Short-Term Annuities Are Not Resources for Medicaid Eligibility Purposes

The Third Circuit Court of Appeals rules that Medicaid applicants' short-term annuities are not resources even though the terms were less than the annuitants' life expectancies. Zahner v. Secretary Pennsylvania Dept. of Human Services (3rd Cir., Nos. 14-1328, 14-1406, Sept. 2, 2015).  

In three separate cases, Pennsylvania denied Medicaid applications on the grounds that annuity purchases were unlawful transfers.  Donna Claypoole's husband transferred money to their children and purchased a five-year annuity and a 14-month annuity before applying for Medicaid on Mrs. Claypoole's behalf. Medicaid applicant Connie Sanner also transferred money and purchased a 12-month annuity. (Original plaintiff Anabel Zahner is deceased and no longer a party.)

The three applicants filed a case in federal court, arguing that the annuities met the requirements of federal Medicaid law and should not have been considered transfers. All parties asked for summary judgment. The U.S. district court granted the plaintiffs summary judgment with regard to the five-year annuities, but denied summary judgment with regard to the shorter annuities, holding that the term of the annuity had to "bear a reasonable relatedness to the beneficiary's life-expectancy." The court also held that a Pennsylvania statute that purported to make all annuities assignable was preempted by the federal Medicaid law.

The U.S. Court of Appeals for the Third Circuit, affirms the district court decision that federal law preempts Pennsylvania's law making all annuities assignable, but reverses the decision that the short-term annuities are resources. The court writes that "any attempt to fashion a rule that would create some minimum ratio between duration of an annuity and life expectancy would constitute an improper judicial amendment of the applicable statutes and regulations." The court further holds that an annuitant's motive in purchasing an annuity is not determinative of whether it is a resource.  

The Medicaid applicants were represented by Pennsylvania elder law attorney Kemp C. Scales of Scales Law Offices and New York elder law attorney Rene H. Reixach, Jr., of Woods Oviatt Gilman.  Elder Law attorneys Ron M. Landsman, Stanley M. Vasiliadis and John W. Callinan were counsel for amicus appellant National Academy of Elder Law Attorneys and its Pennsylvania and New Jersey chapters.

For the full text of this decision, click here.

For a longer summary and commentary on the decision by Penn State Dickinson Law professor Katherine C. Pearson, click here.

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