Pennsylvania Supreme Court Smacks Down Medicaid Agency

Yours Truly scored a victory for community spouses of Pennsylvania nursing home patients on Tuesday, May 29, 2008. On that day the Pennsylvania Supreme Court sent the Department of Public Welfare packing. It denied DPW’s appeal from the decision of the Commonwealth Court that DPW could not refuse to grant Medicaid based on a proper, Medicaid-compliant, immediate annuity purchased by the community spouse.

To start at the beginning, on February 5, 2003, Pauline Ross entered a nursing home. On April 8,
2005, Pauline’s community spouse, Leonard Ross, transferred $418,026.66 in marital assets into a Fidelity & Guarantee “Medicaid Qualified, Single Premium, Immediate Annuity.” Under the annuity contract, F&G pays Leonard $10,211.83 per month from May 15, 2005, to September 15, 2008. Leonard established the F&G Annuity so that Pauline would be eligible for Medical Assistance-Nursing Home Care benefits and to pass the marital assets on to the next generation. Leonard is the owner and sole annuitant of the F&G Annuity, and Leonard’s three children are the beneficiaries if Leonard dies before September 15, 2008. Pauline had no monetary interest in the F&G Annuity, and, after Leonard transferred the marital assets into the F&G Annuity, Pauline had no assets with which to pay for her nursing home care.

Pennsylvania refused to approve Medicaid for Pauline, claiming that the annuity could be sold to J.G. Wentworth at a 40% discount, an immediate payment of $250,000. Pauline, according to the Commonwealth, had that much in available assets.

There were several problems with DPW’s case. First of all this would be a loan, not a sale, and loan proceeds are not considered an asset under Medicaid law. Secondly, there was solid testimony proving that F & G would not permit J.G. Wentworth to purchase the annuity. Finally, federal Medicaid law clearly permits exactly this sort of transaction. Pennsylvania and only four other states try to deny Medicaid in such cases.

An administrative law judge–a DPW employee, of course–ruled against Ms. Ross. She said Mr. Ross would have to dump the annuity on J.G. Wentworth and lost 40% of his investment. On appeal, the Pennsylvania Commonwealth Court pummeled the Department. It ruled that Mr. Ross was within his rights to invest in an annuity and his wife is entitled to Medicaid. Tuesday’s ruling by the supreme court was the final smackdown. Pennsylvania’s highest state court told DPW it could not deny Medicaid based on a properly amortized Medicaid-friendly annuity purchased by the community spouse.

Tuesday’s ruling also completed the tri-fecta. Two federal district courts had already told DPW it was acting illegally. Those cases were Mertz, ex rel. Mertz v. Houstoun, 155 F. Supp. 2d 415 (E.D. Pa., 2001), and James ex rel. James v. Richman, 465 F. Supp. 2d 395 (M.D. Pa., 2006). DPW appealed the James ruling to the federal court of appeals, but has little chance of winning.

This decision means that if your spouse is in a nursing home, you can preserve a substantial amount of money through an annuity, in addition to the 50% or $104,400 the DPW says you can keep. This annuity purchase is done after your spouse is in a nursing home. If an annuity sales person tells you to put your money into an annuity now, in case you or your spouse needs to go into a nursing home, run–do not walk–away. However, if your spouse is in a nursing home in Pennsylvania and your assets, apart from your house and one care, are higher than $25,000, we can help you save the excess. Call us for a consultation.


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2008 John B. Payne, Attorney

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