In a much-anticipated decision, the Third Circuit Court of Appeals has affirmed a U.S. district court ruling allowing a community spouse to purchase a DRA-compliant annuity to protect savings from the costs of her husband's nursing home care. Weatherbee v. Richman (3d Cir., No. 09-1399, Nov. 12, 2009).
When her husband entered a nursing home, Adeline A. Weatherbee purchased an annuity for approximately $400,000 that complied with the requirements of the Deficit Reduction Act of 2005 (DRA). The annuity paid her $4,423 a month in income. Her husband then applied for Medicaid to help pay for the cost of his care.
The Pennsylvania Department of Public Welfare (DPW) denied the requested benefits, taking the position that under the DRA and Pennsylvania's Act 42, the $4,423 in monthly payments Mrs. Weatherbee received was an available resource that she could sell. Thus, DPW argued, Mrs. Weatherbee had too much in the way of resources for Mr. Weatherbee to qualify for Medicaid with his nursing home costs.
The U.S. District Court for the Western District of Pennsylvania rejected DPWs arguments and precluded it from denying the requested benefits. The court found that DPWs interpretation of the DRA was unreasonable, writing that the provision of the DRA upon which DPW was relying to deny eligibility "is unambiguous and does not support DPW's reading of it."
In addition, the district court found that the Pennsylvania statute upon which the DPW relies [62 PA.STAT.ANN 441.6(b)] in treating the income from an otherwise compliant annuity as an available resource is inconsistent with the treatment of annuities under the Medicaid Act. Thus, section 441.6(b), which attempts to void anti-assignment provisions in annuities, is preempted by the Medicaid Act. DPW appealed.
The Third Circuit Court of Appeals fully affirms the district court's decision. In affirming, the Third Circuit finds that:
- The Deficit Reduction Act did not change the longstanding rule that a community spouses income is not available to an institutionalized spouse (42 U.S.C. 1396r-5). Contrary to DPWs arguments, 42 U.S.C. 1396p(e)(4) provides no basis by which DPW may deny eligibility for benefits where the annuity otherwise complies with the law;
- As it decided in James v. Richman, there is no merit to DPWs assertion that the annuity was a resource because it could be sold on a secondary market. (Lead counsel on James was Matthew Parker, CELA of Marshall, Parker & Associates.); and
- The state law relied upon by DPW (62 P.S.441.6(b)) is preempted by federal law.
Since 1994, federal law has allowed a community spouse to purchase a properly structured immediate annuity in order to accelerate qualification for Medicaid and protect assets from the cost of long term care.1 Although states are supposed to follow federal law, officials at the DPW have nevertheless long attempted to prevent or discourage this type of Medicaid planning. These attempts have failed. Six separate federal and state courts have now considered the legality of the various procedures used by DPW to limit community spouse annuity purchases.2 Every one of these courts has found that the DPW limitations violate federal law.
As a result of effective advocacy by elder law attorneys in these cases.3, it appears that in Pennsylvania, at least, a community spouse can purchase a DRA-compliant annuity of unlimited value to convert excess resources into protected income.
Mr. Weatherbee was represented by Pennsylvania ElderLawAnswers member attorney Kemp C. Scales of The Elder Law Office of Kemp Scales in Titusville.
Jeffrey A. Marshall is a Certified Elder Law Attorney and Managing Attorney of the Elder Law Firm of Marshall, Parker & Associates. The Firm has offices in Williamsport, Wilkes-Barre, Scranton, and Jersey Shore, Pennsylvania.
1 In State Medicaid Manual, Health Care Financing Administration Pub. No. 45-3, Transmittal 64, 3258 (November 1994) the federal government provided instructions to Medicaid caseworkers at the state level regarding the treatment of annuities. Federal guidelines like Transmittal 64, although not a statute or a regulation, are entitled to deference by the courts as long as it is "consistent with the plain language and purposes of the statute and if [it is] consistent with prior administrative views." Cleary v. Waldman, 167 F.3d 801, 808 (3d Cir. 1999).
2 Mertz v. Houstoun, 155 F. Supp. 2d 415 (E.D. Pa. 2001); James v. Richman, 465 F.Supp.2d 395 (M.D. Pa. 2006), affd 547 F.3d 214 (3d Cir. 2008); Ross v. DPW, 936 A.2d 552 (2007 Pa.Commw); Weatherbee v. Richman, 595 F. Supp. 2d 607 (W.D.Pa.2009); affd ___F,3d___ (3dCir. 2009).
3 The attorneys who handled these cases are Stanley Vasiliadis, Matthew Parker, John Payne, and Kemp Scales.
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