JANET BOND ARTERTON, District Judge.
Plaintiffs Martin Fagan ("Mr. Fagan") and Pamela Fagan ("Mrs. Fagan") filed this suit against Defendant Roderick L. Bremby, in his official capacity as Commissioner of the Connecticut Department of Social Services ("DSS"), on January 18, 2016, requesting injunctive relief from Defendant's decision to impose a transfer of assets penalty on Mr. Fagan that results in his being ineligible for Medicaid benefits until March 6, 2022. The parties now bring cross motions for summary judgment. For the following reasons, Plaintiffs' Motion [Doc. #31] for Summary Judgment is denied and Defendant's Motion [Doc. #28] for Summary Judgment is granted.
The federal Medicaid program, enacted in 1965 as Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., provides funding to States that assist persons with paying for medical care who have insufficient income and resources. See Social Security Act, tit. XIX, as added, 79 Stat. 343, and as amended, 42 U.S.C. § 1396 et seq. "Each participating State develops a plan containing reasonable standards . . . for determining eligibility for and the extent of medical assistance within boundaries set by the Medicaid statute and the Secretary of Health and Human Services." Wisconsin Dep't of Health & Family Servs. v. Blumer, 534 U.S. 473, 479 (2002) (internal quotation marks and citations omitted). In formulating those standards, States must "provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant." 42 U.S.C. § 1396a(a)(17)(B).
In 1988 Congress amended Title XIX of the Social Security Act by passing the Medicare Catastrophic Coverage Act ("MCCA"). The purpose of the MCCA was both "to protect community spouses from `pauperization' while preventing financially secure couples from obtaining Medicaid assistance." Blumer, 534 U.S. at 480 (citing H.R.Rep. No. 100-105, pt. 2, pp. 66-67 (1987)).
When an institutionalized spouse first applies to Medicaid, the State Agency totals the assets of both the institutionalized and the community spouse "as of the beginning of the first continuous period of institutionalization . . . of the institutionalized spouse," and divides that sum in half resulting in what is called a "spousal share." 42 U.S.C. § 1396r-5(c)(1)(A) (emphasis added). This spousal share then becomes the basis for the calculation of the "community spouse resource allowance" ("CSRA").
When reviewing an application, the State Agency will also check that neither spouse disposed of any assets for less than fair market value "on or after the look-back date," which is defined as 60 months before "the first date as of which the individual both is an institutionalized individual and has applied for medical assistance under the State plan." 42 U.S.C. § 1396p(c)(1)(A)-(B).
As explained by the Centers for Medicare & Medicaid Services ("CMS"),
After Mr. Fagan was severely injured in a motorcycle accident in June 2011, he was moved into Masonicare, a skilled nursing facility in Wallingford, Connecticut, where he has resided ever since. (Ex. 3 to Def.'s Mot. [Doc. # 28] for Summary Judgment ¶¶ 3, 5.) He applied to DSS for Medicaid long-term care benefits in February 2012 and was approved, effective March 1, 2012.
On August 12 and September 23, 2015, several months after his coverage was discontinued, Mr. Fagan transferred $879,453.32 of his settlement proceeds to his wife in two transactions. (Pl.'s LR 56 ¶¶ 12, 13.) The amount of the first transfer, $581,453.32, is equivalent to the amount Mrs. Fagan paid for the purchase of her primary residence in Florida.
Upon review of Mr. Fagan's reapplication for Medicaid long-term care benefits, DSS determined that the August 12 and September 23 transfers of funds from Mr. Fagan to Mrs. Fagan constituted improper transfers of assets for less than fair market value. (Ex. 3 to Def.'s Mot. for Summary Judgment ¶ 18.) On December 7, 2015 DSS sent Mr. Fagan a Preliminary Decision Notice (a W-495A form) informing him of its decision that the transfers totaling $952,006.52
Neither party claims any material factual dispute, and therefore this case is appropriate for disposition by summary judgment on the legal issue of whether the penalty DSS imposed on Mr. Fagan for his transfer of assets to his wife was lawful. Both parties agree that (1) Mr. Fagan was institutionalized in 2011, and has been continuously institutionalized since that time (Pl.'s LR 56 ¶ 2; Ex. 3 to Def.'s Mem. Supp. Mot. for Summary Judgment ¶ 3); (2) Mr. Fagan began receiving Medicaid benefits in early 2012, and continued to receive them until they were discontinued on May 31, 2015 because Mr. Fagan was over the asset limit (Pl.'s LR 56 ¶¶ 7, 10; Ex. 3 to Def.'s Mem. Supp. Mot. for Summary Judgment ¶¶ 11, 14); and (3) between May 31, 2015 and Mr. Fagan's subsequent reapplication in September 2015, Mr. Fagan transferred his personal injury settlement proceeds to Mrs. Fagan (Pl.'s LR 56 ¶¶ 12, 13; Ex. 3 to Def.'s Mem. Supp. Mot. for Summary Judgment ¶¶ 15, 16).
The Court must decide whether, once Mr. Fagan was originally determined eligible for Medicaid in 2012, the limits on spousal transfers found in 42 U.S.C. § 1396r-5(f)(1) continued to apply to Mr. Fagan's transfers of assets to Mrs. Fagan made after his benefits had been discontinued but before he reapplied for Medicaid; or whether this limitation provision does not apply and § 1396p(c)(2)(B)'s "unlimited transfer exception" should be the controlling statutory provision in these circumstances.
After the initial determination of eligibility, assets belonging to the institutionalized spouse and the community spouse are treated separately for purposes of determining the institutionalized spouse's ongoing Medicaid eligibility and "if [after initially being determined eligible] the institutionalized spouse attempts to transfer newly received resources . . . he will face a penalty." Morris v. Oklahoma Dep't of Human Servs., 685 F.3d 925, 937 (10th Cir. 2012). The question is thus whether, with respect to a single continuous period of institutionalization, the "initial determination" in § 1396r-5(f)(1) refers only to the State Agency's first determination of an applicant's eligibility for Medicaid benefits, as Defendant contends, or as Plaintiffs argue, that "initial determination" also refers to a second application where an individual who, after having been deemed eligible and receiving benefits for a period of time, loses eligibility and then reapplies for benefits all while continuously institutionalized. Plaintiffs argue that Mr. Fagan's second application for benefits, although for future coverage on the same continuous period of institutionalization as his first application, constitutes a separate "initial determination of eligibility" resulting in a reversion back to the pre-eligibility transfer of assets rules. Defendant maintains that once Mr. Fagan became eligible for Medicaid and was institutionalized, thereby triggering the statute's separate treatment of resources provision, he and his wife's resources were to be treated separately and any subsequent transfer by Mr. Fagan to Mrs. Fagan while he remained institutionalized would violate the statute unless it complied with the limited exception in § 1396r-5(f)(1).
The applicability of Section 1396r-5(f)(1) to the Fagans' circumstances presents a case of first impression. Plaintiffs and Defendants rely almost exclusively on their different interpretations of Morris, 685 F.3d 925 (10th Cir. 2012) and Hughes v. McCarthy, 734 F.3d 473 (6th Cir. 2013), neither of which directly addresses the issue here, as well as an HHS amicus brief filed in Hughes, and two letters from CMS responding to questions from States regarding compliance of their policies with federal law.
Plaintiffs claim that the circumstances in Morris, 685 F.3d 925 are identical to the Fagans' except for differences in time periods between the applications and that factually Hughes, 734 F.3d 473 is not materially different from their own case. However, there are important distinctions. Neither Morris nor Hughes involved an institutionalized spouse who reapplied for Medicaid benefits after having earlier received benefits with respect to a continuous period of institutionalization, as Mr. Fagan did. Nor did the institutionalized spouses in Morris or Hughes transfer assets to their community spouse after their benefits were discontinued because they were over the asset limit and before submitting a second application for Medicaid benefits. Therefore, although both Morris and Hughes analyzed Section 1396r-5(f)(1), at issue here, which permits transfer as soon as practicable after the eligibility determination in an amount less than the CSRA, neither did so under the critical factual circumstances presented by the Fagans.
In Morris the institutionalized spouse applied for Medicaid but was denied because she and her community spouse had assets over the asset limit. 685 F.3d at 928. In an effort to spend down her assets so that she could qualify for Medicaid, the institutionalized spouse purchased a federally approved annuity paying benefits to her husband, the community spouse. Id. After her purchase of this annuity, the institutionalized spouse again applied for Medicaid. Id. The State Medicaid Agency imposed a transfer of assets penalty finding that the institutionalized spouse's purchase of the annuity for the community spouse was a transfer of assets for less than fair market value within the look-back period in violation of Sections 1396p(c)(1) and 1396r-5(f)(1) and thus concluded that the institutionalized spouse was ineligible for Medicaid. Id.
Morris focused on whether "initial determination of eligibility" refers only to a determination that the institutionalized spouse was in fact eligible for benefits, as those plaintiffs argued, or whether the denial of Medicaid benefits also constitutes an "initial determination" triggering Section 1396r-5(f)(1)'s spousal limit. The Tenth Circuit held that the limitations on spouse-to-spouse transfers only apply in cases where the applicant was determined to be eligible for Medicaid because "an agency's denial of Medicaid benefits is not a watershed moment; a determination that an individual is eligible, however, results in a dramatic change." Id. at 937. The court reasoned that § 1396r-5(f)(1) is not triggered upon the State Medicaid Agency's finding that an applicant is ineligible because from that finding the "couple merely learns that they must spend down further in order to become eligible, and all resources — irrespective of which partner holds title—continue to affect the institutionalized spouse's eligibility for Medicaid." Id. The court found further support for its conclusion in 42 U.S.C. § 1396r-5(c)(4), under which the separate treatment of resources for a couple applies only after an institutionalized spouse is determined eligible for Medicaid. Id.
Hughes similarly involved a pre-eligibility transfer of assets where the institutionalized spouse had never previously been determined to be eligible. There, the institutionalized spouse had paid her own costs at a nursing facility for about four years. Before she applied for Medicaid, the community spouse purchased an annuity for $175,000 that paid benefits only to him. 734 F.3d at 477. The institutionalized spouse then applied for Medicaid three months later and the State Medicaid Agency imposed a transfer of assets penalty on the institutionalized spouse because her community spouse "used a community resource in an amount that exceeded his CSRA." Id. The Sixth Circuit held that the transfer was allowed without penalty under § 1396p(c)(2)(B) because "§ 1396r-5(f)(1) `has nothing to say about the inter-spousal transfers that are permissible before a determination of eligibility'" and that 42 U.S.C. § 1396r-5(f)(1) only applies to transfers "after the date of the initial determination of eligibility." Id. at 479-80 (emphasis in the original) (internal citations and quotation marks omitted).
Therefore, Morris and Hughes stand for the proposition that § 1396r-5(f)(1) applies only where the individual makes the transfer after he or she has been deemed eligible for Medicaid, rather than (1) where the transfer was made after the Agency initially determined that the institutionalized individual was not eligible, as in Morris; or (2) where the transfer was made after the institutionalization period had begun but before the institutionalized individual applied for benefits, as in Hughes. Thus, these cases do not inform the precise determination here: whether, when Mr. Fagan, while still institutionalized, reapplied for benefits in 2015 after they had been discontinued because he had surpassed the asset limit, Agency approval of his second application would still be considered "the initial determination of eligibility" relating to the same continuous period of institutionalization, or whether the whole process re-set with the second application and Agency's determination that Mr. Fagan was again eligible for benefits.
The critical question in this case is which provision, 42 U.S.C. § 1396r-5(f)(1) or § 1396p(c)(2)(B), applies to Mr. Fagan's transfers of assets to Mrs. Fagan. Generally, where an individual "disposes of assets for less than fair market value on or after the look-back date" he will not be eligible for Medicaid. 42 U.S.C. 1396p(c)(1)(A). However, "a transfer of assets penalty will not be assessed for transfers that occur during the look-back period where assets were transferred `to the individual's [institutionalized spouse's] spouse or to another for the sole benefit of the individual's spouse.'" (Def.'s Mem. Supp. Mot. for Summary Judgment at 5-6 (quoting 42 U.S.C. § 1396p(c)(2)(B)(i)).) If this look-back Section applies to Mr. Fagan's second Medicaid application, as Plaintiffs contend, Mr. Fagan's transfers would be a permissible exception to the limits on transfers. But, Section 1396r-5(f)(1) only permits a transfer of assets to be done "as soon as practicable after the date of the initial determination of eligibility."
These two sections work in tandem, each applying to a different temporal period, to provide couples with the opportunity to reallocate their assets between them so that the institutionalized spouse's resources do not exceed the Medicaid limit.
The central dispute then, is what constitutes "the initial determination of eligibility," as the phrase is used in Section 1396r-5(f)(1).
Defendant argues that "[b]y its plain language an `initial determination' cannot mean a second determination of eligibility with respect to the same period of institutionalization." (Def.'s Mem. Supp. Opp'n to Summary Judgment at 10.) According to Webster's Dictionary, "initial" means "of or relating to the beginning," and thus, according to Defendant, this "would logically be the first finding that an applicant is eligible for Medicaid." (See Def.'s Mem. Supp. Mot. for Summary Judgment at 18.) In opposition, Plaintiffs claim that the only significance of the word "initial" is to distinguish between the first determination the Agency makes on an application for Medicaid and its subsequent redeterminations of a beneficiary's eligibility.
The flaw in Plaintiff's argument regarding the significance of the word "initial" is that because they acknowledge that Mr. Fagan could not have made the transfers at issue prior to a redetermination without penalty, allowing Mr. Fagan to make these same prohibited transfers after his benefits were discontinued (upon redetermination) without penalty would essentially allow him to bypass the transfer limits essential to the statute's purpose. The Court sees no convincing reason why the language of the MCCA should be interpreted to give an institutionalized individual, found ineligible for benefits upon redetermination, a second opportunity to make transfers to his spouse prohibited at the time of his initial eligibility determination when the coverage relates to the same period of institutionalization. As Defendant reasons, the logical reading of the statute's plain language is that the initial determination of eligibility attaches not to each application for Medicaid, but rather to each continuous period of institutionalization regardless of the outcomes of renewal determinations during that period of care. Absent any language in the statute intimating that it was the intent of Congress to link the initial determination of eligibility to each new application for the same institutionalization, the Court interprets the word "initial" as encompassing only the very first determination declaring an individual eligible for Medicaid with respect to a single period of institutionalization.
Because Section 1396r-5(f)(1) permits a limited transfer only "as soon as practicable" after the first determination of eligibility relating to one continuous period of institutionalization, and is silent about subsequent redeterminations resulting in discontinuation of benefits for that same period, a post-transfer application to resume benefits cannot constitute the "initial determination."
In addition to the fact that the plain language of the statute is logically read as limiting the initial determination of eligibility to the first occasion where the Agency deems an individual eligible for Medicaid for a single period of institutionalization, this reading is also consistent with the dual purposes of the statute "to protect community spouses from `pauperization' while preventing financially secure couples from obtaining Medicaid assistance." See Blumer, 534 U.S. at 480 (citing H.R.Rep. No. 100-105, pt. 2, pp. 66-67 (1987)). Medicaid is intended to assist "needy persons for the cost of medical care" and Mr. Fagan was such a person when he first applied in February 2012 because he and his wife's assets fell below the necessary threshold. See id. at 479. But, that status changed after he recovered nearly a million dollars in proceeds from a lawsuit, significantly ameliorating his financial position such that he no longer qualified for benefits.
Plaintiffs contend that interpreting the statute as preventing Mr. Fagan from making transfers to his wife after his eligibility was revoked "would limit any inter-spousal transfers forever and ever, for years or decades, despite [the individual's] Medicaid eligibility having been terminated." (Pl.'s Mem. Supp. Opp'n to Summary Judgment at 2.) Plaintiffs' argument overlooks that Mr. Fagan's period of ineligibility is mathematically linked to the period of time his excess assets would cover the cost of his care, which is entirely consistent with the statute's purpose to prevent couples with the means of paying for their own care from receiving Medicaid benefits.
It is difficult to imagine that Congress intended that an institutionalized spouse, upon inheriting or otherwise acquiring substantial assets after having initially been determined eligible for Medicaid, could wait for the Agency to determine he was no longer eligible for benefits and then transfer those assets to his spouse and successfully reapply for Medicaid.
Finally, although Morris dealt with a different benefits posture, its analysis of the "initial determination of eligibility" as a "watershed moment" provides a useful construct. In Morris the court unequivocally held "that § 1396r-5(f)(1)'s limit on spousal transfers applies only after a State Agency has declared the institutionalized spouse eligible for Medicaid benefits," 658 F.3d at 928 (emphasis added), because this, unlike when an individual is denied benefits, "results in a dramatic change" id. at 937.
Plaintiffs thus argue that because Mr. Fagan was deemed ineligible by DSS as of May 31, 2015, the spousal transfer limit is inapplicable. (Pl.'s Mem. Supp. Mot. for Summary Judgment at 5.) However, this argument fails to account for the fact that unlike in Morris, prior to that determination of ineligibility DSS had already determined that Mr. Fagan was eligible for Medicaid for that very same period of institutionalization. Therefore, Defendant asserts that once "Mr. Fagan's application was granted, Mr. Fagan's ongoing eligibility depended solely on his assets" and "[t]he only assets Mr. Fagan could transfer to Mrs. Fagan after his Medicaid application was approved were assets up to the CSRA, and he was required to do so `as soon as practicable after the date of the initial determination of eligibility.' 42 U.S.C. § 1396r-5(f)(1)." (Def.'s Mem. Supp. Mot. for Summary Judgment at 16.) The Court agrees with this analysis.
Moreover, if an individual could simply transfer newly acquired assets after his benefits were discontinued and then reapply for Medicaid for that same period of institutionalization, the "watershed moment" of initially being granted Medicaid benefits would lose any significance. Instead, the moment of "initial determination" would be like a water faucet whose flow was controlled by the institutionalized spouse, with eligibility turned on and off, resulting in multiple cycles of applications, eligibility determinations, ineligibility determinations, and reapplications. This would allow any institutionalized spouse to transfer any newly obtained assets to his or her community spouse as soon as he or she went off Medicaid only to go back on the next month after the assets were transferred. Were the statute read to permit this, there would be no "dramatic change" as emphasized in Morris, given the fluidity between going on and off Medicaid that such a reading compels.
Given the clear asset consequences that relate to eligibility, the initial eligibility determination is a pivotal moment. Once the institutionalized spouse is first determined to be eligible for Medicaid, the Agency may look only at his individual resources (and not the community spouse's) in making determinations about his continued eligibility. See § 42 U.S.C. 1396r-5(c)(4). To this end, an institutionalized spouse cannot transfer disqualifying assets to the community spouse after he is determined to be eligible for benefits except for as provided by § 1396r-5(f)(1). Plaintiff's transfer did not fall into this limited exception — he transferred the money after he had initially been determined eligible for Medicaid, the transfer was well over the applicable CSRA, and the transfer occurred long after his initial determination of eligibility. Consequently, the penalty imposed by DSS was proper.
In sum, after DSS first found Mr. Fagan eligible for Medicaid, he was prohibited from transferring assets to his community spouse apart from the limited transfer provided for by Section 1396r-5(f)(1), as long as he remained continuously institutionalized, even if there was a break in his eligibility and he reapplied and was again approved for benefits. This reading of the statute is required by the rules of statutory interpretation, consistent with the dual purposes of the statute, and follows from Morris's "watershed moment" analysis. Therefore, Defendant properly imposed a transfer of asset penalty on Mr. Fagan once he had been found eligible for Medicaid upon reapplication.
For the foregoing reasons, the Court finds that Defendant's imposition of a transfer of asset penalty was proper. Consequently Plaintiffs' Motion for Summary Judgment is DENIED and Defendant's Motion for Summary Judgment is GRANTED. The Clerk is requested to close this case.
IT IS SO ORDERED.
(Ex. 2 to Def.'s Mem. Supp. Mot. for Summary Judgment at 8.)
