Federal Court Upholds Medicaid Annuity to Protect Community Spouse

Written By: Attorney Jeffrey A. Marshall , CELA*

A Federal Appeals Court has upheld a wife’s right to purchase an annuity to protect her assets from her husband’s nursing home costs.

Josephine James consulted with the Wilkes-Barre office of Marshall, Parker & Associates in August 2005 when her husband entered a nursing home. Like many “community spouses” she was concerned that the devastating cost of her husband’s care would destroy her financial security. 

Federal Medicaid law has long allowed “community spouses” like Mrs. James to protect extra assets through the purchase of a specialized “Medicaid Annuity.” A Medicaid immediate annuity works by converting excess resources that would otherwise have to be spent on nursing home care into protected income that the community spouse can keep.  [Important note: most annuities do not meet Medicaid requirements.  Community spouses should not engage in this planning without the help of an experienced elder law attorney.]  

Mrs. James purchased a single premium immediate irrevocable annuity that met Medicaid requirements. But, when Mr. James applied for Medicaid in September 2005, his application was denied by the Pennsylvania Department of Public Welfare (DPW). This was surprising because a federal court had previously ordered DPW to grant eligibility in a similar case, Mertz v. Houstoun, 155 F. Supp. 2d 415, 426-27 (E.D. Pa. 2001).

The James family, represented by Marshall, Parker & Associates’ Attorneys Matthew J. Parker and Kevin Grebas, filed an action in federal court to force DPW to grant Mr. James the benefits to which he was entitled under the Medicaid laws. In support of its denial of the application, DPW came up with a creative new argument.  It asked the federal court to find that even if Mrs. James’ annuity was protected under federal law, her contractual right to income from the annuity was not protected because a finance company would buy it from her.  According to DPW, this meant that it could treat her right to income payments as an available resource that would disqualify Mr. James from Medicaid.

Can DPW treat the community spouse’s right to income as a resource?  Federal District Court Judge Richard Caputo rejected DPW’s arguments and found in Mr. and Mrs. James’ favor.  He pointed out that since the 1988 enactment of laws to avoid spousal impoverishment (the MCCA laws) the community spouse has been entitled to retain any income she receives.

The Judge noted that DPW “essentially argues that, even if the [annuity’s] income stream itself cannot be considered for purposes of determining Medicaid eligibility, the market value of that income stream should be a countable resource to preclude eligibility. Such a rule would completely undermine federal law, which excludes income of the community spouse from factoring into the institutionalized spouse’s Medicaid eligibility.”

Judge Caputo ordered DPW to provide Mr. James with Medicaid benefits to help pay for his nursing care.  See James ex rel. James v. Richman, 465 F.Supp.2d 395 (M.D.Pa., Nov 21, 2006 at www.paelderlaw.com/spousal_annuity.html.)

Unwilling to accept Judge Caputo’s decision, DPW appealed to the Federal Third Circuit Court of Appeals. That Appeals Court has now issued another decision in favor of Mr. and Mrs. James.  James v. Richman, 2008 WL 4874170, C.A.3 ( Pa. ), November 12, 2008 (NO. 06-5092).

In a precedential opinion, Senior Judge Jane Roth rejected all of DPW’s arguments and upheld Judge Caputo’s earlier order. The Court found that federal Medicaid laws and regulations provide that an annuity such as that owned by Mrs. James is not an available resource for purposes of Medicaid. It held that DPW was wrong in attempting to deny Mr. James the Medicaid benefits to which he was entitled.    

As to DPW’s new argument that the right to annuity income is a resource, Judge Roth noted that “[t]here is no statutory basis for such a theory and, indeed, adopting it would tend to undermine the MCCA rule that ‘no income of the community spouse shall be deemed available to the institutionalized spouse.’ 42 U.S.C. §1396r-5(b)(1). Under such a theory, there is no clear limit on the hypothetical transaction proceeds that could be treated as assets, whether based on the sale of a future stream of payments tied to a fixed income retirement account, social security, or even a regular paycheck.” [Opinion, pages 11-12].

The Third Circuit Court’s decision in James v. Richman is precedential and thus binding on courts in Pennsylvania , New Jersey and Delaware . And it should carry great weight in other parts of the country as well. This is the third federal tribunal that has now struck down DPW attempts to treat Medicaid annuities as available resources.  In addition, Pennsylvania ’s state Commonwealth Court has also ruled against DPW on the issue. See Ross v. DPW at http://www.paelderlaw.com/legislation_regulation_caselaw.html. 

Why then has DPW continued to oppose treating community spouse annuity protections in the manner required by federal Medicaid law?  DPW opposition to spousal annuities appears to arise from its opinion that Medicaid annuities, although permitted by federal law, are contrary to what it sees as the underlying purpose of the Medicaid program.  Indeed, in James v. Richman, DPW asked the court to render a decision which would allow DPW to implement that law in accordance with its view of that purpose. 

Judge Roth pointedly rejected DPW’s argument that DPW is authorized to impose its own views in place of the terms of the statute.  Congress expresses Medicaid’s purposes in the words of the laws it enacts. The Medicaid agency and the courts must follow the terms of the statute. The courts “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. [A]n irrevocable, non-alienable annuity does not fit the statutory definition of an available resource.” [Opinion, page 12]

Qualified immediate annuities issued by commercial insurance companies have been given special protections in the Medicaid laws.  Unique provisions allowing the continued use of annuities to protect community spouse assets were written into the Federal Medicaid laws that were passed by Congress in 1993 (OBRA 93) and again in 2006 (DRA).  Perhaps these provisions are a result of Congressional concern with limiting the impoverishment of community spouses.  Or perhaps the annuity provisions in OBRA 93 and the DRA are more reflective of the influence the insurance lobby has over public policy decisions.

Whatever its reason, Congress has chosen to give special treatment to annuities and the policy decision has been made.  Hopefully DPW will now acquiesce in the verdicts of federal and state courts and accept that, whatever its distaste for annuities, it should and must follow the policy decisions made by Congress as expressed in the Medicaid laws. If the perceived annuity “loophole” is to be closed, it needs to happen through federal legislative action, not inappropriate agency denials. 

In the meantime, community spouses have the right to use the annuity provisions of the law to protect their financial and emotional well being.

The Third Circuit Court of Appeals opinion in the case of James v. Richman, issued on November 12, 2008, and further discussion of the case is available online at http://www.paelderlaw.com/James_Decision_2008.html.      

 

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Attorney Marshall is available on our website at www.paelderlaw.com/staff.html   

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New Spousal Impoverishment & Waiver Amounts Announced for 2009

Written By: Attorney Jeffrey A. Marshall, CELA*

The Centers for Medicare and Medicaid Services (CMS) has announced the new standard maximum spousal protected resource level for Medicaid Long Term Care benefits effective January 1, 2009.

Community Spouse Allowance

In general, when your spouse is in a nursing home, or needs home care under the PDA Waiver or LIFE programs, he or she will not qualify for Medical Assistance (Medicaid) benefits until your savings are reduced to a certain level.  That permitted level of so-called "available resources" varies with each situation.  For nursing facility residents, Pennsylvania’s general rule is that the community spouse can keep ½ of the amount of available resources that were owned by the couple on the date of admission to the nursing facility.  However, this protected "Community Spouse Resource Allowance" is subject to a ceiling and a floor as noted below.

In addition to being allowed to keep the resource allowance, the community spouse is also entitled to have a certain level of income called the Minimum Monthly Maintenance Needs Allowance. The income allowance is also subject to a ceiling and a floor.  If the community spouse does not have the required level of income, the spouse may be allowed to keep some of the institutional spouse's income.  If the income diverted from the institutionalized spouse is still insufficient, the community spouse may be able to keep additional resources.  Many community spouses protect additional resources through the purchase of a DRA compliant annuity (such as the annuities discussed above in James v. Richman).  The state does not object to the purchase of a compliant annuity so long as it provides the spouse with total income of no more than the applicable income allowance.

These community spouse resource and income allowances are adjusted annually.  Effective January 1, 2009, the new base standards will be as follows:

-       Minimum Community Spouse Resource Allowance - $21,912.

-       Maximum Community Spouse Resource Allowance -$109,560.

-       Maximum Community Spouse Monthly Income Allowance - $2,739.

Note: The Minimum Monthly Income Allowance remains $1,750 - it will be adjusted on July 1, 2009.

Federal Benefit Rate

The Social Security Administration has announced the SSI Federal Benefit Rate Standards for 2009 as follows:

-       Individual - $674.00 per month

-       Couple - $1,011.00 per month

PDA Aging Waiver Program

The Federal Benefit rate is used to determine qualification for many Medicaid public benefit programs including the Department of Aging (PDA) Home Waiver and the LIFE programs. The income limit for the Aging Waiver and LIFE programs is equal to 300% of the SSI Federal Benefit rate for an individual. This means that effective January 1, 2009 the new income ceiling should be $2022 per month.  

Under Pennsylvania rules, individuals with income above this amount generally cannot qualify for the PDA Aging Waiver program. 

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Attorney Marshall is available on our website at www.paelderlaw.com/staff.html   

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Federal Court Upholds Limit on Medicare Payment for Nursing Home Stay

Written By: Attorney Jeffrey A. Marshall, CELA*

If you need inpatient skilled nursing or rehabilitation services after a hospital stay and you meet certain conditions, Medicare will help pay for up to 100 days in a Medicare-participating skilled nursing facility 

Medicare does not pay for “custodial care” when that is the only kind of care that you need. Custodial care is the type of care most people receive in nursing homes. It is care that could be given by someone who is not medically skilled (for example, help with dressing, walking, or eating).  But Medicare can cover nursing home residents who are receiving skilled care.  Skilled care is health care given when you need skilled nursing or rehabilitation staff to treat, manage, observe, and evaluate your care. Examples of skilled care include intravenous injections and physical therapy.

But, Medicare will not cover your skilled nursing facility care unless you have a qualifying hospital stay. This means that prior to entering the nursing facility, you must have an inpatient hospital stay of 3 consecutive days or more, not including the day you leave the hospital.  This is sometimes referred to as the “three-midnights rule.”

What if you enter the hospital via the emergency room? Does your three days start when your ER treatment begins? 

The Federal Medicare Agency (CMS) has long taken the position that the time you are being treated in an emergency room or are observed in a hospital before you are formally admitted does not count toward the Medicare law’s required 3-day qualifying “inpatient” hospital stay. Several years ago, consumer advocates challenged the CMS position in a national class action case, Landers v. Leavitt, --- F.3d ---, 2008 WL 4426572 (2d Cir. October 1, 2008). 

The plaintiffs, Landers, Dixon, and Grigley all spent three — but only three — consecutive midnights in hospitals and then moved to nursing homes, where they received skilled nursing services. But while in the hospital, each of them spent at least one midnight either in the emergency room or on observation status before being formally admitted. Accordingly, CMS determined that, because they had not spent three consecutive midnights hospitalized after having been formally admitted, Medicare did not cover their nursing facility stays.

Landers’ attorneys claimed that the three-day clock should start running once a patient begins receiving care in the ER, not when she is formally admitted. The definition of an “inpatient” should include all people receiving care from a hospital, not just those formally admitted. They pointed out that patients are often formally admitted from the ER or outpatient status in the middle of the night - and could as easily have been admitted prior to midnight if an admitting doctor or hospital bed had been available.  Therefore, the effect of the rule is to deprive people who should have been eligible of their nursing facility coverage. The Court disagreed. 

The Federal Court of Appeals upheld the CMS interpretation of the 3 day requirement.  The three days must have been in formal admission status.  As a consequence, beneficiaries who spend part of the three days in the ER or on outpatient observation status[1] are not considered to have been inpatient for three days and are not eligible for the follow-up nursing facility coverage. Since the case had been certified as a nationwide class, the decision on the merits is applicable throughout the country.

From a policy standpoint, the CMS interpretation means that nursing home costs are shifted to other payers.  Nursing facility residents are required to spend down their resources more rapidly, nursing facilities receive lower payments, and residents qualify more quickly for partly state-funded Medicaid instead of solely federally-funded Medicare.  Might CMS reconsider its position under a new federal administration?      

The case is available on the Marshall, Parker & Associates website at the following link: http://www.paelderlaw.com/legislation_regulation_caselaw.html

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Attorney Marshall is available on our website at www.paelderlaw.com/staff.html

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Heating Assistance Update

(updated information from Final State Plan and additional federal funding)

Written By: Planning Specialist Karen Griswold

As we enter this year’s heating season, we should all take a moment to spread the word about The Pennsylvania Low Income Home Energy Assistance Program (LIHEAP).  We should not assume that our family, friends and neighbors are aware of this program.  The LIHEAP season opened November 3, 2008 and helps low-income families pay their heating bills.  Resources are excluded in determining LIHEAP eligibility and the applicant can choose whether the time period to be used in determining gross annual income is 90 days or 12 months prior to the date of application.  

The 2008/2009 Income Guidelines are:

                        Household Size                                              Maximum Income

                                    1                                                                      $23,110

                                    2                                                                      $30,221

                                    3                                                                      $37,332

                                    4                                                                      $44,443

                                    5                                                                      $51,554

                                    6                                                                      $58,665

                                    7                                                                      $59,998

                                    8                                                                      $61,332

                                    9                                                                      $62,665

                                    10                                                                    $64,200          

 

Each Additional Person Add $5,400

                                               

You can apply online at www.compass.state.pa.us, by completing a mail-in application, or by contacting your local County Assistance Office or the LIHEAP hotline at 1-866-857-7095.  Applicants who received benefits last year will automatically receive a mail-in application.

Karen can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Karen is available on our website at www.paelderlaw.com/staff.html   

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Marshall, Parker & Associates Launches Updated Website

Written By: Melissa Bottorf, Director of Marketing & Business Development

You have trusted Marshall, Parker & Associates for accurate, up-to-date information on elder law, estate planning & estate administration for over 25 years. Now we have created a resource center for you that is available at the click of your mouse. Whether you are a professional working with the elderly, a caregiver helping a loved one or looking to plan yourself, www.paelderlaw.com has what you need to know.  

-Find up-to-date articles on the legal and social issues affecting our seniors 

-Download Marshall, Parker & Associates’ consumer booklets for FREE

-Read back issues of our e-mail newsletter, The Elder Care Law Alert

-View our presentation materials from recent conferences

-Register for an upcoming consumer workshop in your area

-Schedule an appointment with our experts

-Invite the experts at Marshall, Parker & Associates to speak at your next meeting or conference.

When you need information about estate planning and elder law in Pennsylvania, make your first stop www.paelderlaw.com.

Melissa can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Melissa is available on our website at www.paelderlaw.com/staff.html  

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Learn How To Protect Your Family from Long Term Care Costs

at our FREE Consumer Workshop

Saturday, December 6, 2008 from 10:00 AM until 12:00 PM at Orlando’s Restaurant in Muncy

 More information available on our website at www.paelderlaw.com/workshops.html

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[1] “Observation status” and “observation services” are generally viewed as outpatient services not as in-patient services or stays. The patient is effectively “in limbo” somewhere between ambulatory care and inpatient care.  Federal financial incentives and disincentives may cause hospitals to prefer to treat patients in observation status rather than as in-patients. As a consequence the patient may fail to meet the 3 day rule have no Medicare coverage when transferred to a skilled nursing facility.

 Contacting Marshall, Parker & Associates for Assistance

Marshall, Parker & Associates is a nationally recognized law firm which provides long-term care planning, estate planning & estate administration services to Pennsylvania clients from our offices in Jersey Shore, Williamsport, Wilkes-Barre and Scranton.

If you or someone you know needs assistance with estate planning or with qualification for Medicaid benefits for nursing home or home care, please call us toll free at 1-800-401-4552.

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Back issues of The Elder Care Law Alert are available on our website. 

 You can even search our site by a keyword or phrase!

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*Attorneys Marshall and Parker are certified as Elder Law Attorneys by the National Elder Law Foundation under authorization from the Pennsylvania Supreme Court

**In addition to her law degree, Attorney Colbert holds an advanced legal degree (LLM) in Estate Planning from the University of Miami School of Law.

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