Iowa High Court Upholds Medicaid Penalty Against Two 65-Year-Olds Who Transferred to Pooled Trust

The Supreme Court of Iowa rules that the state properly delayed Medicaid long-term care eligibility for a couple who placed their medical malpractice settlement proceeds into a pooled special needs trust (SNT) when they both were age 65. Cox v. Iowa Department of Human Services (Iowa, No. 18-0026, Nov. 30, 2018).

In 2015, Susan and Edward Cox received a settlement related to Ms. Cox’s medical care, with $474,457.88 going to her and $101,921.81 going to him. In 2016, when both were 65 years old, they placed most of those funds into a pooled SNT. Also in 2016, they applied for Medicaid long-term care benefits and moved into a nursing home, where they currently reside. The Iowa Department of Human Services (DHS) applied section 1396p(c)(2)(B)(iv) of the Medicaid statute and determined that the couple “transferred assets for less than fair market value” because they deposited their funds after they had turned 65.  DHS imposed penalty periods that delayed Mr. Cox’s eligibility for benefits until July 2017 and Ms. Cox’s eligibility until July 2023.

DHS ultimately adopted an administrative law judge’s slightly revised decision which was affirmed on review by a district court. Mr. and Ms. Cox appealed to Iowa’s supreme court.  On appeal, the Cox’s argued that section 1396p(d)(4)(C), not section 1396p(c)(2)(B)(iv), controls, and that DHS erred by counting their funds in the pooled SNT to delay eligibility because section 1396p(d)(4)(C) excludes pooled SNTs from being counted for Medicaid eligibility regardless of age. They also argued that their deposits into the pooled SNT “were not a ‘transfer or disposal of assets’” and that they did receive fair market value for the assets they placed into the trust. They were joined by amici curiae the National Academy of Elder Law Attorneys and the Special Needs Alliance, which argued, inter alia, that funding a trust is not a transfer.  

The Supreme Court of Iowa affirms the lower court’s decision. The court breaks down complex Medicaid eligibility determinations into a two-tiered analysis: general Medicaid eligibility and long-term care eligibility. The court concludes that section 1396p(d)(4)(C) applies in all instances to general Medicaid eligibility whereas section 1396p(c)(2)(B)(iv) applies to long-term care benefits and that section expressly provides that funds transferred by individuals 65 years of age and older into a pooled SNT must be counted in eligibility determinations. The court finds that the Cox’s deposit of funds into the SNT plainly was a transfer under Iowa law and the Medicaid statute. The court also finds that no fair market value was received for the trust funds. A dissenting justice writes that DHS erroneously interpreted sections 1396p(c)-(d) and that the decision that the transfers were for less than fair market value was “unreasonable, arbitrary, and capricious.” 

For the full text of this decision, click here.

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