Another federal appeals court has upheld the use of
immediate annuities to allow married couples to more quickly qualify for
Medicaid long term care benefits.
When a wife or husband needs long term care, a couple may face
financial ruin. The cost of a month in a nursing home in Pennsylvania is over
$7,500. Care at home is expensive as well. The cost for licensed homemaker or
home health aide services averages $20.00 an hour.
Few people have insurance that covers any portion of these
costs. Medicare is usually available only temporarily or not at all. The best potential source of financial
assistance for most people is the Medicaid program, but it has strict financial
qualification rules that can prevent people from qualifying until most of their
savings are gone. This can be particularly devastating for the spouse who is still healthy and living in the community (the “community
spouse.”) A community spouse who must use up all of the couple’s savings caring
for a sick husband can be forced to live in poverty for the rest of her life.
In 1988, during the Reagan Administration, the federal
government did something about this “spousal impoverishment” problem. It passed a law
that allows a married person to qualify more easily for Medicaid help with the
cost of long term care if there is a community spouse. The 1988 law built in
financial protections for community spouses so that they can retain all of their
income and a limited level of resources to held prevent present and future impoverishment.
The basic level of protected resources is called the community spouse resource
allowance (CSRA).
If the CSRA is insufficient to protect all of the resources
for the community spouse, additional options may be available. One of these is
the purchase of a financial product called a single premium immediate annuity
that complies with the requirements of the Medicaid laws. Annuities have long
been used by elder law attorneys to protect the financial security of their
community spouse clients. This planning option allows a community spouse a
separate way to protect resources in addition to the CSRA.
The Deficit Reduction Act (DRA) of 2005 which was passed
during the Administration of George W. Bush confirmed that a community spouse
could protect additional resources in excess of the CSRA by purchasing an annuity if the annuity meets certain requirements. This special kind of “DRA annuity” converts otherwise
excess resources into an income stream that can provide for and be retained by
the community spouse.
Note that the DRA annuity product is unlike the typical immediate
annuity sold by many insurance companies – because it must meet the strict
requirements of the DRA law. Expert assistance should always be sought from a
qualified elder law attorney before purchasing any annuity for Medicaid
purposes.
The DRA annuity provisions are very beneficial to community
spouses (and to the insurance companies who sell these products and had a hand
in writing the law.) On the other hand, state Medicaid agencies (like the
Department of Public Welfare in Pennsylvania) don’t like annuities because they
allow individuals to qualify for Medicaid sooner, which means state funds will
be expended sooner. But, the federal law requires states to follow the federal
rules on annuities. In a series of annuity cases in federal courts in Pennsylvania,
elder law attorneys (including Matthew Parker of my firm, Marshall, Parker and Associates, Stanley
Vasiliadis of Vasiliadis and Associates
and Kemp Scales, of Scales
Law Offices) have forced the Welfare Department to follow the federal law.
Although Pennsylvania has led the way, the battle over DRA
annuities is being fought in other states as well. Some of these cases are now
reaching decision by federal appeals courts (one level below the Supreme Court)
in other jurisdictions. This month (July
2012) in a case from Oklahoma the U.S. Court of Appeals for the Tenth Circuit
has joined the ranks of the many courts that have upheld the use of annuities
to protect the community spouse. The case is Morris v. Oklahoma
Department of Human Services.
When Glenda Morris needed long term care she and her husband
Leroy had countable resources of $107,812 which meant that Gloria had a CSRA of
$53,906. If the couple had done nothing, Glenda would not have qualified for the
Oklahoma Medicaid Advantage Waiver program that could help pay the costs to keep
her at home.
Acting on the advice of his elder law attorney, Leroy “spent down”
the couple’s excess resources by purchasing a DRA annuity. But the Oklahoma state
Medicaid agency denied Gloria’s application anyway, and its decision was upheld
by a lower “district” court. However, the
Tenth Circuit Court of Appeals said that the agency and lower court were wrong
in rejecting Gloria’s application. In
reversing the lower court, the Court of Appeals wrote:
We
understand the district court’s concerns about the annuity provisions in the Medicaid
statutes, and we acknowledge the fiscal strain Medicaid can exert on state budgets.
Nevertheless, we hold that the purchase of a qualifying annuity renders resources
unavailable to the institutionalized spouse even if the annuity is purchased in
addition to the community spouse’s CSRA. Qualifying annuities are not
considered available to the institutionalized spouse pursuant to §
1396p(c)(1)(G) and 20 C.F.R.§ 416.1201. The CSRA is rendered unavailable to the
institutionalized spouse under § 1396r-5(c)(2). These separate provisions
create two different mechanisms by which a Medicaid applicant can render
resources unavailable. The statute does not require an applicant to pick one or
the other. Nor does any transfer penalty apply to qualifying annuities
purchased prior to a determination that the institutionalized spouse is
eligible for benefits.
As court after court has noted – the law on the use of annuities
to qualify for Medicaid benefits was created by Congress and can only be
changed by Congress.
In my opinion, states that disagree with the law should seek to have
Congress revisit this issue rather than deny benefits to people who are
following the law.
Married couples who reside in Pennsylvania can get additional
information how to use a DRA annuity and other options to protect their assets
from the law firm of Marshall, Parker and
Associates which can be reached at 1-800-401-4552. Residents of other states may wish to seek the
advice of a Certified Elder Law Attorney – a national list is available at www.nelf.org.