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From Health Law Daily, January 21, 2014

Annuities at issue in eligibility for Medicaid LTC assistance

By Harold M. Bishop, JD

In an action by state Medicaid applicants for long-term Medicaid coverage, summary judgment was granted to Pennsylvania’s Department of Welfare regarding annuities purchased by the applicants to reduce their countable assets through Employee’s Life Company (ELCO), and granted to the applicants as to annuities they purchased through MetLife Insurance Investors, USA (MetLife) (Zahner v MackerethJanuary 16, 2014, Cohill, M).

Background. Each of the Medicaid applicants attempted to obtain eligibility for Medicaid by several methods, including purchasing annuities, thereby reducing their countable assets, arguing that such reduction made them eligible for Medicaid Assistance – Long Term Care (MA-LTC). The Pennsylvania Department of Welfare (PDW), which administers the state Medicaid program, denied the applications, finding that the purchase of the annuities was an illegal transfer of assets. Applicants Anabel Zahner (Zahner) and Mitchell Claypool (Claypool) filed a complaint alleging that their purchase of annuities were improperly deemed transfers of assets for less than fair market value by the PDW despite the fact that the annuities were reported to have met all requirements of the federal Medicaid law. Applicant Connie Sanner (Sanner) also commenced an action against PDW based on identical issues. The cases were joined by the court.

Several different legal matters were at issue in the summary judgment hearing and all had a bearing on the legality of the purchased annuities and whether the purchased annuities were transfers for less than fair market value resulting in a penalty waiting period before the applicants were eligible for MA-LTC.

Criminal sanctions. The attorneys for the applicants counseled and assisted them in their financial planning for long-term care coverage. The PDW argued that, under 42 U.S.C. §1320a7b(a)(6), it was a crime if an individual "for a fee knowingly and willfully counsels or assists" in the disposal of assets. The DPW, however, admitted that this law is generally ignored. In fact, in 1998 a New York District Court enjoined the enforcement of the statute on First Amendment grounds and Attorney General Janet Reno wrote to the presiding officers of both houses of Congress informing them that the Department of Justice would not enforce or defend the constitutionality of the statute because "the counseling prohibition in that provision is plainly unconstitutional under the First Amendment and because the assistance prohibition is not severable from the counseling prohibition.” Therefore, on the issue of criminal sanctions against applicants' attorneys for counseling or assisting in the transfer of their assets to become eligible for medical assistance, summary judgment was granted in favor of applicants.

MetLife annuities. The PDW claimed that the MetLife annuities were countable resources because they were assignable under Pennsylvania law. While all of the annuities in this case contained anti-assignment provisions, the PDW contended that these anti-assignment provisions were void under Pennsylvania Law, which explicitly confirms the anti-assignment rule with regard to Medicaid annuities. The court found the applicants’ arguments on this issue persuasive and agreed that the anti-assignment provisions in the annuities at issue were valid.

The PDW also claimed that the MetLife annuities were defective because they did not name the PDW as the remainder beneficiary. The court found that the failure to name PDW was clearly a typographical error. To deprive the applicants of Medicaid benefits due to typographical error would be a miscarriage of justice.

ELCO annuities. PDW claimed that the terms of the three ELCO annuities in this case were too short (18, 14, and 12 months, respectively) to meet statutory requirements. As such, the PDW considered them shams and their purchase could be penalized and the waiting period for MA-LTC extended. According to the court, for an annuity to be actuarially sound, the term of the annuity should bear a reasonable relation to the beneficiary’s life-expectancy. In this case, the applicants’ life expectancies ranged from six to ten years and the longest ELCO annuity was 18 months. As such, the court held that the ELCO annuities did not pass the “sniff-test” and the delay penalty by PDW was allowable.

Community spouse income after institutionalization. The PDW contended that the purchase of annuities after institutionalization of the applicant was contrary to federal law. The applicants did not contest that the joint resources of a couple be computed as of the beginning of the period of institutionalization. What is contested is, after that first determination is rendered, whether the applicants may purchase an annuity for the benefit of the community spouse that could shelter assets upon redetermination of eligibility. The court found the applicants argument persuasive in light of six letters from CMS that are consistent with one another and indicate that Section 1917(c)(2)(B) clearly and specifically exempts from penalty any transfer from one spouse to another. As such, the court concluded that a transfer of assets or a purchase of an annuity after the date in which a spouse is institutionalized will not per se be considered a transfer for less than fair market value and prohibited by federal law. In such a situation, the court found that the annuity should be analyzed to determine whether it has the qualities of a legitimate estate planning investment or whether it has the hallmarks of an illegitimate asset-shelter scheme.

The case number is 11-306 Erie.

Attorneys: Kemp C. Scales (Elder Law Office of Kemp Scales) for Anabel L. Zahner. Eugene K. Cuccarese, Office of General Counsel, for Pennsylvania Department of Public Welfare.

Companies: Pennsylvania Department of Public Welfare

MainStory: TopStory CaseDecisions MedicaidNews CMSNews EligibilityNews PennsylvaniaNews

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