From Health Law Daily, September 11, 2013

Preempted North Dakota statute is more restrictive than federal Medicaid law allows

By Kathryn S. Beard, JD

A North Dakota statute classifying a community spouse’s annuity benefit as a resource for determining the institutionalized spouse’s Medicaid eligibility is preempted by federal law because it is more restrictive than the federal eligibility calculation methodology (Geston v Anderson, September 10, 2013, Colloton, S). Rather, the annuity benefit is unearned income, and cannot be considered a resource; therefore, it can have no bearing on the determination of the institutionalized spouse’s eligibility.

Asset classification. Although Medicaid’s “cooperative federalism” design gives states significant flexibility in defining many facets of their systems, state methodologies for determining eligibility must be no more restrictive than the federal methodology employed under the supplemental security income program (42 U.S.C. sec. 1396a(a)(10)(C)(i)). This requirement means that no individuals who are otherwise eligible are made ineligible for Medicaid assistance under the state methodology. Eligibility for Medicaid benefits is determined by a number of factors, including a statutory limit which the applicant’s assets must not exceed. Assets are classified as either a “resource,” which is cash or other liquid assets or personal property that an individual owns and could convert to cash to be used for support and maintenance (20 C.F.R. sec. 416.1201(a)), or “income,” which is anything an applicant receives in cash or in kind that can be used to meet food and shelter needs (20 C.F.R. sec. 416.1102). For married applicants, the assets of the spouse receiving care (institutionalized spouse) and the spouse living at home (community spouse) are taken into account, but community spouses are permitted to keep a certain amount of assets known as the “community spouse resource allowance” (42 U.S.C. sec. 1396r-5(f)(2)). In general, the community spouse’s income is deemed to be unavailable to the institutionalized spouse and does not count toward the eligibility asset limitation (42 U.S.C. sec. 1396r-5(b)(1)).

Factual background. John Geston entered a full-time care facility in 2010 while his wife continued living in their home. In November 2011, the Gestons filed an “asset assessment” form with the Burleigh County Social Service Board, which determined that the Gestons’ countable assets exceeded the statutory limit. The Gestons reduced their resources in a number of ways, including Mrs. Geston’s purchase of a single-premium immediate annuity, scheduled to pay her $2,734.65 per month over 13 years. The annuity contract provides that the contract is “irrevocable” and cannot be “transferred, assigned, surrendered, or commuted” during Mrs. Geston’s lifetime; the contract prohibits Mrs. Geston from revoking the recipient of the payment stream. Following the reduction of resources, Mr. Geston applied for Medicaid benefits, and the North Dakota Department of Human Services (NDDHS) denied his application, determining that the portion of the annuity not yet received by Mrs. Geston constituted a countable resource under North Dakota’s Medicaid statute. The Gestons filed suit seeking declaratory and injunctive relief pursuant to 42 U.S.C. sec. 1983 and the Supremacy Clause of the United States Constitution. The district court granted the Gestons’ motion for summary judgment, holding that the North Dakota statute was more restrictive than the federal Medicaid eligibility methodology, and therefore was preempted by federal law. NDDHS appealed the district court’s decision.

Decision. The 8th Circuit affirmed the district court’s decision, holding that Mrs. Geston’s annuity is unearned income that North Dakota may not count as a resource for the purposes of determining Mr. Geston’s Medicaid benefits eligibility. Mrs. Geston’s annuity is unearned income because payments received as an annuity benefit are part of the statutory definition of unearned income (42 U.S.C. sec. 1382a(a)), and also because the property right cannot be liquidated and therefore cannot be considered a resource (20 C.F.R sec. 416.1201(a)(1)). Because North Dakota’s statute would make Mr. Geston ineligible for benefits where he would otherwise be eligible, the statute is more restrictive than the federal methodology and therefore is preempted by federal Medicaid law.

The case number is 12-2224.

Attorneys: Gregory C. Larson (Larson & Latham) for John Geston. Stephen A. Feldman (Feldman & Feldman) for Carol K. Olson, Executive Director of the North Dakota Department of Human Services.

Companies: North Dakota Department of Human Services

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