Annuity Purchases Are Transfers Subject to Penalty Period

A federal district court holds that Medicaid applicants whose spouses purchased annuities for themselves with community resources after the date of institutionalization were subject to a penalty period because the purchases constituted transfers above the community spouse resource allowance (CSRA). Hughes v. Colbert (U.S. Dist. Ct., N.D. Ohio, No 5:10CV1781, May 29, 2012).

Carol Hughes and Lester Bardin both entered nursing homes. Mrs. Hughes' husband used $175,000 in resources from his IRA to purchase an annuity for himself, and Mrs. Hughes applied for Medicaid. Mr. Bardin applied for Medicaid, and then his wife used $373, 583.84 in resources to purchase an annuity for herself. The state determined the transfers to the annuity were improper transfers because they exceeded the CSRA, and assessed a penalty period.  

Mrs. Hughes and Mr. Bardin sued the state in federal court, arguing that the state is violating federal law because community spouses are allowed to purchase annuities. The state filed a motion to dismiss.

The U.S. District Court for the Northern District of Ohio grants the motion to dismiss, holding that a transfer to a community spouse in excess of the spouse's CSRA is an improper transfer. The court rules that while the Deficit Reduction Act of 2005 allows the purchase of an annuity in certain circumstances, that law applies only to the institutionalized spouse. According to the court, the community spouses "transferred resources above their CSRA and turned it into income after the date of institutionalization, which is the date the CSRA is established. It is irrelevant what form the resources took after the transfer, [the state] penalized the transfers themselves."

The plaintiffs were represented by William J. Browning of the ElderLawAnswers member firm of Browning, Meyer & Ball Co., LPA, in Worthington, Ohio.

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