Opinion ID: 590940
Heading Depth: 2
Heading Rank: 1

Heading: Federal Statutory Background

Text: 4 Medicaid is an intricate program whereby states and the federal government cooperate to give medical assistance to the needy. Although participation in the Medicaid program is entirely optional, once a state elects to participate, it must comply with the requirements of Title XIX [42 U.S.C. § 1396 et seq.]. Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2679, 65 L.Ed.2d 784. Generally speaking, states serve two groups of persons through their Medicaid programs. First, states are obligated to serve (with an important exception noted below) the categorically needy, which are defined to include families with dependent children eligible for public assistance under the Aid to Families with Dependent Children (AFDC) program, 42 U.S.C. § 601 et seq., and the aged, blind, and disabled eligible for benefits under the Supplemental Security Income (SSI) program, 42 U.S.C. § 1381 et seq. See 42 U.S.C. § 1396a(a)(10)(A); Harris, 448 U.S. at 301 n. 1, 100 S.Ct. at 2680 n. 1. Second, states are permitted, but not obligated, to serve the medically needy, which refers to those persons in need of medical assistance whose income levels disqualify them for the AFDC or SSI programs. See 42 U.S.C. § 1396a(a)(1)(C); Harris, 448 U.S. at 301 n. 1, 100 S.Ct. at 2680 n. 1. Indiana has chosen not to offer Medicaid coverage to the medically needy. 5 A state's obligation to provide Medicaid coverage to the categorically needy is subject to an important limitation found at 42 U.S.C. § 1396a(f). Under this provision (known as the Section 209(b) option), a state may provide Medicaid coverage only to those individuals who would have been eligible under the state Medicaid plan in effect on January 1, 1972. Schweiker v. Gray Panthers, 453 U.S. 34, 38-39, 101 S.Ct. 2633, 2637-38, 69 L.Ed.2d 460. Congress offered states the Section 209(b) option when it expanded the Medicaid program in 1972. The fear was that states would withdraw from the cooperative Medicaid program rather than expand their Medicaid coverage in a manner commensurate with the expansion of categorical assistance. Id. at 38, 101 S.Ct. at 2637. Indiana is a Section 209(b) state. 6 It is necessary for the purposes of this appeal to examine 42 U.S.C. § 1396a(f) (the Section 209(b) provision) in some detail. 2 As noted above, the normal rule is that a state must provide coverage to the categorically needy, defined generally to include persons who are receiving, or are eligible to receive, SSI or AFDC benefits. 42 U.S.C. § 1396a(a)(10)(A). 3 Section 209(b), which begins Notwithstanding any other provision of this subchapter, serves as an exception to Section 1396a(a)(10)(A), which would otherwise be applicable law. There is an important qualification, however, on the Section 209(b) exception--even though a state can retain its 1972 standards, it must perform an income spend down when calculating available income by deducting incurred expenses for medical care. In this sense the Section 209(b) exception resembles the optional medically needy provision found at Section 1396a(a)(10)(C), which also requires income to be offset by incurred medical expenses. 4 The income spend down requirement under Section 209(b) must be distinguished from the resource spend down rule that plaintiffs in this case apparently assert that Indiana must adopt. Although in individual cases it may be difficult to distinguish income from resources, the two rules are quite different. 7 To summarize, after the 1972 amendment to the Medicaid Act, a state could choose what might be called the SSI option with regard to the categorically needy, or it could choose the Section 209(b) option. Under the SSI option, a state must give Medicaid assistance based on the somewhat higher SSI income and resource standards--but it does not have to offset incurred medical expenses from income in determining Medicaid eligibility. Under the Section 209(b) option, a state can employ more stringent income and resource standards for eligibility as long as they are no more stringent than its January 1, 1972, standards, but is required to offset incurred medical expenses from income. See generally 42 C.F.R. § 435.1(d).B. Indiana's First Day of the Month Rule 8 To qualify for Medicaid, an applicant must meet both an income eligibility test and a resource eligibility test; if either the applicant's income or the value of his resources (assets) is too high, then he does not qualify for Medicaid. See Medicare & Medicaid Guide p 14,311 (CCH 1992). Indiana currently calculates resources in accordance with the following rule: 9 (a) An applicant or recipient is ineligible for medical assistance for any month in which the total equity value of all non-exempt resources exceeds the applicable limitation, set forth below, on the first day of the month: 10 (1) $1,500 for the applicant or recipient,   ; or 11 (2) $2,250 for the applicant or recipient and his spouse. 12 470 Ind.Admin.Code § 9.1-3-17 (1988). Indiana adopted this rule in 1984, apparently under pressure from the federal Health Care Finance Authority. 5 The application of this rule to the real parties in interest in this case is described below.
13 The Beall sisters are now deceased; plaintiff Eleanor Roloff is the legal representative of the estates of Beatrice and Bernice Beall. 6 On April 1, 1986, Bernice had a bank account balance of $2,879.90. On April 3, 1986, Robert Roloff, Bernice's nephew, executed an irrevocable funeral trust agreement in the amount of $2,879.90, thereby depleting her bank account. Bernice applied for Medicaid on April 30, 1986, and was denied assistance for the month of April because her bank account balance on April 1, 1986, exceeded $1,500. The creation of the irrevocable funeral trust agreement on April 3 was deemed irrelevant.
14 Plaintiff R. Dianne Strickland is the legal guardian of her mother Dorothy Unger. Her father Robert Unger is now deceased. During 1989, Dorothy Unger lived at a nursing home, while Robert lived in his home. Medicaid applications for the Ungers were filed in May 1989. Their applications were denied for February 1989 through July 1989 because their countable resources in those months exceeded the statutory maximum for a married couple, $2,250. Their resources for these months included two life insurance policies and several bank accounts, and had a total combined value ranging from $2,336 to $3,707. The Ungers became eligible for Medicaid assistance beginning in September 1989. In 1989, Robert Unger apparently had a countable income of $1,290.02 per month and Dorothy Unger had an income of $406 per month. 7 C. Definitions 15 Analysis of the issues raised by plaintiffs is made difficult by the intricacy of the Medicaid Act, plaintiffs' confusing line of argument, and the fact that plaintiffs and defendants seem to ascribe different meaning to the same terms. It is therefore necessary to define some terms with precision in order to wade through the quagmire. 1. Income Spend Down 16 Income spend down is the process whereby an applicant's income is reduced for the purposes of determining Medicaid eligibility by the amount of incurred but unpaid medical expenses not covered by third-party payers. When income spend down is used, a recipient's Medicaid payments are reduced by the applicant's excess income. See 42 C.F.R. § 435.831. As an example, consider an applicant who earned $1,000 in a particular month and incurred $5,000 in medical bills in that month, and assume the income eligibility standard is $600. Assuming also that all other eligibility requirements are met, $4,600 of the medical bills would be eligible for Medicaid reimbursement after deduction of the excess income. 2. The First Day of the Month Rule 17 Plaintiffs seem to equate the first day of the month rule with Section 9.1-3-17, and challenge its lawfulness based on what it omits (e.g., a resource spend down policy and conditional eligibility). Defendants, on the other hand, refer to the first day of the month rule as a matter of timing, and discuss separately the resource spend down and conditional eligibility issues. We think it makes more sense to adopt plaintiffs' general approach, because there is considerable if not complete overlap of the various issues. When necessary, we will discuss plaintiffs' more specific challenges to the rule's omissions separately.
18 Resource spend down is a term with chameleon-like flexibility. Generally speaking, a resource spend down rule allows Medicaid applicants to offset their resources by incurred but unpaid medical bills. Recently, an Indiana Court of Appeals held that Indiana allowed a resource spend down in January 1, 1972. Indiana Dep't of Public Welfare v. Payne, 592 N.E.2d 714 (Ind.App.1992). The Medicaid applicant in Payne had accumulated approximately $150,000 in medical bills during a five-month hospital stay. He was denied Medicaid eligibility because his resources exceeded $1,500 on the first of each of those months. The total amount of excess resources for those five months was around $4,000. Id. at 720-721. The court decided that Payne was due benefits, stating that Indiana must allow Payne to spend down his excess resources to become eligible for Medicaid. Id. at 724. In other words, once Payne applied his excess resources toward his medical bills, under Indiana's rules in 1972, the remaining $146,000 in medical bills would have been eligible for Medicaid reimbursement. Id. at 721. 19 The state of Illinois uses a resource spend down policy that works differently than the system described in Payne. In Hession v. Illinois Dep't of Public Aid, 129 Ill.2d 535, 136 Ill.Dec. 65, 72, 544 N.E.2d 751, 758, Illinois' resource spend down was described as follows: 20 [B]y allowing an applicant to spend down the assets above the disregard with incurred medical expenses, the applicant is entitled to Medicaid benefits once the medical expenses exceed the excess in assets. 21 This type of resource spend down is similar to an insurance deductible. Unlike the system described in Payne, Illinois apparently does not require proof of actual spend down before paying the applicant's medical bills. 8 From the perspective of the applicant, the only difference is one of timing. The medical provider would presumably prefer Indiana's old system because it gives an incentive to the applicant to pay his portion of the medical bills sooner. 22 Illinois' resource spend down applies only to medical debts. The discussion in Payne does not indicate such a limitation, but the facts of that case only involved medical debts. Unless otherwise specified, we limit our discussion of resource spend down to medical debts. This was the approach of the district court, which stated that Because Indiana does not allow applicants to spend down their resources, offsetting them against incurred medical expenses, the Ungers' available resources for February-August, 1989 were not decreased by their [nursing home debts]. 772 F.Supp. at 1087. Limiting spend down to medical debts is also consistent with an income spend down, which is limited to medical debts.
23 In a sense, conditional eligibility is another form of resource spend down (though not limited to medical debts). The basic idea of conditional eligibility is that applicants may receive Medicaid eligibility by expressly agreeing to dispose of their excess resources promptly. In particular, plaintiffs point to the SSI regulations at 20 C.F.R. §§ 416.1240-416.1244, which provide for a limited entitlement to SSI payments when an applicant's resources exceed the allowable amount. To qualify under the regulation, no more than one-fourth of the applicant's resources must be liquid, and the applicant must agree in writing to dispose of his non-liquid resources within a specified period of time (three months for personal property and nine months for real property). § 416.1240. After liquidation, the applicant agrees to repay that portion of the payments that would not have been made had the disposition occurred at the beginning of the period for which payment was made. 9 § 416.1244.