Vieth v. Ohio Dept. of Job & Family Servs.Vieth v. Ohio Dept. of Job & Family Servs.
Rendered on July 30, 2009
Cannizzaro, Fraser, Bridges, Jillisky & Streng, LLC, and Don W. Fraser; Browning, Meyer & Ball, Co., LPA, and William J. Browning, for appellant.
Richard Cordray, Attorney General, and Mark W. Fowler, for appellee.
APPEAL from the Franklin County Court of Common Pleas.
BROWN, J.
{¶1} This is an appeal by appellant, Warren Vieth, now Susan Vieth, Executor of the Estate of Warren Vieth, from a judgment of the Franklin County Court of Common Pleas, affirming the decision of appellee, Ohio Department of Job and Family Services (“the department“), denying appellant Medicaid vendor payments.
{¶3} On January 29, 2007, appellant‘s spouse, Susan Vieth, purchased two annuities, one in the amount of $127,110.92, and the other in the amount of $13,814.51.1 In all administrative hearings conducted in this matter, the department has agreed that the annuities at issue fully complied with the provisions of
{¶4} When appellant‘s spouse purchased the annuities, the maximum amount of the community spouse resource allowance (“CSRA“) was $101,640. On April 12, 2007, appellant applied for Medicaid benefits, and the department subsequently conducted a resource assessment. On July 1, 2007, the Franklin County Department of Jobs and Family Services (“the agency“) denied appellant Medicaid vendor payments based upon the agency‘s determination of an improper transfer of resources; specifically, the order provided: “Improper transfer of assets: Assets belonging to the couple, excluding the CSRA of $101,640.00, were put into annuities in the community spouse[‘]s name in order to make the institutionalized spouse eligible for Medicaid.” In support of its determination, the agency cited the provisions of
{¶5} Appellant filed objections to the agency‘s denial of Medicaid vendor payments, and a state hearing officer conducted a hearing on the matter. The hearing
{¶6} On November 19, 2007, appellant filed an appeal with the trial court from the decision of the department. By decision and entry filed June 30, 2008, the trial court affirmed the department‘s decision and dismissed appellant‘s appeal.
{¶7} On appeal, appellant sets forth the following single assignment of error for this court‘s review:
THE REVIEWING COURT ERRED AS A MATTER OF LAW IN AFFIRMING APPELLEE‘S DECISION TO DENY MEDICAID BENEFITS TO THE APPELLANT ON THE BASIS THAT O.A.C. 5101:1-39-07 PRECLUDES A COUPLE FROM CONVERTING COUNTABLE RESOURCES IN EXCESS OF THE CSRA INTO INCOME OF THE COMMUNITY SPOUSE WHICH IS NOT COUNTABLE IN DETERMINING MEDICAID ELIGIBILITY FOR THE INSTITUTIONALIZED SPOUSE BY PURCHASING IRREVOCABLE ACTUARIALLY SOUND COMMERCIAL ANNUITIES THAT FULLY COMPLY WITH O.A.C. 5101:1-39-22.8 FOR THE SOLE BENEFIT OF THE COMMUNITY SPOUSE.
{¶8}
The court may affirm the order of the agency complained of in the appeal if it finds, upon consideration of the entire record and any additional evidence the court has admitted, that the order is supported by reliable, probative, and substantial
evidence and is in accordance with law. In the absence of this finding, it may reverse, vacate, or modify the order or make such other ruling as is supported by reliable, probative, and substantial evidence and is in accordance with law.
{¶9} Under the provisions of
{¶10} An appellate court‘s review of the decision of the common pleas court is more limited, and involves a determination whether the trial court abused its discretion. Steinfels v. Ohio Dept. of Commerce (1998), 129 Ohio App.3d 800, 803. On purely legal questions, however, an appellate court‘s review is “plenary.” Id.
{¶11} Appellant argues that the trial court erred in affirming the department‘s decision to deny him Medicaid vendor payments on the basis that
{¶12} By way of background, Congress established the Medicaid program in 1965 by adding Title XIX to the Social Security Act,
{¶13} Prior to 1988, a married individual in a nursing home was essentially required to ” ‘spend down’ all of the family assets to the relevant eligibility limits before he or she could become eligible for assistance.” Martin v. Ohio Dept. of Human Servs. (1998), 130 Ohio App.3d 512, 518. Congress enacted
{¶14} The MCCA “permits the spouse living outside the nursing home (designated the ‘community spouse‘) to keep half of the couple‘s resources, generally, without affecting the eligibility of the spouse within the nursing home (designated the
{¶15} After the MCCA became effective, the Ohio General Assembly directed the Ohio Department of Human Services (“ODHS“) “to ‘establish standards consistent with federal law for allocating income and * * * resources’ of an institutionalized spouse who applied for Medicaid benefits and his spouse.” George v. Ohio Dept. of Human Servs., 10th Dist. No. 04AP-351, 2005-Ohio-2292, ¶5, quoting
{¶16} Income allocation under the MCCA is “governed by [42 U.S.C.] §§ 1396r-5(b) and (d).” Wis. Dept. of Health & Family Servs. v. Blumer (2002), 534 U.S. 473, 480, 122 S.Ct. 962, 967. Those sections “exclude the community spouse‘s individual income
{¶17}
The methodology to be employed in determining income and resource eligibility for individuals under [various enumerated subsections], or (f) or under section 1905(p) [1396d(p)] may be less restrictive, and shall be no more restrictive, than the methodology –
(i) in the case of groups consisting of aged, blind, or disabled individuals, under the supplemental security income program under title XVI * * *.
{¶18} On February 8, 2006, the Deficit Reduction Act of 2005 (“DRA“), Pub. L. No. 109-171, 120 Stat. 4 (2006), was signed into law. The DRA contains amendments to the Social Security Act “effecting broad changes to the laws governing Medicare and Medicaid coverage.” Public Citizen v. Clerk, United States District Court for District of Columbia (D.D.C.2006), 451 F.Supp.2d 109, 110. Included among those changes were provisions regarding the treatment of annuities under the Medicaid program.
{¶19}
(F) For purposes of this paragraph, the purchase of an annuity shall be treated as the disposal of an asset for less than fair market value unless—
(i) the State is named as the remainder beneficiary in the first position for at least the total amount of medical assistance
paid on behalf of the institutionalized individual under this title [42 USCS §§ 1396 et seq.]; or (ii) the State is named as such a beneficiary in the second position after the community spouse or minor or disabled child and is named in the first position if such spouse or a representative of such child disposes of any such remainder for less than fair market value.
(G) For purposes of this paragraph with respect to a transfer of assets, the term “assets” includes an annuity purchased by or on behalf of an annuitant who has applied for medical assistance with respect to nursing facility services or other long-term care services under this title [42 USCS §§ 1396 et seq.] unless—
(i) the annuity is—
(I) an annuity described in subsection (b) or (q) of section 408 of the Internal Revenue Code of 1986 [26 USCS § 408]; or
(II) purchased with proceeds from—
(aa) an account or trust described in subsection (a), (c), or (p) of section 408 of such Code [26 USCS § 408];
(bb) a simplified employee pension (within the meaning of section 408(k) of such Code [26 USCS § 408(k)]); or
(cc) a Roth IRA described in section 408A of such Code [26 USCS § 408A]; or
(ii) the annuity—
(I) is irrevocable and nonassignable;
(II) is actuarially sound (as determined in accordance with actuarial publications of the Office of the Chief Actuary of the Social Security Administration); and
(III) provides for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments made.
{¶21} Effective October 1, 2006,
(1) For any annuity purchased or annuity transaction completed on or after February 8, 2006, the purchase or transaction must be treated as the disposal of an asset for less than fair market value as outlined in rule 5101:1-39-07 of the Administrative Code unless:
(a) The state of Ohio is named as the remainder beneficiary in the first position for the total amount of medical assistance furnished to the individual; or
(b) The state of Ohio is named as such a beneficiary in the second position for the total amount of medical assistance furnished to the individual after the community spouse or minor or disabled child, and is named in the first position for the total amount of medical assistance furnished to the individual if such spouse or a representative of such child disposes of any such remainder for less than fair market value.
* * *
(3) For any annuity purchased on or after February 8, 2006, the purchased annuity must be irrevocable, non-assignable, and actuarially sound as determined by the life expectancy tables published by the office of the actuary of the social security administration * * *; and provides for payments in equal amounts during the term of the annuity with no deferral and no balloon payments made.
{¶23} Thus, under Ohio law, an annuity purchased after February 8, 2006, will be treated as the transfer of an asset for less than fair market value, as outlined under
{¶24} In the instant case, the department acknowledges that the DRA changed the law with regard to annuities to provide that, in certain circumstances, the purchase of annuities will not be treated as an improper transfer. The department maintains, however, that the DRA did not change how the CSRA is calculated, or how spousal resources are treated for Medicaid eligibility purposes, and the department contends it was proper to deny appellant Medicaid vendor payments where the funds transferred to purchase the annuities were in excess of the CSRA.
{¶25} Several federal courts have addressed the treatment of commercial “irrevocable immediate annuities” (similar to the annuities purchased in the instant case) in the context of Medicaid eligibility requirements. In one of the earliest cases, Mertz v. Houstoun (E.D.Pa.2001), 155 F.Supp.2d 415, the applicant‘s spouse purchased actuarially sound annuities for fair market value, but the Secretary of the Pennsylvania Department of Public Welfare (“DPW“) nevertheless penalized the applicant based upon the agency‘s determination that the purchase of the annuities constituted a transfer of assets for purposes of qualifying for Medicaid assistance. The applicant subsequently filed an action in federal court for declaratory and injunctive relief.
{¶26} In Mertz, the court noted that federal law “provides for a period of ineligibility predicated upon a transfer of assets during the look back period only for transfers made for less than fair market value and even then subject to certain exceptions.” Id. at 425, citing
{¶28} The DPW appealed the district court‘s decision to the Third Circuit Court of Appeals. In James, the court first addressed whether the DPW erred in treating a non-revocable, non-transferable annuity as an available resource for purposes of calculating Medicaid eligibility. The court, construing federal regulations, held that the DPW “cannot use a methodology that is more restrictive than that used by the SSI (Supplemental Security Income) Program,” meaning that the agency “can not treat as available resources any assets that the SSI regulations would not treat as available resources.” Id. at 218.
{¶29} The court in James at 218, then considered the treatment of annuities under the Supplemental Security Income (“SSI“) regulations, holding in relevant part:
[The SSI regulations] provide that “if an individual has the right, authority or power to liquidate the property, or his or her share of the property, it is considered a[n] (available) resource.”
20 C.F.R. § 416.1201(a)(1) . The SSI Program Operations Manual System (POMS) gives the example of jointly owned stock subject to a legally binding agreement that neither owner will sell without the consent of the other, and
explains that such stock is not an asset unless the co-owner has consented to its sale. POMS SI 01110.115. The POMS makes it clear that the “power to liquidate” referred to by the regulation is not simply the de facto ability to accomplish a change in ownership of an asset, but must also include the power to do so without incurring legal liability.
(Footnote omitted.)
{¶30} The court determined that James “lacks such power to change ownership in her annuity,” as the annuity “states on its face that it ‘may not be surrendered, transferred, collaterally assigned, or returned for a return of the premium paid.’ ” Id. Further, the court noted, even if the DPW was correct that James “has the de facto ability to effect a change in ownership of the annuity, she cannot do so without breaching the contract and incurring legal liability,” and, thus, “the annuity cannot be treated as an available resource.” Id.
{¶31} Having found that the annuity could not be treated as an available resource, the court in James at 219, next addressed and rejected the DPW‘s contention that granting eligibility for individuals in the applicant‘s situation would undercut the purpose of Medicaid, holding:
We begin by noting that Medicaid is established through an exhaustive set of statutes that thoroughly detail what benefits are to be available and to whom they should be provided. See
42 U.S.C. § 1396 et seq. In this context, we do not create rules based on our own sense of the ultimate purpose of the law being interpreted, but rather seek to implement the purpose of Congress as expressed in the text of the statutes it passed. See Rosenberg v. XM Ventures, 274 F.3d 137, 141 (3d Cir. 2001) (explaining that the role of the courts in interpreting a statute is to give effect to Congress‘s intent, and that it is presumed that Congress expresses its intent through the language of a statute). As discussed above, an irrevocable, non-alienable annuity does not fit the statutory definition of an available resource. In addition, Congress provided a detailed set of rules governing transactions that it considered suspicious, and the purchase of an annuity is not
among them.
42 U.S.C. § 1396p(c) . We simply cannot allow a denial of eligibility if there is no statutory justification for that denial. Such justification is lacking here.
(Footnote omitted.)
{¶32} In the present case, the parties do not dispute that the two annuities at issue comply with the eligibility criteria of
{¶33} As noted above, federal courts interpreting provisions of the Medicaid law dealing with the treatment of annuities have rejected state agency arguments that actuarially sound commercial annuities, purchased for fair market value, and for the sole benefit of the community spouse, constitute countable resources in calculating the CSRA for purposes of Medicaid eligibility. See Mertz; James. Other courts have reached similar determinations. See Dean v. Dept. of Health & Social Servs. (Del.Super.Ct.2000), No. 00A-05-006 (community spouse‘s purchase of standard, commercial irrevocable annuity constitutes exempt resource for purposes of determining CSRA and Medicaid eligibility); Estate of F.K. v. Div. of Med. Assistance & Health Servs. (N.J.Super.Ct.App.Div.2005), 374 N.J. Super. 126, 143, 863 A.2d 1065, 1075 (holding that state regulation capping the amount of funds an applicant for Medicaid benefits may use to purchase an irrevocable and non-assignable commercial annuity for the benefit of community spouse at the CSRA limit “is invalid because it is inconsistent with federal law“).
{¶35} Under the facts of James, the spouse purchased her annuity prior to the enactment of the DRA (of 2005). In the instant case, both parties have submitted, as supplemental authority, cases involving the treatment of annuities that were purchased after the effective date of the DRA. Specifically, appellant relies upon a federal decision, Weatherbee v. Richman (D.C.W.Pa.2009), 595 F.Supp.2d 607, while the department cites in support of its position a New Jersey Superior Court decision, N.M. v. Div. of Med. Assistance & Health Servs. (N.J.Super.Ct.App.Div.2009), 964 A.2d 822.
{¶36} At issue in both of those cases was the interpretation of one particular DRA provision,
(e) (1) In order to meet the requirements of this section for purposes of section 1902(a)(18) [42 USCS § 1396a(a)(18)], a State shall require, as a condition for the provision of medical assistance for services described in subsection (c)(1)(C)(i) (relating to long-term care services) for an individual, the application of the individual for such assistance (including any recertification of eligibility for such assistance) shall disclose a description of any interest the individual or community spouse has in an annuity (or similar financial instrument, as may be specified by the Secretary), regardless of whether the annuity is irrevocable or is treated as an asset. Such application or recertification form shall include a statement that under paragraph (2) the State becomes a remainder beneficiary under such an annuity or similar financial instrument by virtue of the provision of such medical assistance.
(2) (A) In the case of disclosure concerning an annuity under subsection (c)(1)(F), the State shall notify the issuer of the annuity of the right of the State under such subsection as a preferred remainder beneficiary in the annuity for medical assistance furnished to the individual. Nothing in this paragraph shall be construed as preventing such an issuer from notifying persons with any other remainder interest of the State‘s remainder interest under such subsection.
(B) In the case of such an issuer receiving notice under subparagraph (A), the State may require the issuer to notify the State when there is a change in the amount of income or principal being withdrawn from the amount that was being withdrawn at the time of the most recent disclosure described in paragraph (1). A State shall take such information into account in determining the amount of the State‘s obligations for medical assistance or in the individual‘s eligibility for such assistance.
(3) The Secretary may provide guidance to States on categories of transactions that may be treated as a transfer of asset for less than fair market value.
(4) Nothing in this subsection shall be construed as preventing a State from denying eligibility for medical assistance for an individual based on the income or resources derived from an annuity described in paragraph (1).
{¶37} In Weatherbee, the plaintiff-spouse, Theodore Weatherbee, was admitted to a nursing facility on September 1, 2006, and a resource assessment by the state‘s DPW determined that the plaintiff had $442,696.05 in available resources to pay for nursing facility services. On November 29, 2006, the plaintiff‘s wife purchased a single premium immediate irrevocable annuity, which contained an endorsement restricting assignment or transfer of the policy. The plaintiff then filed an application for medical assistance benefits, but the DPW denied eligibility after determining that the payment stream from the Jefferson-Pilot annuity was an available resource. The plaintiff subsequently filed a complaint for declaratory and injunctive relief with the district court,
{¶38} Both parties in Weatherbee raised the issue of the import of the decision in James, with the DPW contending that James was distinguishable because the annuity was purchased prior to February 8, 2006, the effective date of the DRA. The DPW argued that, under the DRA, Congress specifically amended the law to permit the DPW to count the payment stream from an annuity as a resource, citing
{¶39} In considering whether the DPW properly treated the income stream from the annuity as an available resource, the court in Weatherbee framed the central issue as “whether the meaning attributed to
[T]he language of
42 U.S.C. § 1396p(e)(4) , when viewed in the context of the subsection as well as pertinent provisions of the Medicaid Act, is unambiguous and does not support the DPW‘s reading of it. By its terms,42 U.S.C. § 1396p(e)(4) expressly limits its effect to “this subsection.” It does not purport to alter the well-established rule under the Medicaid Act, contained in42 U.S.C. § 1396r-5 , that “no income of the community spouse shall be deemed available to the institutionalized spouse.”42 U.S.C. § 1396r-5(b)(1) . Indeed,42 U.S.C. § 1396r-5(a)(1) provides that, “[i]n determining the eligibility for medical assistance of an institutionalized spouse . . ., the provisions of this section supersede any other
provision of this subchapter . . . which is inconsistent with them.”
{¶40} In N.M. at 824, the Superior Court of New Jersey took the opposite position, finding that, under
{¶41} We note that the court in N.M. cursorily acknowledged the decisions in James and Weatherbee, but did not discuss the analysis applied by either of those courts. Specifically, the court deemed James inapplicable because it was decided prior to the enactment of the DRA, and found no precedential value to Weatherbee on the basis “there is no indication that opinion will be approved for publication.” N.M. at 828, fn. 5. Furthermore, the N.M. court found significant the fact the parties in N.M. stipulated that the income stream from the annuity could be sold on the open market, leading the court to conclude that “this annuity is considered assignable.” Id. at 829.
{¶42} Upon review, we find more reasonable the interpretation and analysis of
{¶43} As observed by the court in Weatherbee at 616,
{¶44} One other case, McNamara v. Ohio Dept. of Human Servs. (2000), 139 Ohio App.3d 551, merits discussion, as it was relied upon by the trial court in this case, and is also cited by the department. In McNamara, the Montgomery County Court of Appeals affirmed a trial court decision which affirmed an agency determination finding the appellant ineligible to receive Medicaid payments for a period of 30 months on the basis that appellant and her spouse had improperly transferred most of their assets to a “spousal annuity trust.” Id. at 552. In its decision, the court concluded that “the amount of funds that one person may transfer to his or her spouse under Section 1396p(c)(2)(B) is limited to the maximum amounts the community spouse may retain under the CSRA provision in Section 1396r-5(f).” Id. at 557.
{¶45} McNamara, however, which pre-dated the DRA, did not involve a commercial annuity, as in the instant case, but, rather, a “spousal annuity trust” (which was purchased for less than fair market value). Thus, the court in McNamara rejected the appellant‘s argument that her trust should be “treated under the rules governing annuities found in
{¶46} In the present case, the annuities at issue, purchased for the sole benefit of the community spouse, were in compliance with the provisions of
{¶48} Based upon the foregoing, the judgment of the Franklin County Court of Common Pleas is reversed, and this cause is remanded to that court for further proceedings in accordance with law, consistent with this decision.
Judgment reversed and cause remanded.
BRYANT and SADLER, JJ., concur.
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