In Dermody v. Massachusetts Executive Office of Health and Human Services (Mass. SJC-13199, January 27, 2023), the Supreme Judicial Court of Massachusetts held that the Commonwealth is the primary remainder beneficiary of an annuity purchased to make an individual eligible for Medicaid.
Robert Hamel bought an annuity issued by Nationwide Life Insurance Company to help his wife become eligible for Medicaid to pay for her long-term care. He listed the state as the primary beneficiary to the extent benefits were paid and put his daughter Laurie Dermody as the remainder beneficiary. After her father died, Laurie Dermody sued the Executive Office of Health and Human Services and Nationwide, claiming she was entitled to the annuity.
The Supreme Judicial Court of Massachusetts denied her claim, relying on the Deficit Reduction Act (DRA). According to the court, the DRA closed a former loophole allowing couples to harbor assets with the noninstitutionalized spouse. Because her parents used the annuity to make her mother eligible for Medicaid, the state was entitled to the remainder to repay services rendered.
In March 2023, Ms. Dermody petitioned for a writ of certiorari to the Supreme Court of the United States (SCOTUS). She was joined by similarly situated plaintiffs, including Lainda Modor and others who had entered Ms. Modor’s litigation. As of June 2024, SCOTUS has now denied the petition.
In each case, the community spouse purchased an annuity to make their partners eligible for MassHealth, Massachusetts’ Medicaid program. They listed the Commonwealth as the primary remainder beneficiary and their children as the contingent beneficiaries. Each community spouse died before the annuity was fully paid out, giving rise to disputes between the children and the state.
There are two relevant provisions that the petitioners argue should be read together. Section 1396p(c)(2)(B)(i) presents an exception to the transfer penalties for assets solely benefiting the community spouse. Section 6012(b) of the DRA provides an annuity purchase invokes the transfer penalty unless the state is the remainder beneficiary.
The petitioners argued that the annuities purchased in these cases satisfied this exception by solely benefiting the community spouse. Thus, they framed the issue as whether an annuity that satisfies the condition in Section 1396p(c)(2)(B)(i) must name the state as the first remainder beneficiary to avoid Section 1396p(c)(1)’s transfer penalty.
However, in its decision, the Supreme Judicial Court of Massachusetts had declined to read these two provisions together. The court concluded that allowing an annuity to be exempt from the look-back provision without repaying the state would contravene the purpose of the DRA.
The petitioners argued that SCOTUS should hear the case to resolve the conflict in statutory interpretation among circuits — Massachusetts’ and the Ninth Circuit dispute the Sixth Circuit’s decision Hughes v. McCarthy. The Massachusetts Supreme Court viewed the Sixth Circuit’s decision as leaving a loophole open.
SCOTUS’ denial of the petition for certiorari indicates that it will not hear the case; the Commonwealth of Massachusetts will continue to require that such annuities purchased during the look-back period name the state as primary beneficiary.
Read the petition in full and access all past SCOTUS filings on the case.
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