Court Rules ‘Benefit Cliff’ Is Legal Under Federal Medicaid Law

A District of Columbia appeals court holds that Medicaid benefits were properly denied to waiver recipients whose income was too high for the categorically needy category, but whose medical expenses weren’t high enough to qualify for the medically needy category’s much lower income limit. Eldridge v. District of Columbia Dept. of Human Servs. (D.C. Ct. App., No. 18-AA-664, April 8, 2020).

Richard Eldridge, Rosa Lee, and Eva Freeman all received Medicaid benefits through a home and community-based services waiver. They qualified under a “categorically needy” category, which has an income limit of $2,205 per month. The District of Columbia also has a “medically needy” category for eligibility in which individuals with extensive medical expenses could qualify for benefits if their medical expenses reduced their income to $643 per month. The income limit for the medically needy category was set by federal law. The Medicaid agency notified Mr. Eldridge, Ms. Lee, and Ms. Freeman that their Medicaid benefits would not be renewed because their income was too high for the categorically needy category.

The Medicaid beneficiaries appealed, arguing that the Medicaid agency subjected them to an improper “benefit cliff” that required them to “spend down” on their care to reduce their net incomes to the medically needy income limit in order to get benefits. The beneficiaries also argued that because they were existing beneficiaries, the income test should no longer apply and any excess income should become a copay determined independently. The Medicaid agency denied their appeal, and the beneficiaries appealed to court.

The District of Columbia Court of Appeals affirms the denial of Medicaid benefits. According to the court, because federal law specifically based the medically needy income level on different criteria than the categorically needy income level, “benefit cliffs are an accepted part of the Medicaid universe that Congress foresaw and intended.” The court also holds that the District of Columbia had the authority to set up a system in which when redetermining Medicaid beneficiaries’ eligibility for benefits, the District looked at the beneficiaries’ income before determining their financial contribution.

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