Holding that the provision of medical assistance creates a debt immediately upon the provision of services to a recipient, the Supreme Court of Iowa rules that the state may recover Medicaid payments from the corpus of a husband and wife’s irrevocable income-only trusts. Estate of Melby (Iowa, No. 12–1593, Jan. 10, 2014).
In 1991, Arnold and Vesta Melby created substantially identical irrevocable trusts and funded the trusts with their respective one-half interests in their farm. The trusts were to pay net income to Mr. and Mrs. Melby. Upon their deaths, if no other resources were available, each trust was to pay “all expenses of” its respective trustor's “last illness and funeral” and “any indebtedness owed by the Trustor . . .”
In November 2000, Mrs. Melby began receiving Medicaid benefits until her death in December 2002. Mr. Melby began receiving Medicaid benefits in January 2002 until his own death in November 2009. The Iowa Department of Human Services concluded that both Mr. and Mrs. Melby had an interest in their trusts beyond their net income interest, from which the Department could recover Medicaid payments made on their behalf, amounting to $321,263.96. The Department filed an application in Mr. Melby’s estate seeking a judgment declaring the Melbys had interests in the corpus of their trusts. The estate denied the claim.
In September 2011, a district court concluded, inter alia, that the Medicaid payments made on behalf of the Melbys did not constitute debts of the Melbys under Iowa's Medicaid recovery statute but rather debts of the Melbys' estates, and that therefore the Melbys' interests in the trusts at the time of their deaths were limited to net income from the trusts. The court also ruled that any recovery should be limited to narrowly drawn categories of services listed within the definition of “medical assistance” in section 249A.2(7) of Iowa’s recovery statute.
The Supreme Court of Iowa reverses. The court rules that the Department's provision of medical assistance creates a debt immediately upon provision of services to a Medicaid recipient, and that such debt is due from the recipient's estate upon the recipient's death. Because the Melbys had an interest in payment of any debts they owed from the assets of the trusts, the court concludes that the Department may recover from the corpus of the trusts. The court also rules that “medical assistance” should be read broadly to include the provision of additional and discretionary medical assistance.
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