Massachusetts Supreme Court Limits Medicaid Planning

Elder Law Answers Case Summary.The Massachusetts Supreme Judicial Court determines that the Executive Office of Health and Human Services is the beneficiary of an annuity a husband purchased to make his wife eligible for Medicaid. In Dermody v. Executive Office of Health and Human Services (Mass. SJC-13199, January 27, 2023).

To help his wife, Mrs. Joan Hamel, become qualified for Medicaid, Mr. Robert G. Hamel bought an annuity with marital funds. He put the Commonwealth as the remainder beneficiary and named his daughter, Mrs. Laurie A. Dermody, as the contingent remainder beneficiary. Before the end of the annuity period, Mr. Hamel passed away.

Mr. Hamel’s daughter sued the Commonwealth, alleging she should receive the remainder of the annuity payments. After a Superior Court granted summary judgment for Mrs. Dermody, the Commonwealth appealed.

Congress amended the Medicaid Act to curb Medicaid planning. The act penalizes people for transferring assets for less than fair market value to reach Medicaid eligibility within the five-year lookback period. An exception protects community spouses when their partners become institutionalized: The lookback period does not apply to transfers solely benefiting the community spouse.

This exception created a loophole. Couples could harbor their assets in the community spouse’s name while the institutionalized spouse qualified for Medicaid. With the purpose of closing the loophole, the Deficit Reduction Act (DRA) required annuities to designate the state as the primary remainder beneficiary. If the community spouse dies before the annuity payments end, the government can receive compensation for its spending on the health care of the institutionalized spouse.

Seeking to obtain the remainder in place of the Commonwealth, Mrs. Dermody argued that an annuity solely benefiting the non-institutionalized spouse need not place the Commonwealth as beneficiary. The Massachusetts Supreme Judicial Court disagrees. The DRA’s requirement to name the government as a beneficiary contains no exception for annuities solely benefiting one spouse. The purpose of the DRA was to close this loophole. Yet Mrs. Dermody’s interpretation would leave the loophole open. It is consistent with Congress’ intent for the annuity to go to the government up to the value of Mrs. Hamel’s care.

The daughter further asserted that state law made her the primary remainder beneficiary. She argued that the annuity contract referred to benefits for her father’s future care, not her mother’s institutionalization. Because her father did not receive Medicaid benefits, she claimed she was the rightful beneficiary. Unpersuaded, the court finds that Mrs. Hamel is the presumed Medicaid beneficiary because the DRA required the Hamels to designate the government as the annuity’s beneficiary for Mrs. Hamel to qualify for Medicaid.

Mrs. Dermody finally relied on the state law limiting the Commonwealth’s compensation to the estate of the institutionalized spouse. Under this law, the state would not be able to recover from her late father’s estate, just her mother’s estate upon her passing, she argued. Here, federal law preempts state law, so the highest court of Massachusetts declines to consider her argument.

The Supreme Judicial Court vacates the judgment and remands the case because the Commonwealth, not Mrs. Dermody, is the primary remainder beneficiary of the annuity.

Read the entire opinion here.