Court Opinion

ID: 4484176
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:33.658865+00
Date Added: 2024-06-11T15:03:46.257404
License: Public Domain

Nims, J., dissenting: The majority excludes Medicaid payments from the support computation under section 152(a). “Support” for purposes of section 152(a) has great breadth. Although the term has no statutory definition, it is defined in the regulations to include “food, shelter, clothing, medical and dental care and the like” (sec. 1.152-1(a)(2)(i), Income Tax Regs.), and to include “income which is ordinarily excludable from gross income, such as benefits received under the Social Security Act” (sec. 1.152-1(a)(2)(ii), Income Tax Regs.). Public welfare and social security benefits have always been included in the support computation. Thus, for example, in Donner v. Commissioner, 25 T.C. 1043 (1956), the cost of maintaining an invalid child in a facility operated by the Wisconsin State Department of Public Welfare was included in the support computation. See also Newman v. Commissioner, 28 T.C. 550 (1957). In Carter v. Commissioner, 55 T.C. 109 (1970), cash old-age assistance payments provided by the State were likewise included.1  Lutter v. Commissioner, 61 T.C. 685 (1974), affd. per curiam 514 F.2d 1095 (7th Cir. 1975), cert. denied 423 U.S. 931, perhaps best exemplifies the breadth to which both the Commissioner and taxpayers thought the support computation extended. In that case, there was no dispute as to whether cash payments and medical assistance provided by the State of Illinois for the benefit of petitioner’s children and paid directly to the providers of the medical services were includable in the support computation. Both parties were convinced that the payments were includable. At issue was whether the payments could be deemed support furnished by the petitioner (the mother of the children who qualified for such assistance) or by the State of Illinois. We held that the payments were support furnished by the latter. As the majority correctly notes, there is an exception to the otherwise broad “support” definition relating to medical expenses. But in marching through the history of this exception, the majority makes one pointed omission; the majority fails to indicate the reason for this exception. Medical payments have been excluded from the support computation when their inclusion would potentially duplicate premium payments. Thus, the Commissioner ruled that medical payments paid pursuant to a health insurance policy should be excluded from the support computation (Rev. Rul. 64-223, 1964-2 C.B. 50), and that certain Medicare payments (supplementary Medicare) should be excluded in the support computation (Rev. Rul. 70-341, 1970-2 C.B. 31, revoked in part Rev. Rul. 79-173, 1979-1 C.B. 86). In Turecamo v. Commissioner, 64 T.C. 720 (1965), affd. 554 F.2d 564, 569 (2d Cir. 1977), we extended the Commissioner’s ruling regarding supplementary Medicare payments to basic Medicare payments on the ground that both constituted vital components of a comprehensive health insurance system. We found the cited funding differences upon which the Commissioner predicated his disparate treatment of the two programs to be due more to political exigencies than to substantive differences between the two programs. Thus, our decision in Turecamo was piggy-backed onto the determination that supplementary Medicare payments should be excluded from the support computation to avoid duplication. Here, we deal with Medicaid. Medicaid and Medicare were the product of the same legislation, but any attempt to equate Medicaid payments with Medicare payments and insurance proceeds is simply at odds with the history and structure of the two programs. The Medicare program was very definitely designed as a comprehensive health insurance plan. (Turecamo v. Commissioner, 554 F.2d at 571.) It is funded out of an actuarially sound fund made up of periodic contributions (554 F.2d at 751), and it affords essentially the same type of health insurance protection as a private insurance plan. Medicaid, by contrast, is simply a welfare program. Its roots are found in other welfare programs;2 it was intended as a welfare program;3 and it was structured along the lines of a welfare program. Eligibility for Medicaid is based on need and does not depend in any way upon the past payment by the recipient of any particular type of Federal, State, or local taxes. Financed out of the general fisc as it is, Medicaid payments are not duplicative of other payments that have already been included in an individual’s support computation. Thus, while insurance payments and Medicare payments have been excluded from the support computation to avoid duplication, Medicaid is fundamentally different. There is no more justification for excluding health welfare payments from the support computation than there is for excluding any other type of welfare payment from the support computation. The disposition of this case should be controlled by Donner and Lutter rather than by Turecamo. The majority attempts to play down the distinctions between Medicaid and Medicare by pointing out that States can elect to pay appropriate premiums to “buy-in” their aged Medicaid recipients. Here, we are not faced with a situation where a State has “bought-in” its aged Medicaid recipient and it is unclear that any States have made that statutory election. More important, though similarities in the Medicaid and Medicare programs do exist, they do not negate the fundamental differences between the two programs. These differences stand in sharp contrast to the superficial distinction between basic Medicare and supplemental Medicare that led to our decision in Turecamo. Other than generalized public policy concepts, the only real authority cited by the majority for its position is the Second Circuit’s opinion in Turecamo. The majority correctly noted that the Second Circuit determined that basic Medicare payments must be excluded from the support computation because their inclusion would distort the economic realities of the relationship between the taxpayer and the putative dependent. The majority draws on this language to justify the exclusion of Medicaid payments as well. Unfortunately, the Second Circuit’s discussion of economic distortion was more sophisticated than the simple medical-costs-are-high-so-let’s-exclude-them approach of the majority. Despite what the majority characterizes (n. 5) as the Second Circuit’s “unequivocal state[ment]” that its economic distortion analysis was independent of its so-called statutory analysis, that Court took great pains in analyzing the economic distortion to indicate that the Medicare payments were in the nature of medical insurance. (554 F.2d at 575-576.) This suggests that the Court’s finding in that regard was a necessary predicate to its economic distortion analysis. Medical insurance benefits can distort the support calculation not merely because the payments can be disproportionately large, as the majority notes, but because, as a practical matter, one’s medical cost is not the full cost of the medical bill but only the cost of insurance premiums plus amounts not covered by the insurance. By way of explanation, the Second Circuit quoted from the concurring opinion in Turecamo: The average man looks at his health costs as his insurance premiums plus his unreimbursed payments for health care, which accords with the economic realities (and the amount deductible as a medical expense). Viewing large third-party payments (made when the contingency insured against occurs) as support can be viewed as distorting the economic realities. [554 F.2d at 576.] Basic Medicare merited the same treatment accorded private health insurance because its insurance-like nature meant that the realistic economic cost of a particular health problem was the cost of the Medicare premiums, not the cost of the health care. It was that economic reality that the Second Circuit did not want to upset. In this respect, the general welfare-insurance distinction makes perfect sense. To the extent that medical costs are satisfied by Government payments pursuant to a program that is in the nature of insurance, the economic cost to the individual is, as a practical matter, the cost of premiums for the insurance-like protection. That cost is the proper amount to include in the support computation; including the full medical cost would distort the economic reality. By contrast, if the medical cost is one that goes unsatisfied by insurance, either private or Government, the cost to the individual is the full cost, and that full amount should be included in the support computation. This is true whether the cost is paid by the putative dependent or by a third-party individual or by welfare. Moreover, as to at least part of Medicare, a taxpayer will have made some contribution toward the excluded benefits, whereas the exclusion of Medicaid payments is simply an opportunity to “double-dip” the Government — such taxpayer’s needy dependent receives the support payments which the taxpayer would somehow otherwise have to provide, and the taxpayer gets a tax benefit to boot. The majority stresses the extraordinary nature of medical costs, both in purporting to distinguish this case from the welfare payment cases and also in tying its result into the Second Circuit’s self-styled “independent reason.” Unfortunately, on these facts, the majority’s argument is forced and its “comparing apples and oranges” criticism of respondent is inapposite. The costs covered by Medicaid in this case were extended costs resulting from a major medical catastrophe and not the extraordinary one-shot costs which, in the year incurred and paid, arguably distort the economic relationship between the supported and his or her benefactor. They consisted of relatively modest weekly payments for home nursing care and they resemble other day-to-day support costs of Mrs. Archer or the proceeds of disability insurance. Indeed, despite the solace drawn by the majority from the same passage in Turecamo, the Second Circuit’s comment on the welfare and social security line of cases (554 F.2d 576 n. 27), seems to suggest that these Medicaid payments should be treated in a similar fashion: The receipt of annuity proceeds by an individual in need of financial assistance has an altogether different effect on his economic relationship with a third party who contributes to his support. The regular receipt of predictable payments through private annuities or public welfare annuities such as OASDI may be understood to reduce the recipient’s dependency on the contributing third party on a continuing basis, to the extent of the annuity or welfare benefits being received. [Emphasis added.] The mere fact that the costs in this case are tied to medical or health problems thus becomes coincidental, and does not mean that these costs should be treated in a different manner than other day-to-day routine costs. Individuals like petitioner who assume financial responsibility for their aged and infirm parents merit the highest respect of all citizens. I also recognize that, because of the nomenclature used, the distinction between Medicaid and Medicare payments may be lost on the average individual. Nevertheless, I perceive no basis for treating Medicaid payments any differently than other welfare payments. In my opinion, they should be included in the support computation, and I would so hold. Simpson, Quealy, and Chabot, JJ., agree with this dissenting opinion.  The general rule has also been consistently applied by this Court with regard to the following payments: Cash social security payments (Black v. Commissioner, T.C. Memo. 1972-135); cash disability insurance benefits under sec. 202, tit. II of the Social Security Act (Kincheloe v. Commissioner, T.C. Memo. 1971-35); cash public assistance provided by State, county or local departments of public welfare (Fisher v. Commissioner, T.C. Memo. 1978-492; Frazier v. Commissioner, T.C. Memo. 1976-149, affd. per curiam 551 F. 2d 1118 (8th Cir. 1977), cert. denied 434 U.S. 957; Beck v. Commissioner, T.C. Memo. 1970-153; Batchelor v. Commissioner, T.C. Memo. 1970-24); cash payments under the Aid to Families with Dependent Children (A.F.D.C.) program (Morrison v. Commissioner, T.C. Memo. 1975-73; Johnson v. Commissioner, T.C. Memo. 1974-150); free lunches under the A.F.D.C. program (Morrison v. Commissioner, supra,)', mortgage assistance and utilities assistance by governmental agencies paid directly to the mortgagees and to the providers of the utilities (Leggett v. Commissioner, T.C. Memo. 1976-7); food stamps (Leggett v. Commissioner, supra)', and medical and dental assistance paid directly to the providers, by social service agencies (Leggett v. Commissioner, supra).   S. Rept. 404, to accompany H.R. 6675 (Pub. L. 89-97), 89th Cong., 1st Sess. 1945, 1950 (1965).   Indeed, the reason that the Kerr-Mills medical assistance program, the predecessor program to Medicaid, was structured as a welfare program was specifically to make a social insurance approach unnecessary. R. Myers, Medicare 39 (Irwin 1970).