Id.
§ 1382a(a)(2)(B). The Department, however, contends that this provision does not
apply to the sort of annuity purchased by Mrs. Geston, and that North Dakota may
define Mrs. Geston’s annuity benefit as a resource rather than income.
The Department argues that the term “annuity” in § 1382a(a)(2)(B) means
“retirement annuity” as defined by § 408 of the Internal Revenue Code. IRC § 408
defines certain types of retirement accounts that receive favorable tax treatment,
including a “retirement annuity.” See, e.g., 26 U.S.C. § 408(b). Among the
requirements for these annuities is an annual premium limit; Mrs. Geston’s premium
exceeds the limit, so it would not fit within the statutory term “annuity” under the
Department’s definition.
The Department, citing the canon of noscitur a sociis, urges that “annuity . . .
benefit” in § 1382a(a)(2)(B) must be known by its associates. The subsection in full
defines unearned income as “any payments received as an annuity, pension,
retirement, or disability benefit, including veterans’ compensation and pensions,
-6-
workmen’s compensation payments, old-age, survivors, and disability insurance
benefits, railroad retirement annuities and pensions, and unemployment insurance
benefits.”
Id. § 1382a(a)(2)(B). The Department invokes Eilbert v. Pelican (In re
Eilbert),
162 F.3d 523 (8th Cir. 1998), where this court considered an Iowa statute
exempting from execution by a judgment creditor “[t]he debtor’s rights in . . . [a]
payment or a portion of a payment under a pension, annuity, or similar plan or
contract on account of illness, disability, death, age, or length of service” under certain
conditions.
Id. at 526. Applying the canons of noscitur a sociis and ejusdem generis,
the court determined that “annuity” must be defined “by reference to the words
surrounding it.”
Id. at 527. Because (1) the specific term “pension” refers to a
“retirement benefit” that constitutes “[d]eferred compensation for services rendered,”
and (2) the term “annuity” in the statute was limited by the phrase “on account of . . .
age,” the court concluded that the statutory term “annuity” meant “a plan or contract
to provide benefits in lieu of earnings after retirement.”
Id. Drawing a parallel to the
statutory provision at issue in Eilbert, the Department maintains that the terms
accompanying “annuity . . . benefit” show that the benefits defined as unearned
income are limited to those encompassed by IRC § 408.
We find the argument wanting, because there is not a sufficient basis in the text
of § 1382a(a)(2)(B) to incorporate IRC § 408. Congress did not require that “pension
. . . benefit[s]” or “retirement . . . benefit[s]” in § 1382a(a)(2)(B) comply with § 408
for their payment streams to be treated as unearned income, and the Department does
not satisfactorily explain how a “disability benefit”—whether obtained through
private insurance or a public program—relates to § 408. Nor does Eilbert provide a
compelling analogy, because the statutes are materially different.
Section 1382a(a)(2)(B), unlike the Iowa statute, includes the enumerated term
“retirement . . . benefit,” so “annuity . . . benefit” must have independent meaning.
Section 1382a(a)(2)(B) also does not limit annuity payments to those made “on
account of . . . age.” Eilbert cited “the conjunction” of the words “annuity” and “age”
in concluding that “annuity” in the Iowa statute described “a plan or contract to
-7-
provide benefits in lieu of earnings after retirement.” 162 F.3d at 527. The
enumerated terms and examples in § 1382a(a)(2)(B), by contrast, include “disability
benefit,” “workmen’s compensation payments,” and “unemployment insurance
benefits,” all of which may be received independent of age. Eilbert is thus not good
authority for construing “annuity benefit” in the Medicaid statute to mean an annuity
that complies with IRC § 408.
The Department’s argument also fails to account for Congress’s incorporation
of IRC § 408 to limit the meaning of “annuity” elsewhere in the Act. See 42 U.S.C.
§ 1396p(c)(1)(G)(i)(I). Because Congress defined “annuity” by reference to § 408 in
another provision of the same Act, but did not do so here, we presume that the term
is not so circumscribed in § 1382a(a)(2)(B). “[W]here Congress includes particular
language in one section of a statute but omits it in another section of the same Act, it
is generally presumed that Congress acts intentionally and purposely in the disparate
inclusion or exclusion.” Russello v. United States, 464 U.S. 16, 23 (1983) (internal
quotation omitted).
The Department’s amici invoke a corresponding Social Security regulation to
support a different proposed limitation on the term “annuity benefit,” but that
argument fares no better. The agency provides that some types of unearned income
are “[a]nnuities, pensions, and other periodic payments,” which are “usually related
to prior work or service.” 20 C.F.R. § 416.1121(a) (emphasis added). The amici cite
this rule to show that annuity benefits in § 1382a(a)(2)(B) must relate to employment.
But the caveat “usually” in the regulation defeats the contention. “Usually” implies
“not always,” so the regulation does not limit unearned income to annuities that are
related to prior work or service.
For the canon of noscitur a sociis to apply, all of the terms must share a
common denominator to which the list may be reduced. Polaroid Corp. v. C.I.R., 278
F.2d 148, 152 (1st Cir. 1960); Antonin Scalia & Bryan A. Garner, Reading Law: The
-8-
Interpretation of Legal Texts 196 (1st ed. 2012). Neither the Department’s proposed
denominator of IRC § 408 nor the amici’s suggestion of relation to employment
satisfies this commonality requirement. Without a satisfactory basis to narrow the
plain text, we ordinarily resist reading words into a statute that do not appear on its
face. See Bates v. United States, 522 U.S. 23, 29 (1997).
The Gestons rely on a second provision to complement the statutory definition
of “unearned income”—namely, a federal regulation defining “resources” for
purposes of an eligibility determination. The regulation provides: “If the individual
has the right, authority or power to liquidate the property or his or her share of the
property, it is considered a resource. If a property right cannot be liquidated, the
property will not be considered a resource of the individual (or spouse).” 20 C.F.R.
§ 416.1201(a)(1). Consistent with the agency’s interpretation, Social Security
Administration, Program Operations Manual Systems § SI 01110.115.A, and the
federal government’s litigating position, see Br. for U.S. Dep’t of Health & Human
Servs. as Amicus Curiae at 11-12, Lopes, 696 F.3d 180, we think the regulation
naturally refers to a “legal” right, authority, or power to liquidate. What other sort of
“right” or “power” would be at issue? If the regulation merely referred to a raw power
to liquidate—even in breach of the contract or violation of law—then it would impose
virtually no limitation, for a pair of unscrupulous actors can reduce almost anything
of value to a dollar amount.
Mrs. Geston’s annuity contract expressly provides that she cannot revoke or
transfer the contract, and that she cannot change the recipient of the payment stream
during her lifetime. Because Mrs. Geston has no “right, authority or power” to
liquidate the annuity, 20 C.F.R. § 416.1201(a)(1), the annuity benefits are not a
resource, but rather are income as indicated by the statute defining “unearned
income.” Therefore, the Department applies a more restrictive methodology by
classifying the annuity benefits as a resource that counts against Mr. Geston’s
eligibility for Medicaid benefits.
-9-
B.
The Department resists this conclusion, citing several federal provisions of its
own. We conclude that these counter-arguments are unavailing.
The Department cites a subsection of the Deficit Reduction Act of 2005 that
refers to denying eligibility for Medicaid benefits based on annuities. In this law,
Congress directed that States must require institutional and community spouses to
disclose, as a condition for the provision of Medicaid benefits, any interests in “an
annuity . . . regardless of whether the annuity is irrevocable or is treated as an asset.”
42 U.S.C. § 1396p(e)(1). The enactment also established that a Medicaid beneficiary
must designate the State as a preferred remainder beneficiary in the annuity (ahead of
children or other family members, for example) for medical assistance furnished to the
individual. Id. § 1396p(e)(1), (2)(A). The final paragraph of the relevant subsection
provides: “Nothing in this subsection shall be construed as preventing a State from
denying eligibility for medical assistance for an individual based on the income or
resources derived from an annuity described in paragraph (1).”
Id. § 1396p(e)(4).
The Department argues that the final paragraph gave participating States
additional authority to deny eligibility based on annuities where the State believes that
the use of an annuity is “abusive.” We think the paragraph simply maintained the
status quo. It does not purport to change eligibility criteria, and it does not speak to
whether annuity benefits are “income” or “resources.” It clarifies that the new
disclosure provisions do not restrict a State’s authority to deny eligibility on the basis
of an annuity where the State otherwise has authority to do so. If an annuity is
transferable or revocable and thus can be liquidated, for example, then the regulations
provide that the annuity may be a resource, and a State presumably could deny
eligibility for medical assistance based on resources derived from the annuity. Or if
an individual exchanges a transferable annuity for cash, then the individual would
derive resources from that annuity, and the State could deny eligibility based on those
-10-
resources. But where other provisions of law define annuity benefits as unearned
income, § 1396p(e)(4) did not authorize States to recharacterize those benefits as
resources.
The Department also cites regulations that say: “If an individual sells,
exchanges or replaces a resource, the receipts are not income. They are still
considered to be a resource.” 20 C.F.R. § 416.1207(e); see also id. § 416.1103(c).
One of the regulations explains, for example, that “[i]f you sell your automobile, the
money you receive is not income; it is another form of a resource.”
Id. § 416.1103(c).
Another example says that an exchange of cash for stock is a conversion of one
resource into another resource.
Id. § 416.1207(e). Because the Gestons used
$400,000 in countable resources to purchase the annuity in Mrs. Geston’s name after
Mr. Geston’s institutionalization, the Department argues that the annuity received in
exchange for cash is also a resource.
These regulations do not carry the day for the Department. One reason has to
do with timing. The regulations speak to the exchange of resources as of the date
when a person applies for benefits or thereafter. See id. § 416.1101 (defining “[y]ou”
in the subpart containing § 416.1103(c) to mean “a person who is applying for, or
already receiving, . . . benefits”);
id. § 416.1202(c) (defining “individual” for purposes
of subpart containing § 416.1207(e) to mean an “eligible” individual, i.e., one who has
been deemed “eligible” after application for benefits, see 42 U.S.C. § 1396r-5(c)(2)).
They do not apply retrospectively to exchanges that occur prior to an application.
The regulations on receipts from the exchange of a resource also do not address
the situation at issue here—that is, an exchange of a resource for an annuity that is
defined elsewhere as “unearned income” and excluded from the definition of
“resource” because it is irrevocable and nontransferable. The regulations establish
that an applicant or beneficiary cannot reduce his resources by exchanging one
resource for another: an automobile for cash, or cash for stock. See Lopes, 696 F.3d
-11-
at 186. They thereby prohibit an applicant from selling his property, retaining the
same amount of liquid assets, and yet qualifying for Medicaid benefits. The rules do
not, however, speak to transactions like the annuity purchase by Mrs. Geston, where
the resource is exchanged for property that the spouse has no right, power, or authority
to liquidate.
The Department next contends that Mrs. Geston’s use of the couple’s resources
to purchase the annuity constituted an excessive increase in her spouse allowance in
violation of a provision commonly known as the “income-first rule.” Under this rule,
a community spouse is entitled to additional resources on top of the spouse allowance
if the income available to her falls short of a standard minimum amount. 42 U.S.C.
§ 1396r-5(d)(6), (e)(2)(C). Mrs. Geston had sufficient income to meet this minimum
when Mr. Geston applied for benefits. The Department thus argues that she was not
entitled to resources above the spouse allowance, and that the annuity purchase
effectively gave her $400,000 in additional resources in violation of the income-first
rule.
Though cast in terms of the income-first rule, this argument is another version
of the argument that the State may classify the annuity as a resource because it was
purchased with the couple’s resources after Mr. Geston entered the institution. States,
however, must classify assets as resources at the time the institutionalized spouse files
an application for benefits. See id. § 1396r-5(c)(2). If resources are converted to
uncountable income after institutionalization but before the filing of an application,
then they do not affect the institutionalized spouse’s eligibility. When Mr. Geston
applied for Medicaid benefits, Mrs. Geston had already acquired the annuity. At the
relevant time, therefore, the annuity was an uncountable stream of unearned income,
not a resource. It did not implicate the income-first rule, because it did not increase
Mrs. Geston’s resources.
-12-
C.
Several remaining arguments for reversal are not convincing. The Department
argues that the annuity counts toward Mr. Geston’s eligibility under the separate set
of rules governing classification of “trust-like devices,” see 42 U.S.C. § 1396p(d),
under which trusts and similar instruments are generally treated as either resources or
transfers of assets subject to certain fair-market-value requirements. See id.
§§ 1396p(d)(3), 1396p(c)(1). Congress expressly provided, however, that the
statutory term “trust” includes annuities “only to such extent and in such manner as
the Secretary [of the Department of Health and Human Services] specifies.”
Id.
§ 1396p(d)(6). Because the Secretary has not so “specifie[d],” the argument fails.
The Department next contends that only the portion of the annuity payments
that constitutes interest on Mrs. Geston’s investment (i.e., the amount she receives
monthly on top of the amount that represents a return of her original premium) should
be considered income. The regulations provide that other types of investment
instruments like stocks, bonds, and savings accounts are considered “liquid resources”
countable toward eligibility, 20 C.F.R. § 416.1201(b), but that “[d]ividends and
interest” on those instruments “are returns on capital investments” and are considered
unearned income. Id. § 416.1121(c). Only $170.55 out of the monthly $2,734.65 is
interest in this sense, so the Department argues that at most $23,922.87 of the
remaining $383,582.10 to be dispersed to Mrs. Geston may be excluded from
resources that must be counted toward Mr. Geston’s eligibility. Neither statute nor
regulation, however, classifies annuity benefits in the same way as stocks, bonds,
financial accounts, and other similar instruments. The statute treats annuity benefits
as unearned income, and the regulations provide that because the annuity cannot be
liquidated, it is not a resource.
The Department’s final argument is that the contractual provisions that prevent
Mrs. Geston from liquidating the annuity are invalid because they are contrary to the
-13-
State’s public policy. The Department reasons that (1) the State’s policy is to provide
Medicaid funding for only the truly needy, (2) nontransferability provisions in annuity
contracts enable those other than the truly needy to access public funds, and (3) the
nontransferability provisions in this case violate the State’s public policy of providing
Medicaid funds only to the truly needy because they give the Gestons access to public
funding. The Department’s position is untenable in light of the present federal
scheme. If the State’s public policy requires it to count as resources certain annuities
that federal law excludes from the scope of resources that may be considered in
making eligibility determinations, then the State’s methodology is more restrictive
than the federal methodology. See 42 U.S.C § 1396a(a)(10)(C)(i), (r)(2)(B).
* * *
The Department and its amici argue vigorously that permitting the Gestons to
qualify for Medicaid benefits, despite Mrs. Geston’s recent acquisition of the annuity,
undermines the purposes of the program. As we view it, however, the statutes and
regulations as presently configured preclude the Department’s position. The
Department’s litigation position suggests policy options: the meaning of “annuity”
in § 1382a(a)(2)(B) and accompanying regulations could be limited to those that
comply with IRC § 408; certain annuities could be treated in the same way as stocks,
bonds, savings accounts, and other investments; the Secretary could designate certain
annuities as “trust-like devices.” We see no warrant, however, to implement any of
these measures through judicial decision under the current law and believe that the
suggestions must be directed to the policymaking branches.
The judgment of the district court is affirmed.
______________________________
-14-
