In 2008 John Lopes entered a skilled nursing facility in Connecticut. At that time he and his wife, Amelia, had too much in assets for him to qualify for Medicaid to help pay the bills. More than a year later, in February 2010, after consulting an elder law attorney, Amelia spent down the excess resources that were preventing John from qualifying for Medicaid. She purchased a Medicaid compliant immediate annuity for $166,200.50. The annuity provided Amelia with fixed monthly payments of $2,340.83 for six years. The annuity including a provision that it could not be cashed-in, sold, assigned or otherwise transferred.
The purchase of the annuity reduced the couples' combined resources to the point where John could qualify for Medicaid long term care benefits.
But John's application for Medicaid was denied by the State of Connecticut Department of Social Services. The State said that the couple still had too many resources. In the State Medicaid Department's opinion Amelia could sell her right to monthly payments, and so it was a disqualifying resource. A third party, Peachtree Financial, had offered to buy Amelia's monthly payments for $99,000.
Amelia and John's lawyer countered that the annuity payments were income to Amelia (which doesn't impact John's eligibility for benefits) and not a resource. Under Medicaid law, in making eligibility determinations a married couple's resources are combined and must be spent down if over applicable limits, but the spouse at home can keep all of his or her income.
Amelia's lawyer filed suit asking the federal court to order the Connecticut to grant Medicaid to John.
The Federal District Court held in favor of John and Amelia. The State appealed this decision to the Federal Second Circuit Court of Appeals. On October 2, 2012, the Appeals Court issued its decision. It agreed with the lower court and with other appeals courts that had considered this issue. The Court held that under federal law, which the State of Connecticut is bound to follow, the annuity payments are income. The State cannot treat the payment stream from a non-assignable annuity as a countable resource for purposes of determining Medicaid eligibility. And John has been therefore eligible for Medicaid since the date he applied for it. Lopes v. Starkowski (USCA Second Circuit, October 2, 2012).
While the Court in Lopes follows the reasoning of most other courts that have considered this issue, the decision has a unique aspect. The Court requested that the US Department of Health and Human Services (HHS) provide its views on (1) whether the income stream from the annuity should be treated as income or as a resource, and (2) the policy implications of resolving the case in favor of Mr. and Mrs. Lopes.
The HHS view was that the Lopes and the lower court were correct. It was appropriate to treat Amelia's entitlement to fixed immediate annuity payments as income not as a resource. As to public policy, HHS argued that "this interpretation coheres with the policy goals of Medicaid - in particular, protecting community spouses from impoverishment by permitting them to retain some of their assets, while recognizing that couples must apply a fair share of their combined resources toward the cost of care before receiving benefits."
Bottom line: The Lopes Court quotes with approval the words of the Ninth Circuit Court of Appeals in a similar case: "[T]he Medicaid statute allows the community spouse to purchase an annuity . . . allowing the spouse to convert his or her assets, which are considered in determining the institutionalized spouse's eligibility, to income, which is not considered."
The Lopes Court also quotes from the decision of the Third Circuit Court of Appeals in a Pennsylvania case, James v. Richman. I'm proud to say that the James case was brought by my law firm, Marshall, Parker and Associates on behalf of one of its clients. The James case really opened the door to the use of immediate annuities to protect the financial security of community spouses throughout the United States.
Any married couple that could benefit from Medicaid assistance in paying for nursing home care should consider how a Medicaid annuity can help them. But please note that families should get expert help from an experienced elder law attorney before purchasing an annuity for Medicaid purposes. There are potential transfer penalties and other traps that can arise if you try to do this without expert guidance.
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. Pennsylvania lawyers who are interesting in protecting their clients through purchase of a Medicaid annuity can contact Pennsylvania Care Management, at 570-326-1890 which offers the specialized type of annuity that is required.
Residents of other states may wish to seek the advice of a Certified Elder Law Attorney located in their state – a national list is available at www.nelf.org.
For More Reading: