. 64 provides in part as follows:
Introductory language to Tr. 64, presented on the unnumbered first page, included in App. to Op. Br. at A-61.
Cleary v. Waldman, 3d. Cir., 167 F.3d 801, 808, cert. denied, 120 S.Ct. 170 (1999); see also Elizabeth Blackwell Health Center for Women v. Knoll, 3d Cir., 61 F.3d 170 (1995) (noting that interpretive rules promulgated by an agency with lawmaking authority will receive deference even if the agency's interpretation is not made pursuant to that lawmaking authority), cert. denied, 516 U.S. 1093 (1996).
Final Decision of the DSS, No. 8000865183, at 4. The Court notes that Delaware does allow applicants to spend down excess resources on medical costs in order to qualify for Medicaid. Tamara Ince testified that DSS expects over-resourced applicants to pay their medical bills until their resources are within the proscribed limits.
New Implementing Instructions — Effective Date: 12/13/94
This instruction applies to all transfers made or trusts established on or after August 10, 1993.
Section § 3258.1 is even more specific, stating that "[t]he provisions explained in these instructions apply to all States, including those using more restrictive eligibility criteria than are used by the SSI program. . . ." Thus, it is clear that Tr. 64 applies to Delaware, which is an SSI state with additional coverage for categorically eligible individuals. The Court concludes that the hearing officer erred as a matter of law when he concluded that Tr. 64 does not apply to Delaware's Medicaid program.
2. Tr. 64 provides for penalty periods but does not preclude eligibility. The introductory language to the section on transfers of assets provides that § 3258 "discusses actions which result in the denial of coverage for certain medical services to otherwise eligible institutionalized or noninstitutionalized individuals who transfer assets for less than fair market value." Section 3258 further provides that, where a transfer has been made for less than fair market value, within the so-called "look back period," the caseworker must impose a penalty and deny coverage of certain Medicaid services to otherwise eligible institutionalized individuals. In other words, the result is a penalty, not ineligibility. This is explained in § 3258.5:
The entire text of Tr. 64 is found in the App. to Op. Br., at A-61 through A-103. The quoted language is found at A-61.
Section 3258.4. The look-back period is typically of three months duration.
Section 3258.1. See also § 3258.8 for a detailed description of the possible penalties.
Penalty Periods. When an individual (or spouse) makes a transfer of assets for less than fair market value, payment for certain services received by the individual is denied for a specified period of time. However, the individual remains eligible for Medicaid and can have payment made for services not subject to penalty. (See § 3258.8.) For example, an institutionalized individual who transfers assets for less than fair market value must be denied reimbursement for nursing facility services. However, he or she may still be eligible for reimbursement for physician's services, provided such services are not provided as part of the individual's nursing home care.
Thus, it is clear that Tr. 64 does not affect an applicant's eligibility for Medicaid, but may affect the coverage of certain services for a specified period of time.
3. No penalty accrues in the case at bar. Section 3258.9(B) addresses annuities. Dean asserts that this section is of paramount importance because 42 U.S.C. § 1396a itself includes no provisions for annuities in the Medicaid context. In the section governing trusts, 42 U.S.C. § 1396p(d)(6) states that the term "trust . . . includes an annuity only to such extent and in such manner as the Secretary specifies." Tr. 64 § 3258.9(B) is the only guidance the Secretary has issued regarding annuities, and Delaware has no regulation governing annuities in the Medicaid context. The Court therefore finds that the provisions of Tr. 64 require particular deference.
Reply Br. at 6.
See Cleary v. Waldman, 176 F.3d at 808; Elizabeth Blackwell Health Center for Women v. Knoll, 61 F.3d at 170.
Section 3258.9(B) makes it clear that the linchpin of the test for determining whether the purchase of an annuity is a valid purchase or is an abusive shelter of assets is whether the purchase was made for fair market value:
"Fair market value" is defined as "an estimate of the value of an asset, if sold at the prevailing price at the time it was actually transferred." § 3258.1(A)(1).
Annuities, although usually purchased in order to provide a source of income for retirement, are occasionally used to shelter assets so that individuals purchasing them can become eligible for Medicaid. In order to avoid penalizing annuities validly purchased as part of a retirement plan but to capture those annuities which abusively shelter assets, a determination must be made with regard to the ultimate purpose of the annuity (i.e., whether the purchase of the annuity constitutes a transfer of assets for less than fair market value). If the expected return on the annuity is commensurate with a reasonable estimate of the life expectancy of the beneficiary, the annuity can be deemed actuarially sound. (Emphasis added).
This section clearly suggests that sheltering, that is, moving or altering, assets solely in order to qualify for Medicaid is an abuse of the Medicaid system. It does so only by implication and by contrasting a valid retirement plan with a strategy to ensure eligibility. But it stops short of prohibiting such action. Worse yet, while this section appears to denounce the purchase of an annuity for the purpose of qualifying for Medicaid: it inhibits the caseworker's ability to penalize such abuse by making the single determinative factor the question of fair market value.
In the case at bar, Dean relies on the above-cited provisions of Tr. 64 itself, while DSS relies on caselaw. Specifically, DSS argues that a recent Pennsylvania case supports its position that the purchase of an annuity to ensure Medicaid eligibility is inappropriate despite the provisions of Tr. 64. In Dempsey v. Dep't of Public Welfare, Mr. Dempsey purchased an irrevocable annuity after his institutionalized wife's application for Medicaid had been denied because the couple was over-resourced. The Dempsey Court found that the Department of Public Welfare (the Pennsylvania equivalent of DSS) correctly presumed that the transfer was for less than fair market value and for the impermissible purpose of qualifying for Medicaid benefits. The first of these presumptions is key. It was based on a Pennsylvania statute which created a presumption that assets disposed of during the look-back period are transferred with the improper intent to qualify for Medicaid. Delaware has no such statutory presumption, and until the General Assembly sees fit to enact one, DSS is not entitled to make this presumption, despite its obvious logic and utility. The Court notes that the statutory presumption is consistent with the spirit of Tr. 64, which clearly disapproves of transfers made solely for the purpose of qualifying for Medicaid, as discussed above.
Pa. Cmmw.Ct., 756 A.2d 90 (2000).
Id. at 95.
The Court further notes that § 3258.9(8) implicitly presumes that a transfer of assets for less than fair market value was for the purpose of qualifying for Medicaid. One of the possible defenses to transfer of assets penalties is that the purpose of the transfer was something other than to qualify for Medicaid. In such cases, § 3258.10C.2, entitled Transfers Exclusively for a Purpose Other Than to Qualify for Medicaid, advises caseworkers that "verbal assurances . . . are not sufficient. Rather, convincing evidence must be presented as to the specific purpose for which the asset was transferred."
Without the statutory presumption that a transfer of assets during the look-back period is for less than fair market value, the Court turns to the guidance of Tr. 64 itself to determine whether Dean's annuity was purchased for less than fair market value. Pursuant to § 3258.9(B), if the annuitant's life expectancy is less than or equal to the life of the annuity, the annuity is actuarially sound and is deemed to be purchased for fair market value. The inclusion in § 3258.9(B) of life expectancy tables to be used in making this determination underscores the significance of this factor. In response to the same issue, the court in O.D. v. Div. of Medical Assistance Health Services, stated that, based on Tr. 64, "the sole test is whether the expected return on the Annuity is commensurate with a reasonable estimate of the life expectancy of the beneficiary. If so, the Annuity can be deemed to be actuarially sound, in accordance with the Federal mandate."
N.J. Admin., Fuley, ALJ (June 12, 1995).
Dean asserts that he complied with the terms of § 3258 and that he purchased the annuity for fair market value. At the time of purchase, he was 79 years old and, according to the § 3258.9 life expectancy tables, he had a life expectancy of 7.4 years. The life of the annuity was five years. By this straightforward formula, his annuity was actuarially sound and therefore was not a transfer for less than fair market value.
The Court is troubled by the fact that Tr. 64 disapproves of transfers which are made for the sole purpose of qualifying for Medicaid but offers no way to identify and penalize such transfers unless they are made for less than fair market value. The Dempsey Court described Tr. 64 as "simply a guideline to aid caseworkers in determining whether or not an annuity appears on its face to be a legitimate instrument as opposed to an abusive shelter for assets." If Tr. 64 is a valid guideline for the front line decisionmaker, that is, the caseworker, it must also be a valid guideline for the courts which review the initial decision. The standards cannot change as a case proceeds through appellate review. Furthermore, the Tr. 64 methodology is based on § 1917 of the Social Security Act, which treats transfers of assets for less than fair market value. Other courts have found that HCFA policy guidelines such as Tr. 64 are entitled to judicial deference where they are consistent with the plain language and purposes of the statute and prior administrative views. DSS has not directed the Court to any specific statutory provisions which prohibit an individual from purchasing an annuity such as the one purchased by Mr. Dean. Until the HCFA amends Tr. 64, or until the Delaware General Assembly enacts a statutory presumption that transfers of assets during the look-back period are made for less than fair market value, the Court must conclude that the purchase of an annuity such as Dean's does not subject the applicant to any penalties.
Dempsey at 95-96 (emphasis added).
Johnson v. Guhl, D.N.J., 91 F. Supp.2d 750, 779 (2000), citing Cleary v. Waldman., 3d Cir., 167 F.3d 801, 808 (1999).
4. The annuity, which creates an ongoing income stream for Mr. Dean, is not a countable resource for purposes of Medicaid. The hearing officer found that the purchase of the annuity was merely a change in the form of a resource and that the annuity itself is a countable resource. The hearing officer did not address the specific characteristics of an annuity and merely assumed that an annuity is always a countable resource.
Dean argues that because the annuity is actuarially sound, it is therefore not a countable resource in determining Medicaid eligibility. However, actuarial soundness is relevant only to the question of whether a transfer has been made for less than fair market value pursuant to Tr. 64. It has "no bearing on whether an asset is or is not a countable resource, and in fact the plain language of § 3258.9 in no way makes such a connection." This argument has no merit.
Op. Br. at 23.
HCFA letter from Robert A. Streimer, Disabled and Elderly Health Programs Group, Center for Medicaid and State Operations, at 2; included in App. to Op. Br. at A-58.
Dean also argues that because Delaware does not prohibit the purchase of annuities and because Tr. 64 "codifies" such purchases, "Dean's purchase of an annuity with funds previously in a CD should be handled the same as if he had used the CD funds to pay off the mortgage on his house." In other words, Dean argues that the annuity is the same type of resource as the statutory noncountable resources which include the home, the car, personal effects and cemetary plot. The list of noncountable resources contained in § 1917 is an exhaustive list that does not invite additions. The Court finds no support for the argument that the annuity is a noncountable resource.
Op. Br. at 18.
Resources other than those specifically excluded by statute are generally countable for purposes of determining Medicaid eligibility. Federal Medicaid law defines resources as follows:
[R]esources means cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her suppport and maintenance.
(1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).
20 C.F.R. § 416.1201(a) (emphasis added). This regulation appears in App. to Rep. Br. at C-38.
The DSSM definition is consistent with the federal definition. Under the Delaware definition, property is considered to be a resource if the individual has the right, authority or power to liquidate his or her share of the property. Stated otherwise, the individual must have some form of ownership interest in, legal right of access to and the legal ability to use the property for his or her own support and maintenance in order for the property to be considered a resource.
DSSM § 410.12.
DSSM § 410.12.
With a standard, commercial irrevocable annuity, such as the one at issue in this case, the buyer purchases a commodity, that is, the annuity itself, and is entitled only to the income stream; the buyer does not own the purchasing funds and cannot reclaim them. Applying the federal terminology, Dean's property right in the annuity cannot be liquidated, and therefore is not considered a resource. Income, on the other hand, is defined as "the total amount of money authorized (designated by the payor) for the recipient's benefit. . . . [and] includes anything received by the individual, in cash or in kind, that can be used to meet needs for food, clothing or shelter." Under these definitions, it is clear that Dean's property right in the annuity is in the form of income, not as a resource.
Johnson v. Guhl, 91 F. Supp.2d at 764.
DSSM § 20200.1.
Tr. 64 also refers to the payments from a standard commercial annuity in terms of income:
When an individual purchases an annuity, he or she generally pays to the entity issuing the annuity (e.g., a bank or insurance company) a lump sum of money, in return for which he or she is promised regular payments of income in certain amounts. These payments may continue for a fixed period of time (for example, 10 years), or for as long as the individual (or another designated beneficiary) lives. Thus creating an ongoing income stream.
Tr. 64, § 3258.9(B).
Dean also urges the Court to consider a letter from Robert H. Streimer, Director of the Disabled and Elder Health Programs Group, Center for Medicaid and State Operations, HCFA. In his letter to an attorney who had created an annuitized trust for a client, Streimer distinguishes between a standard, commercial annuity (such as Dean's) and an annuitized trust:
A standard annuity can protect the funds used to purchase the annuity from being counted as resources in determining eligibility for Medicaid. However, there is a fundamental difference between a standard annuity and the "annuitized" trust you established. A standard annuity requires the actual purchase of a commidoty; i.e., the annuity itself. A specific amount of money is given to the entity selling the annuity, in return for which the entity contractually agrees to provide an income stream for a specified period of time. Upon completion of the transaction, the buyer no longer owns the funds used to purchase the annuity, instead, he or she owns the annuity itself. If the annuity is irrevocable, as most annuities are, the buyer cannot reclaim ownership of the funds used to purchase the annuity. He or she is only entitled to the income stream purchased, and only for as long as the annuity stipulates.
Although this letter has no precedential value, it does reinforce the Court's conclusion that Mr. Dean's annuity constitutes income for Medicaid purposes.
See Johnson v. Guhl, 91 F. Supp. at 764 (observing that the Streimer letter, while "certainly not binding on this Court, is, at the very least, instructive").
Based on the federal and state definition of income and resources, as well as the language of Tr. 64 and the Streimer letter, the Court concludes that Mr. Dean's property right in the annuity is in the form of income, not a resource, and that the hearing officer erred in finding otherwise.
CONSTITUTIONAL ISSUES
In light of the Court's decision regarding Ethelda Dean's eligibility for Medicaid, it is not necessary to address Dean's constitutional arguments.
MOTION TO SUPPLEMENT THE RECORD
After briefing was complete, Dean filed a motion to supplement the record by adding information regarding the purchase date of the annuity in question as well as information on another annuity. Dean submitted this information because DSS questioned whether Dean had in fact purchased the $53,000 annuity. The Court grants the motion to the extent that it helps document the transaction. However, because the Court finds that there was no real dispute as to whether Mr. Dean purchased the annuity, the supplemental materials and argument do not affect the outcome of the case.
Dean also submitted documentation about a $30,000 annuity which he had not previously disclosed. He received information from WSFS, a Wilmington bank, about this annuity in September 2000. He apparently purchased the annuity in March 13, 2000, and acknowledges that it is a countable resource for purposes of Mrs. Dean's Medicaid eligibility determination. However, he argues that because he has paid more than $35,000 towards his wife's nursing home costs during the same time period, these payments more than offset the value of the annuity and therefore do not significantly affect the eligibility determination. DSS points out that Dean admits being aware of the second annuity approximately one month before the fair hearing and argues that such failure to disclose is a fraud against the State. Despite the allegations of fraud, DSS offers no remedy but merely opposes supplementing the record.
The Court notes the untimely nature of the disclosure and the failure to explain this oversight. Dean had a legal obligation to disclose this information to DSS and the hearing officer. His argument that he paid an equivalent amount in health care costs for his wife conveniently sidesteps the possible implications of his failure to disclose. As a practical matter, this Court has no authority to remand to DSS to recalculate the eligibility determination, and the Court will not undertake this calculation on its own. Finally, in light of the fact that Mr. Dean has paid an equal or greater amount towards Mrs. Dean's care, the actual difference resulting from a recalculation might not be significant. The Court grants Dean's motion to supplement the record in the interests of having a complete record.
CONCLUSION
It appears that Mr. Dean managed to convert countable resources into income, which is not countable for purposes of his wife's Medicaid eligibility. Without imputing any blame to Mr. Dean, the Court reiterates its dissatisfaction with what appears to be a loophole of potentially vast proportions in the Medicaid law. However, given the current form of both state and federal law, the Court concludes that the hearing officer's decision denying Medicaid benefits to Ethelda Dean must be, and hereby is, Reversed .
It Is So ORDERED .