Opinion ID: 3135375
Heading Depth: 2
Heading Rank: 1

Heading: 2d 660 (Pa. Commw. 1999).

Text: Though we disagree with the result reached by the court in Mertz, we do agree with its comment that it is apparent annuities have been structured to bypass Medicaid limits and consequently to defeat the purpose of the Medicaid Act. Additionally, we find Dempsey more persuasive than Mertz on the issue of whether Transmittal 64 forecloses further state regulation. Dean v. Delaware Department of Health & Social Services, C.A. No. 00AB05B006 (Del. Super. December 6, 2000), aff=d, 781 A.2d 693 (Del. 2001), a trial court decision from Delaware upon which Gillmore relies, supports our position. In Dean, a wife entered a nursing home. Her husband considered applying for Medicaid on her behalf and asked the state social services office for an assessment of their assets. The social services office determined that, not including the husband=s community spouse resource allowance, they had assets $51,000 over Medicaid limits. The husband purchased an actuarially sound, nonballoon commercial annuity for $53,000 in order to spend down his resources. The social services office denied the wife=s Medicaid application, and the husband asked for an administrative hearing. At the hearing, the husband=s attorney, who specialized in Aputting together Medicaid annuities for purposes of Medicaid qualification@ testified. Dean, No. C.A. 00AB05B006. He described Transmittal 64 and stated that the husband=s annuity was actuarially sound, making it noncountable under Medicaid. The social services office caseworker who reviewed the wife=s application also testified. She stated that she was under the impression that the annuity was crafted in order to create eligibility, adding that the office considers transfers of assets for the sole purpose of becoming eligible for Medicaid to be improper. The administrative hearing officer sided with the social -14- services office because the annuity was an abusive shelter of assets. The husband filed a complaint for judicial review. The trial court reversed, holding that the annuity complied with Transmittal 64, and the State was powerless to penalize it. Dean, No. C.A. No. 00AB05B006. The court discussed Transmittal 64, which Aclearly suggests that sheltering, that is, moving or altering, assets solely in order to qualify for Medicaid is an abuse of the Medicaid system. It does so only by implication and by contrasting a valid retirement plan with a strategy to ensure eligibility. But it stops short of prohibiting such action. Worse yet, while [Transmittal 64] appears to denounce the purchase of an annuity for the purpose of qualifying for Medicaid, it inhibits the caseworker=s ability to penalize such abuse by making the single determinative factor the question of fair market value.@ Dean, C.A. No. 00AB05B006. The court stated that unlike the state in Mertz, the state in this case did not have a regulatory presumption that assets disposed of during the look-back period were disposed of to create Medicaid eligibility, despite Athe obvious logic and utility@ of such a presumption. Dean, C.A. No. 00AB05B006. According to the court, such a presumption is consistent with Transmittal 64 because Transmittal 64 Aimplicitly presumes that a transfer of assets for less than fair market value was for the purpose of qualifying for Medicaid.@ Dean, C.A. No. 00AB05B006. Our research has revealed two very recent cases from Ohio involving Medicaid eligibility and balloon annuities. In King v. Ohio Department of Job & Family Services, 2005-Ohio-4939, an Ohio Court of Appeals affirmed a trial court decision which upheld an administrative decision by the Ohio Department of Job and Family Services. The department denied the application of a 94-year-old woman who purchased a commercial balloon annuity for $257,220.38 because she failed to present clear and convincing medical evidence pursuant to a state regulation that she would live beyond the balloon payment date. The court of appeals, however, did not address the eligibility issue, finding that the woman had not provided legal support for her arguments. See King, 2005-Ohio-4939, at &8. -15- Fire v. Ohio Department of Job & Family Services, 2005-Ohio5214, provides more substantive analysis. Fire involved three consolidated appeals. In each case, a woman in her 80s purchased a balloon annuity after entering a nursing home. In each case the local Job and Family Services bureau denied their Medicaid applications and imposed penalty periods because the annuities were countable assets that put the women over Medicaid limits. Under a state regulation, a balloon annuity is a countable asset unless the Medicaid applicant can prove by clear and convincing evidence that she was expected to live past the date of the balloon payment. The State Job and Family Services director affirmed the local decisions, and the trial court affirmed the director=s decisions. The women appealed. The court of appeals reviewed the Medicaid Act and discussed the state regulations regarding eligibility. Fire, 2005-Ohio-5214, at &22. One of those regulations tracked Transmittal 64=s actuarial soundness requirement, but added that the validity of a balloon annuity is not governed by life expectancy tables. Fire, 2005-Ohio5214, at &30. Instead, the value of balloon annuity Awill be deemed improperly transferred@ unless the applicant can produce Aclear and convincing medical evidence that the [applicant] is expected to actually live past the date of the balloon payment.@ Fire, 2005-Ohio5214, at &30, citing Ohio Adm. Code '5101:1B39B22.8(E). The court of appeals agreed that the women had not rebutted this presumption: AThe features inherent in the transfers made by [the women] indicate that the transfers were made with the intent to avoid using the resources for nursing home care.   [T]here was insufficient evidence to support the [women=s] claims that [the] purchased annuities were not improper transfers of assets for the purpose of meeting eligibility requirements for Medicaid; the [women] transferred significant funds to annuities almost immediately before each applied for Medicaid benefits.@ Fire, 2005-Ohio5214, at &&41-42. The equal period payment regulation here, like the regulatory presumptions in Dempsey, King, and Fire, remains consistent with the spirit of Transmittal 64. The Medicaid Act is Aamong the most intricate ever drafted by Congress.@ Schweiker, 453 U.S. at 43, 69 L. Ed. 2d at 469, 101 S. Ct. at 2640. Though its provisions are dense, -16- circuitous, and often difficult to harmonize (Mertz, 155 F. Supp. 2d at 420 n.6), even this tangled web of interlaced legislation and regulation has gaps. The Aactuarially sound@ approach in Transmittal 64 was an attempt to close one such gapBannuities with terms longer than the Medicaid applicant=s life expectancy. It simply did not address anotherBballoon annuities. 1 The Medicaid scheme leaves to participating states like Illinois the task of fashioning reasonable standards for determining eligibility which Aprovide for reasonable evaluation of any [available] income or resources.@ 42 U.S.C. '1396a(a)(17)(C) (2000). The Medicaid Act is Adesigned to advance cooperative federalism,@ and the United States Supreme Court has Anot been reluctant to leave a range of permissible choices to the States, at least where the superintending federal agency has concluded that such latitude is consistent with the statute=s aims.@ Wisconsin Department of Health & Family Services v. Blumer, 534 U.S. 473, 495, 151 L. Ed. 2d 935, 954, 122 S. Ct. 962, 975 (2002). Though the Department of Health and Human Services has not definitively indicated that the states may penalize balloon annuities, the HCFA in Transmittal 64 did intimate that the aim of federal regulators and state caseworkers alike is Ato avoid penalizing annuities validly purchased as part of a retirement plan but to capture those annuities which abusively shelter assets.@ State Medicaid Manual, Health Care Financing Administration Pub. No. 45B3, Transmittal 64, '3258.9(B) (November 1994). 1 We note, however, that, according to a survey conducted by amicus, 25 of the 40 states who responded to a 2003 survey do not permit balloon annuities to bypass restrictions on transfers of assets. A consultant hired by the federal Department of Health and Human Services has recommended that that agency should specifically do the same. See R. Levy, Analysis of the Use of Annuities to Shelter Assets in State Medicaid Programs 58 (CNA Corp. 2005). -17- The benefit of treating an annuity as a trust is that an annuity transforms assets in the form of the purchase price into income. Thus, a person applying for Medicaid does not have to spend down those assets, but only the monthly income from the annuity. Balloon annuities take this approach to an extremeBminimizing income to shelter assets, instead of providing sufficient income for the Medicaid applicant. A balloon annuity returns fair market value only in a technical sense because the person purchasing it receives the disproportionately largest payment on the last day of her life, when she is unable to spend it, and the state is unable to enforce a spend down. In fact, Fillbright=s immunity went a step further than most balloon annuities and included an amendment clause, which allowed her to push back the balloon payment if a redetermination of her life expectancy revealed a period longer than that left on the annuity. The structure of a balloon annuity demonstrates that its purpose is to shelter assets and not to provide income. Somehow, according to Gillmore, the equal periodic payment regulation violated Transmittal 64, even though a stated goal of the federal scheme is to prevent shielding assets. She would bind the department to federal law where doing so would allow her annuity to shield assets, but ask the department to ignore the spirit of federal law, where doing so would close an obvious loophole. The DHS does not dispute that before the equal periodic payment regulation, an annuity such as Fillbright=s was considered a proper transfer of assets. That regulation, however, turned such an annuity into an improper transfer. Because the equal periodic payment regulation was a permissible and reasonable standard to help caseworkers evaluate transfers of assets, we conclude that it did not violate federal law. Accordingly, we refuse to disturb the DHS=s eligibility decision. In a closing policy argument, Gillmore discusses and asks for our imprimatur on the reasons seniors would want to shelter assets. According to Gillmore, balloon annuities are asset shelters, but laudable ones because such annuities allow seniors to reserve a nest egg in the event they live past their life expectancy. She contends that we should somehow sanction Fillbright=s purchase of a balloon annuity because Congress has not acted to provide seniors with more benefits or cheaper care. We acknowledge that this case has deep implications for seniors in Illinois. As Gillmore notes, the costs of long-term care are staggering, and seniors can exhaust their life -18- savings in a short time while in long-term care. But this coin has another side: the resources of Medicaid are similarly finite, a fact which will become increasingly apparent as our population ages. We decline to enter this fray. Decisions on how best to allocate public revenues are best left with the legislature.