LEROY MORRIS; LEROY MORRIS, as personal representative of the Estate of Glenda Morris, deceased, Plaintiffs–Appellants, v. OKLAHOMA DEPARTMENT OF HUMAN SERVICES, State of Oklahoma, ex rel.; HOWARD H. HENDRICK, Director of Oklahoma Department of Human Services; OKLAHOMA HEALTH CARE AUTHORITY, State of Oklahoma, ex rel.; MIKE FOGARTY, Director of Oklahoma Health Care Authority, Defendants–Appellees.
No. 10-6241
United States Court of Appeals, Tenth Circuit
July 9, 2012
PUBLISH
OM FINANCIAL LIFE INSURANCE COMPANY, Amicus Curiae.
Appeal from the United States District Court for the Western District of Oklahoma (D.C. No. 5:09-CV-01357-C)
Travis Smith (Lynn Rambo-Jones, Christopher J. Bergin, and Richard W. Freeman, Jr., with him on the briefs), Oklahoma Department of Human Services, Office of General Counsel, Oklahoma City, Oklahoma, for the Defendants-Appellees.
Stephen H. Kaufman and Eric J. Pelletier, Offit Kurman, P.A., Owings, Maryland, filed a brief for Amicus Curiae OM Financial Life Insurance Company, on behalf of Appellants.
Before LUCERO, MATHESON, and FREUDENTHAL,* Circuit Judges.
LUCERO, Circuit Judge.
The Medicare Catastrophic Coverage Act of 1988 (“MCCA“) allows the spouse of an applicant for long-term care benefits to keep a certain amount of resources without affecting the applicant‘s eligibility. See
Leroy and Glenda Morris brought suit under
Exercising jurisdiction under
I
A
Medicaid is a program administered cooperatively by states and the federal government to provide “health care to persons who cannot afford such care.” Brown v. Day, 555 F.3d 882, 885 (10th Cir. 2009). “Because spouses typically possess assets and income jointly and bear financial responsibility for each other, Medicaid eligibility determinations for married applicants have resisted simple solutions.” Wis. Dep‘t of Health & Family Servs. v. Blumer, 534 U.S. 473, 479 (2002). Prior to the MCCA, “each spouse was treated as a separate household.” Johnson v. Guhl, 91 F. Supp. 2d 754, 761 (D.N.J. 2000). Jointly held resources to which a spouse had unrestricted access were considered available to that spouse for eligibility purposes, but assets solely held by the community spouse were treated as unavailable to the institutionalized spouse. Blumer, 534 U.S. at 479-80. This system produced “unintended consequences,” as many “community spouses were left destitute
By passing the MCCA, Congress intended to “protect community spouses from ‘pauperization’ while preventing financially secure couples from obtaining Medicaid assistance.” H.R. Rep. No. 100-105, pt. 2, at 65 (1987). The current version of the statute no longer looks to the nominal ownership of resources or to “any State laws relating to community property or the division of marital property.”
The MCCA also addresses the transfer of resources between spouses. Although the statute generally disallows transfers for less than fair market value up to two years prior to a Medicaid application, it exempts spousal transfers from this prohibition.
An institutionalized spouse may, without regard to [
§ 1396p(c)(1) ], transfer an amount equal to the [CSRA], but only to the extent the resources of the institutionalized spouse are transferred to (or for the sole benefit of) the community spouse. The transfer under the preceding sentence shall be made as soon as practicable after the date of the initial determination of eligibility . . . .
B
For a married long-term care applicant, the process of receiving Medicaid coverage generally begins with a request for assessment. At the beginning of the first continuous period of institutionalization1 of the institutionalized spouse, the couple may request that the state assess the “total value of the resources to the extent either the institutionalized spouse or the community spouse has an ownership interest,” and a “spousal share,” equal to half of that amount.
The next subsection of this statute discusses resource allocation at the “time of application for benefits.”
Finally,
C
Importantly, the provisions set forth above refer only to resources. Although all of a couple‘s countable resources—except the CSRA—are treated as available to the institutionalized spouse at the time of the application for benefits, see
The manner in which Medicaid treats annuities makes this asymmetry highly relevant. An annuity that is, inter alia, irrevocable, non-assignable, and actuarially sound, see
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).
The State Medicaid Manual acknowledges this issue and attempts to distinguish between annuities “validly purchased as part of a retirement plan [and] those which abusively shelter assets.” Health Care Fin. Admin., U.S. Dep‘t of Health & Human Servs., State Medicaid Manual 64 § 3258.11 (1994).2 This section of the manual is commonly referred to as “Transmittal 64.” It continues:
The exceptions to the transfer of assets penalties regarding interspousal transfers and transfers to a third party for the sole benefit of a spouse apply even under the spousal impoverishment provisions. Thus, the institutional spouse can transfer unlimited assets to the community spouse or to a third party for the sole benefit of the community spouse.
When transfers between spouses are involved, the unlimited transfer exception should have little effect on the eligibility determination, primarily because resources belonging to both spouses are combined in determining eligibility for the institutionalized spouse. Thus, resources transferred to a community spouse are still [to] be considered available to the institutionalized spouse for eligibility purposes.
The exception for transfers to a third party for the sole benefit of the spouse may have greater impact on eligibility because resources may potentially be placed beyond the reach of either spouse and thus not be counted for eligibility purposes. However, for the exception to be applicable, the definition of what is for the sole benefit of the spouse (see §3257) must be fully met. This definition
is fairly restrictive, in that it requires that any funds transferred be spent for the benefit of
the spouse within a time-frame actuarially commensurate with the spouse[‘]s life expectancy. If this requirement is not met, the exemption is void, and a transfer to a third party may then be subject to a transfer penalty.
II
On March 26, 2008, the Morrises sent a “Request for Assessment” form to OKDHS requesting that their resources and income be assessed for eligibility in the Medicaid Advantage Waiver Program. The Morrises’ countable resources totaled $107,812. Dividing that figure in half, OKDHS treated $53,906 as Mr. Morris’ CSRA, and attributed the same amount to Mrs. Morris. Because the resource eligibility limit for the Advantage Program was $2,000, Mrs. Morris did not qualify for Medicaid assistance at that time; the couple would need to “spend down” $51,906 to become eligible.
On April 1, 2008, the Morrises paid a law firm $4,000 and purchased two prepaid burial contracts for $7,500 each. The Morrises also purchased an annuity for $41,000 that would pay Mr. Morris $1,140.47 per month for three years. Mr. Morris sent the annuity application along with payment on April 1, 2008, signed the annuity application on April 8, and the annuity was issued on April 10. It was subject to a ten-day cancellation period.
According to OKDHS, Mrs. Morris again applied for Medicaid benefits under the Advantage Program on April 3, 2008. OKDHS characterizes this as her “second Medicaid application.” The agency issued a notice denying benefits on April 7, 2008, concluding that Mrs. Morris had more than $2,000 in countable resources. On April 8, the agency received a letter from the Morris’ counsel informing the agency that the Morrises had spent down their resources and requesting benefits under the Advantage Program. When the Morrises received notice of the denial, they requested a “fair hearing.” In July 2009, OKDHS conceded that the annuity the Morrises had purchased was actuarially sound, resulted in a fair market value return, and that the income stream could not be resold.3 Following these concessions, the Morrises and OKDHS agreed to submit the agency‘s decision to an administrative hearing officer for review.
On July 29, 2009, the OKDHS Appeals Committee issued a decision affirming the agency‘s conclusion that Mrs. Morris was ineligible for benefits because her countable resources exceeded $2,000. OKDHS Director Howard Hendrick affirmed this decision. He provided two reasons for this determination.
First, he reasoned that ”
Morris’ CSRA.” Because “[a]ll of the couple‘s resources in excess of Mr. Morris’ $53,906 CSRA must
Second, Hendrick concluded in the alternative that the annuity purchase was a disqualifying transfer of resources. Under this theory, Hendrick stated that “Mrs. Morris made a transfer to Mr. Morris without receiving FMV [fair market value] in return when he used $41,000 of her resources to buy the annuity – from which only Mr. Morris benefitted.” The MCCA permits inter-spousal transfer of resources, Hendrick determined, only “in an amount necessary to bring the community spouse‘s resources up to the CSRA.” See
Following their exhaustion of administrative remedies, the Morrises filed suit in federal district court under
the district court ruled in favor of OKDHS. It concluded that
III
We review the grant of summary judgment de novo. Hobbs, 579 F.3d at 1179. Summary judgment should be granted only if, viewing the evidence in the light most favorable to the non-moving party, the movant is entitled to judgment as a matter of law. Id.
A
As noted above, OKDHS provided two reasons for rejecting Mrs. Morris’ application. First, the agency held the fact “[t]hat Mrs. Morris decided to use $41,000 of her resources to buy an annuity for Mr. Morris is of no consequence in determining her [Advantage] eligibility and did not count as a spend[ ]down of her resources.” The agency‘s precise reasoning on this point is somewhat opaque. OKDHS did not cite any provision of the Medicaid statute for its conclusion, and the parties have provided no basis upon which to conclude the purchase of an annuity would be anything other than a spend down. As best we can tell, OKDHS determined that an annuity payable to Mr. Morris should be counted toward Mrs. Morris’ resources for the purpose of determining eligibility. We conclude that this rationale is not consistent with the Medicaid statutes.
For Medicaid purposes, an annuity generally counts as an “asset.” See
The weight of authority supports this interpretation. See Hutcherson v. Ariz. Health Care Cost Containment Sys. Admin., 667 F.3d 1066, 1069 (9th Cir. 2012) (noting that the annuity provision “allow[s] the spouse to convert his or her assets, which are considered in determining the institutionalized spouse‘s eligibility, to income which is not considered“); James v. Richman, 465 F. Supp. 2d 395, 403 (M.D. Pa. 2006) (holding “available assets may become unavailable assets and not countable in determining
Medicaid eligibility for the institutionalized spouse when an irrevocable actuarially sound commercial annuity is purchased for the sole benefit of the community spouse“); Mertz v. Houston, 155 F. Supp. 2d 415 (E.D. Pa. 2001) (“[A] couple may effectively convert countable resources into income of the community spouse which is not countable in determining Medicaid eligibility for the institutionalized spouse by purchasing an irrevocable actuarially sound commercial annuity for the sole benefit of the community spouse.“); Vieth v. Ohio Dep‘t of Job & Family Servs., 2009 Ohio 3748, at P34 (Ohio Ct. App. 2009) (concluding that “funds used to purchase an actuarially sound, non-revocable, non-transferable commercial annuity, for the sole benefit of the community spouse, are not countable resources for Medicaid eligibility purposes“); see also Dean v. Del. Dep‘t of Health & Social Servs., 2000 Del. Super. LEXIS 490, at *31, No. 00A-05-006 (Super. Ct. Del. Dec. 6, 2000) (unpublished), aff‘d 781 A.2d 693 (Del. 2001) (holding that the purchase of an annuity produces uncountable community-spouse income); Estate of F.K. v. Div. of Med. Assistance & Health Servs., 863 A.2d 1065, 146 (N.J. Super. Ct. App. Div. 2005) (relying on Transmittal 64 to strike down a New Jersey regulation that capped the amount a couple could spend on an annuity at the couple‘s CSRA).
This is also the reading of the statute adopted by the agency charged with administering the Medicaid program. See Via Christi Reg‘l Med. Ctr., Inc. v. Leavitt, 509 F.3d 1259, 1261 & n.1 (10th Cir. 2007) (Centers for Medicare and Medicaid Services, formerly the Health Care Financing Administration, administers Medicaid program). As that agency forthrightly acknowledged in Transmittal 64, “[t]he exception for transfers to a third party for the sole benefit of the spouse may have greater impact on eligibility because resources may potentially be placed beyond the reach of either spouse and thus not be counted for eligibility purposes.” State Medicaid Manual § 3258.11.
Finally, despite its presumed awareness of these judicial and administrative interpretations, see Lorillard v. Pons, 434 U.S. 575, 580 (1978) (administrative); Dobbs v. Anthem Blue Cross & Blue Shield, 600 F.3d 1275, 1282 (10th Cir. 2010) (judicial), Congress has not revised the Medicaid statute to foreclose this option. Indeed, rather than close the annuity “loophole,” Congress has twice amended the Medicaid statutes to specify the types of annuities capable of producing uncountable spousal income. See Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, 120 Stat. 2922, 2998; Deficit Reduction Act of 2005, Pub. L. No. 109–171, 120 Stat. 4, 62-64.
Stated simply, nothing in the Medicaid statutes support OKDHS’ apparently categorical decision that the purchase of an annuity does not count as a spend down. Although an annuity may continue to qualify as a resource depending on its specific characteristics, OKDHS explicitly stated that the annuity at issue satisfied
B
OKDHS’ second justification for its decision presents a closer question. The agency held in the alternative that the Morrises violated the transfer provisions of the MCCA when they purchased the annuity, and thus were subject to a disqualification penalty. OKDHS based this conclusion on its determination that Mrs. Morris was permitted to transfer resources to Mr. Morris only in the amount necessary to bring his resources up to the CSRA. Accordingly, our review of this holding requires us to analyze the manner that
1
Although a majority of courts have permitted annuity purchases, none of the decisions cited in Part III.A, supra, specifically address the impact of
As the Burkholder order notes, the two provisions at issue are “amenable to two distinct interpretations.” Id. at *12-13. Section
The district court in Burkholder settled on the latter interpretation, concluding that the former construction “would render
In granting summary judgment to OKDHS, the district court extended the reasoning of Burkholder a step further. Although the court did not use
We reject this approach. To avoid rendering
2
Section
Congress did not use the precise phrase “initial determination of eligibility” elsewhere in the Medicaid statutes, but it employed a similar formulation in two other instances. See
Attribution of resources at time of initial eligibility determination.
In determining the resources of an institutionalized spouse at the time of application for benefits under this subchapter, regardless of any State laws relating to community property or the division of marital property –
(A) except as provided in subparagraph (B), all the resources held by either the institutionalized spouse, community spouse, or both, shall be considered to be available to the institutionalized spouse, and
(B) resources shall be considered to be available to an institutionalized spouse, but only to the extent that the amount of such resources exceeds the amount computed under subsection (f)(2)(A) of this section (as of the time of application for benefits).
Section headings “cannot substitute for the operative text of the statute,” but may be used as “tools available for the resolution of a doubt about the meaning of a statute.” Fla. Dep‘t of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33, 47 (2008) (quotation omitted). Subsection
To transfer a resource is to “change over the possession or control of” that resource. Black‘s Law Dictionary (6th ed. 1990). Recall, however, that the MCCA renders nominal title or control between spouses irrelevant. Following passage of the MCCA, agencies must ignore “State laws relating to community property or the division of marital property,”
Not so once an agency affirmatively determines that an institutionalized spouse is eligible for benefits, at which point “separate treatment of resources” begins.
The fact that resource allocation rules differ significantly depending on whether an applicant has been “determined to be eligible for benefits,”
In contrast, we see no reason why a determination of ineligibility would justify different transfer rules. When an agency concludes that an individual is ineligible, this decision does not trigger the ownership-based treatment of resources. The couple merely learns they must spend down further in order to become eligible, and all resources—irrespective of which partner holds title—continue to affect the institutionalized spouse‘s eligibility for Medicaid. Thus, an agency‘s denial of Medicaid benefits is not a watershed moment; a determination that an individual is eligible, however, results in a dramatic change.
OKDHS’ argument to the contrary misunderstands the effect of the CSRA calculation. The CSRA allotment is a planning tool based on a couples’ combined resources at the time of the application for benefits, see
We recognize that couples like the Morrises may act strategically by converting resources to income after establishing their CSRA in order to qualify for a higher allowance than if they purchased an annuity prior to the CSRA calculation. We note, however, that an agency‘s determination of whether an applicant is eligible is not the first or only time when a couple‘s CSRA may be calculated. The statute clearly contemplates that a couple may request that an agency assess the community “spousal” share prior to and apart from an application for benefits.
The imposition of a transfer penalty for an alleged transfer of $41,000 from Mrs. Morris to Mr. Morris was thus not consistent with the federal statute. The transfer, to the extent it occurred at all, occurred prior to a determination that Mrs. Morris was eligible for Medicaid. This is so because Mrs. Morris was never determined to be eligible. In this context, the unlimited transfer provision of
3
OKDHS argues in the alternative that Mr. Morris used a portion of his CSRA to purchase the annuity, leaving Mrs. Morris with excess resources. As the district court concluded, this interpretation of the facts “would leave Mrs. Morris yet to spend down her spousal share [and] would leave Mrs. Morris with excess resources.” However, this reasoning rests on the same fundamental misapprehension of the Medicaid statutes discussed above.
Prior to a determination of eligibility, there is no reason to apportion a couple‘s resources in the manner urged by OKDHS. Although the Medicaid statute does allow a request for assessment of the “spousal share,” used to calculate the CSRA, see
After the Morrises purchased the annuity and engaged in other spend down transfers, OKDHS concluded that they had $47,812 in resources. Because Mr. Morris’ CSRA was $51,906, the amount available to Mrs. Morris pursuant to
4
We understand the district court‘s concerns about the annuity provisions in the Medicaid statutes, and we acknowledge the fiscal strain Medicaid can exert on state budgets. Nevertheless, we hold that the purchase of a qualifying annuity renders resources unavailable to the institutionalized spouse even if the annuity is purchased in addition to the community spouse‘s CSRA. Qualifying annuities are not considered available to the institutionalized spouse pursuant to
C
For the foregoing reasons, we reject both of the rationales offered by
The state of the record before us as to the precise timing of the application relative to the annuity purchase counsels against this court deciding the matter in the first instance.6 It appears that counsel‘s letter announcing the Morris’ “spend down” and requesting benefits was received by OKDHS on April 8, 2000—the same day that Mr. Morris signed the annuity application. However, OKDHS’ final decision indicates that Mr. Morris sent his check for the annuity purchase on April 1, 2008, before the date the agency considered the application filed, April 3, 2008. We also note that agency proceedings continued well after the annuity purchase was indisputably final. Had the agency ruled on this basis, it seems quite clear that Mrs. Morris would have re-applied if re-application was deemed necessary.
The Morrises argue that genuine fact issues exist as to the timing issues that would preclude summary judgment, and that any gap between Mr. Morris’ application and the date the annuity was actually purchased would merely delay eligibility. They also request an opportunity to present additional evidence as to this newly disputed issue.
Because the timing of the application relative to the annuity purchase is in dispute
and the district court did not clearly resolve that issue, we conclude that the proper course is to remand to the district court for proceedings consistent with this opinion. See Pacheco v. Shelter Mut. Ins. Co., 583 F.3d 735, 743 (10th Cir. 2009) (remanding for unexamined issue to be considered by the district court in the first instance).
IV
We REVERSE the district court‘s grant of summary judgment in favor of OKDHS and remand for further proceedings consistent with this opinion.