Peebler and Nay v. Reno

Elder law attorney Tim Nay of Portland, Oregon, and his client, Margaret A. Peebler, had requested a declaratory judgment that Section 217 of the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 2008, codified at 48 U.S.C. § 1320a-7b(a)(6)) ("Section 217") is unconstitutionally vague and may not be applied to Ms. Peebler for transferring assets and to Mr. Nay for advising and assisting her in such transfer.

Section 217 was signed into law on August 21, 1996, and applies to all transfers of assets occurring on or after January 1, 1997. Under its terms, any individual who "[k]nowingly and willfully disposes of assets . . . in order for an individual to become eligible for [Medicaid], if disposing of the assets results in the imposition of ineligibility for such assistance under [42 U.S.C. § 1396p(c)]" has committed a crime. While the level of the crime -- felony or misdemeanor -- and the potential penalty have been among the puzzling features of the law, the Court here reads the crime to be a felony subject to up to five years of imprisonment and a fine of up to $25,000. Anyone assisting in the transfer, such as an attorney or the recipient of the gift, would be guilty of a misdemeanor and subject to imprisonment of up to one year and a fine of up to $10,000.

Since its enactment, the most significant uncertainty created by Section 217 has been the meaning of "imposition of ineligibility for such assistance." There have been three possible interpretations. The most severe reading of this provision is that anyone who transfers an asset with Medicaid in mind commits a crime, since the transfer causes the person to be ineligible for Medicaid. The most lenient reading is that a crime occurs only if the person applies for Medicaid during the resulting period of ineligibility and is denied eligibility due to the imposition of a transfer penalty. The middle-ground reading of the statute is that a crime occurs if the individual applies for Medicaid within three years of making a transfer (five years in the case of a transfer involving a trust), since the transfer must be reported to the state Medicaid agency, which will determine the length of the period of ineligibility in its assessment of whether the individual is eligible for Medicaid.

In its memorandum of law in support of its motion to dismiss this action, the federal government adopted the most lenient interpretation of Section 217.

The Facts of the Case

The government''s recitation of the facts of this case and its interpretation of Section 217 are as follows (cites to the record deleted):

First, plaintiff Margaret Peebler is an 87 year-old nursing-home resident who, on February 12, 1997, transferred $7,785 to a relative. Among the reasons why Ms. Peebler transferred the funds in this fashion is because it would reduce her financial base, thereby allowing her to become eligible for Medicaid nursing-home benefits three months later, on or about May 13, 1997.

Second, on or about May 13, 1997, plaintiff Peebler intends to apply for Medicaid benefits; her application will be limited to future Medicaid benefits, and will not be for benefits preceding the date of application.

Third, plaintiff Tim Nay is Ms. Peebler''s attorney and has advised Ms. Peebler to transfer her assets and apply for Medicaid in this fashion.

Fourth, if Ms. Peebler waits until May 13, 1997 to apply for Medicaid benefits, no period of ineligibility for such benefits will be imposed. Thus, if Ms. Peebler applies for Medicaid benefits on or about May 13, 1997, the State of Oregon -- which has responsibility for administering the Medicaid program -- will not impose a period of ineligibility upon Ms. Peebler. In Oregon, the average monthly cost of private nursing facility services is $2,595. Ms. Peebler transferred three times this amount, causing three months of ineligibility for Medicaid.

The Attorney General Construes Section 217

The government''s interpretation of Section 217 is as follows: The last phrase -- "if disposing of the assets results in the imposition of a period of ineligibility for such assistance" -- is the only one which is relevant for the purposes of this motion. The Attorney General agrees that the most reasonable interpretation of the provision is that Section 217 only applies if the transfer of assets actually "results in the imposition of a period of ineligibility" for Medicaid benefits. Thus, if an individual transfers assets, waits out the period during which she otherwise would have been ineligible, then applies for benefits such that a period of ineligibility is not imposed upon her by the relevant state agency, that individual does not fall within the ambit of Section 217. Put another way, if Ms. Peebler disposes of assets, waits out the period during which she otherwise would have been ineligible, then applies for prospective benefits such that a period of ineligibility is not imposed upon her by the Oregon Medicaid authority, she will not be subject to prosecution under Section 217.

Is This Interpretation Binding?

This paragraph is the first definitive governmental interpretation of Section 217 since its enactment, except for those made by a few individual states, most significantly California. The question is whether or not attorneys and their clients can rely on it in making their decisions about Medicaid planning. Unfortunately, the answer must be somewhat equivocal. This is a very strong statement by the Attorney General. In fact, in restating its opinion in its reply brief, the Justice Department argues that its statement of policy is tantamount to an advisory opinion:

In the process of moving to dismiss, defendant provided plaintiffs with the interpretation they sought. The Attorney General explained that, if everything stated in plaintiffs'' affidavits were true, according to the plain language of the statute, plaintiffs would not violate Section 217. Also in its reply brief, the Justice Department states:

For similar reasons, a suit is certainly not ripe for judicial review when the Attorney General''s official position is that plaintiffs'' conduct does not violate the challenged statute . . .

While these constitute a clear statement of the Justice Department''s interpretation of Section 217, they do not prevent this Attorney General or a future Attorney General from changing this policy. Though they should be quite persuasive, they also do not necessarily prevent a U.S. Attorney from applying his or her own interpretation to of Section 217 to a particular case.

When asked if a U.S. Attorney could interpret Section 217 differently from Janet Reno, Joe Krovisky of the Justice Department''s Press Office simply repeated that the interpretation of Section 217 as reflected in the Peebler briefs "is the government''s position." He refused to comment on the relationship between the Justice Department and individual U.S. Attorneys.

In short, as a practical matter, the Justice Department briefs in Peebler and Nay v. Reno provide significant support for a narrow interpretation of Section 217 and that interpretation is likely to be followed in most instances. Unfortunately, they do not provide a guarantee that this interpretation will be followed in all instances.