State Can Recover From Spouse's Annuity for Medicaid Benefits Paid After Spouse Died

A U.S. court of appeals holds that a state's ability to recover Medicaid payments from a community spouse's annuity after the community spouse dies is not limited to the amount of benefits the state had paid before the community spouse's death. Hutcherson v. Arizona Health Care Cost Cont. Syst. Adm. (U.S. Ct. App., 9th Cir., No. 10-16426, Jan. 27, 2012).

Arizona resident Betty Hutcherson entered a nursing home. In order to qualify for Medicaid, she and her husband, John, had to spend down their assets. Mr. Hutcherson purchased an annuity that listed the state as primary beneficiary and the Hutcherson's daughter, Rebecca Hutcherson, as secondary beneficiary. Under 42 U.S.C. § 1396p(c)(1)(F) an annuity is not a transfer of an asset for below-market value if the annuity names the state as primary remainder beneficiary "for at least the total amount of medical assistance paid on behalf of the institutionalized individual." Mr. Hutcherson died with $75,000 left in the annuity. At the time of his death, the state had paid $23,840.51 for Mrs. Hutcherson's care.

Rebecca filed a claim in federal court in Arizona, asking the court to declare that the state's recovery from the annuity was limited to the amount the state had already paid. She argued that the word "paid" as used in § 1396p(c)(1)(F) meant paid by the state as of the date of the annuitant's death. The district court granted the state's request for summary judgment, and Rebecca appealed.

The U.S. Court of Appeals for the Ninth Circuit affirms, holding that the state may recover from an annuity for Medicaid expenses incurred after the annuitant dies. The court rules that Rebecca's interpretation would frustrate the purpose of the Medicaid statute. According to the court, the "Medicaid Act, through the transfer penalty and the DRA amendments to the annuity provision, reflect a clear intent to prevent individuals from sheltering funds in this manner."

For the full text of this decision in PDF, go to: https://www.ca9.uscourts.gov/datastore/opinions/2012/01/27/10-16426.pdf.

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