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From Health Law Daily, October 28, 2013

Pre-eligibility transfer of assets by community spouse was not precluded

By Harold M. Bishop, JD

The Sixth Circuit has reversed a district court ruling that a Medicaid recipient was properly penalized based on her husband’s purchase of an annuity for himself with funds from his individual retirement account (IRA) (Hughes v McCarthy, October 25, 2013, White, H). The district court had held that 42 U.S.C. sec. 1396r-5(f)(1) precluded the transfer of assets to the annuity because it exceeded the husband’s community spouse resource allowance (CSRA). However, because the transfer occurred before the Ohio Department of Job and Family Services (Ohio agency) determined that the wife was eligible for Medicaid coverage and because section 1396p(c)(2)(B)(i) permits an unlimited transfer of assets “to another for the sole benefit of the individual’s spouse,” the Sixth Circuit reversed.

Background. Mrs. Hughes entered a nursing home in 2005. For nearly four years, Mr. Hughes (her community spouse) paid for his wife’s nursing home costs using the couple’s resources, which largely consisted of funds from his IRA account. In June 2009, about three months before Mrs. Hughes applied for Medicaid coverage, Mr. Hughes purchased a $175,000 immediate single-premium annuity for himself using funds from his IRA account. The annuity guarantees monthly payments of $1,728.42 to Mr. Hughes from June 2009 to January 2019, totaling nine years and seven months, which is commensurate with Mr. Hughes’s undisputed actuarial life expectancy. Combined with other retirement income, the annuity increased Mr. Hughes’s monthly income to $3460.64. In the event of Mr. Hughes’s death, Mrs. Hughes is the first contingent beneficiary of the annuity and the Ohio agency is “the remainder beneficiary for the total amount of medical assistance furnished to annuitant[’s] spouse, [Mrs.] Hughes.”

Mrs. Hughes applied for Medicaid coverage in September 2009. In December 2009, the Stark County division of the Ohio agency issued a notice that she was eligible for Medicaid as of the month of her application. However, the Ohio agency placed her on restricted coverage from September 2009 to June 2010, deeming her ineligible for coverage of nursing home costs for that time period because Mr. Hughes’s annuity purchase was an improper transfer due to his use of a community resource (the IRA account) in an amount that exceeded his CSRA of $109,560 and because the annuity failed to name the Ohio agency as the first contingent beneficiary.

Administrative decision and underlying court action. The Hugheses appealed the decision. The Ohio agency affirmed in a state-hearing and administrative-appeal level decision. In August 2010, the Hugheses filed an action in federal district court alleging that the Ohio agency violated the federal Medicaid statutes. The district court granted summary judgment in favor of the Ohio agency and denied the Hugheses’ request for injunctive relief.

Analysis. The district court accepted the Ohio agency’s argument that a transfer of assets that exceeds the CSRA, even if made before the Ohio agency determined that Mrs. Hughes was eligible for Medicaid coverage, was improper under 42 U.S.C. sec. 1396r-5(f)(1) and that this provision supersedes sec. 1396p(c)(2)(B)(i) per the Medicare Catastrophic Coverage Act (MCCA) supersession clause, sec. 1396r-5(a)(1). The Sixth Circuit disagreed based on the plan language of 1396r-5(f)(1), which provides that this permitted transfer “shall be made as soon as practicable after the date of the initial determination of eligibility.” According to the Sixth Circuit, this section, relied upon by the district court, does not say anything about a transfer made before the initial determination of eligibility, let alone that any pre-eligibility transfer that exceeds the CSRA is subject to a transfer penalty.

The Sixth Circuit also found that naming Mrs. Hughes as the first contingent beneficiary of the annuity and the Ohio agency the remainder beneficiary did not violate Medicaid’s sole benefit rule.

The case number is 12-3765.

Attorneys: William J. Browning (Browning, Meyer & Ball, Co.) for Carole L. Hughes. Rebecca L. Thomas, Office of the Ohio Attorney General for John B. McCarthy, Medicaid Director of the Ohio Department of Job and Family Services.

Companies: Ohio Department of Job and Family Services

MainStory: TopStory CaseDecisions CMSNews MedicaidNews EligibilityNews KentuckyNews MichiganNews OhioNews TennesseeNews

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