A federal district court rules that an actuarially sound commercial annuity purchased for fair market value and for the sole benefit of a community spouse may not be counted in determining the institutionalized spouse's Medicaid eligibility. Mertz v. Houstoun (E.D. Pa., No. 01-2627, July 30, 2001).
Etheleine J. Mertz entered a nursing home on May 19, 1999. That November, her husband, Charles, used $106,600 of the couple's joint assets to purchase two irrevocable commercial annuities, both with a term of five years. The total payout will be $119,917.80, or slightly less than $2,000 a month. The total earnings of $13,318 reflect an annual rate of return of just under 2.5 percent. Mr. Mertz, who at the time had a life expectancy of 9.4 years, is the sole beneficiary.
On March 31, 2000, Mrs. Mertz filed an application with the Department of Public Welfare (DPW) for Medicaid coverage. The DPW ultimately imposed a two-year period of ineligibility for benefits. The agency conceded that the annuities had been purchased for fair market value, but imposed the ineligibility period because it determined that the purchases were transfers of assets for the purpose of qualifying for Medicaid assistance. Mrs. Mertz appealed the decision to federal district court and sought declaratory and injunctive relief pursuant to 42 U.S.C. 1983. She argued that the annuities are for the sole benefit of her spouse, are actuarially sound and were purchased for fair market value, and that the DPW therefore violated federal law by penalizing her with a period of ineligibility.
The U.S. District Court for the Eastern District of Pennsylvania agrees with Mrs. Mertz. After reviewing relevant provisions of federal and state Medicaid law, as well as HCFA Transmittal 64 (State Medical Manual, Health Care Financing Administration Pub. 45-3, Transmittal 64 (Nov. 1994), the court concludes that a couple may effectively convert countable resources into income of the community spouse which is not countable in determining Medicaid eligibility for the institutionalized spouse by purchasing an irrevocable actuarially sound commercial annuity for the sole benefit of the community spouse. In reaching its decision, the court rejects the reasoning of two Pennsylvania state courts which suggested that annuities for the benefit of a community spouse purchased at fair market value may still be a countable resource in determining eligibility if the purchase was made for the purpose of qualifying for medical assistance. Bird v. Department of Public Welfare731 A.2d 660 (Pa. Commw. 1999) and Dempsey v. Department of Public Welfare, 756 A.2d 90 (Pa. Commw. 2000).
While characterizing the use of annuities in this way as a loophole in federal law, the court concludes that it is not its role to compensate for an apparent legislative oversight by effectively rewriting a law to comport with one of the perceived or presumed purposes motivating its enactment. The court denies Mrs. Mertz's request for injunctive relief, finding that she will not be irreparably harmed pending the final resolution of the case.
For the full-text of this decision, go to:https://www.paed.uscourts.gov/documents/opinions/01D0615P.pdf
Following are links to other recent decisions regarding the use of annuities in Medicaid planning:
Dean v. Delaware (Del., No. 9, 2001, May 15, 2001)
Johnson v. Guhl (U.S. Dist. Ct., N.J., No. 99-CIV.-5403 WGB, 2000 WL 359624, April 7, 2000)
McNamara v. Ohio (Ohio App. Ct., 2d Dist., C.A. Case No. 18234, T.C. Case No. 1999-CV-02547, August 4, 2000)
Perkins v. Ohio (Ct. Comm. Pleas, Mont. Cty., No. 2000-1485, April 16, 2001)
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