A U.S. District Court rules that a Pennsylvania law limiting access to pooled trusts imposes Medicaid eligibility requirements that are more restrictive than federal law. The court strikes down portions of the law that bar those over age 65 from using pooled trusts, that prohibit pooled trusts from retaining funds for deceased beneficiaries, and that require beneficiaries to have special needs that would not be met without such a trust. Lewis v. Alexander (E.D.Pa., No. 06-3963, Aug. 22, 2011).
In 2005, the Commonwealth of Pennsylvania revised its Medicaid eligibility requirements to make it more difficult for elders and people with disabilities to qualify for benefits. Part of the new law, Section 1414 of Act 42 of 2005, imposed strict limits on pooled trusts, including barring the use of pooled trusts by individuals over the age of 65, requiring that pooled trust beneficiaries have special needs that will not be met without the use of a pooled trust, capping the amount of funds that can be retained by a pooled trust after a beneficiary's death at 50 percent, and disqualifying all members of a pooled trust from receiving a pooled trust resource exemption if one member of the pooled trust does not meet the requirements of Section 1414.
A group of Medicaid recipients who utilize pooled trusts filed suit against the Commonwealth, arguing that the new law was invalid because it imposed more stringent eligibility requirements than are required by federal law. The Commonwealth objected on numerous grounds, including standing and ripeness. The Commonwealth also claimed that the new trust law had nothing to do with Medicaid eligibility, but was merely designed to regulate special needs trusts in general, and that, even if the law did pertain to Medicaid eligibility, federal law does not prohibit states from counting assets in special needs trusts when computing Medicaid eligibility.
The U.S. District Court for the Eastern District of Pennsylvania rules that portions of Section 1414 are invalid. The court finds that the Commonwealth's objections are all inappropriate, and that the plaintiffs should be certified as a class. In regard to the age restriction, the court finds that "Congress intended to permit disabled persons age 65 and older to form pooled special needs trust accounts," although the court notes that states may still impose a transfer penalty when the accounts are established. When discussing the "special needs" requirement, the court states that "[i]t is clear that the effect of Section 1414(b)(2) is to render ineligible disabled persons who would be eligible under federal law." The court also invalidates the portions of Section 1414 that force the trusts to only make expenditures that are reasonably related to the needs of the beneficiary and that force pooled trusts to use 50 percent of the funds remaining in the account of a deceased beneficiary to pay back the Commonwealth for Medicaid services provided.
Our thanks to Pennsylvania ElderLawAnswers member attorney Jeff Marshall for bringing this case to our attention.
For the full text of this decision, go to: https://www.paed.uscourts.gov/documents/opinions/11D0951P.pdf
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