United States District Court, D. Connecticut
MARTIN FAGAN by his agent Pamela Fagan and PAMELA FAGAN, Plaintiffs,
RODERICK L. BREMBY, in his official capacity as Commissioner of the Connecticut Department of Social Services, Defendant.
RULING ON PARTIES' CROSS MOTIONS FOR SUMMARY
BOND ARTERTON, U.S.D.J.
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.
Medicaid: The Statutory Landscape
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).
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)).In order to
achieve this goal, the MCCA established "a set of
intricate and interlocking requirements with which States
must comply in allocating a couple's income and
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"). 42 U.S.C. § 1396r-5(f)(2). Thus, at
the "initial determination of eligibility, " the
State Medicaid Agency treats "the resources held by
either the institutionalized spouse, the community spouse, or
both" to be available to the institutionalized spouse,
42 U.S.C. § 1396r-5(c)(2)(A), except that "the CSRA
is considered unavailable to the institutionalized spouse ...
[so] all resources above the CSRA (excluding a... personal
allowance reserved for the institutionalized spouse ...) must
be spent before eligibility can be achieved."
Blumer, 534 U.S. at 482-83 (citing 42 U.S.C. §
1396r-5(c)(2)). In other words, aside from the calculated
CSRA, all other community resources are considered in
determining whether an institutionalized spouse is eligible
for Medicaid, meaning that if the remaining resources exceed
the Medicaid limit, the institutionalized spouse must
"spend down" the remaining resources to qualify.
(Ex. 2 (HHS Amicus Brief in Hughes) to Def.'s
Mem. Supp. Mot. for Summary Judgment at 8.) This statutory
scheme permits the institutionalized spouse to qualify for
Medicaid while also allowing the community spouse to retain
the CSRA to support him or herself.
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). Any such disposition of assets would
result in a "penalty period" of
ineligibility. However, there is an exemption (referred
to as the "unlimited transfer exception") from this
penalty period where the assets were transferred to the
individual's spouse during the look-back period for the
sole benefit of the spouse. § 1396p(c)(2)(B).
explained by the Centers for Medicare & Medicaid Services
("CMS"),  "the unlimited transfer exception
should have little effect on the eligibility determination,
primarily because resources belonging to both spouses are
combined in determining eligibility for the institutionalized
spouse. Thus, resources transferred to a community spouse are
still... considered available to the institutionalized spouse
for eligibility purposes." (Def.'s Ex. 1 (State
Medicaid Manual § 3258.II).) However, once the
institutionalized spouse has commenced a continuous period in
which he is in an institution and "after the month in
which [he] is determined to be eligible for benefits ... no
resources of the community spouse shall be deemed available
to the institutionalized spouse." 42 U.S.C.A. §
1396r-5(c)(4). An institutionalized spouse does have an
opportunity to transfer assets to the community spouse
"as soon as practicable after the date of the initial
determination of eligibility, " but only "in an
amount equal to the community spouse resource
allowance." 42 U.S.C. § 1396r-5(f)(1). It is the
meaning of this phrase-"initial determination of
eligibility"-in Section 1396r-5(f)(1) that controls
disposition of this case.
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.(Id. ¶¶ 6, 11.) Mr.
Fagan continued to receive Medicaid coverage for long-term
care services for the cost of his nursing home care until May
31, 2015, when his benefits were discontinued because in
April he received a $2 million personal injury settlement,
which pushed Mr. Fagan over the Medicaid asset limit.
(Pl.'s Local Rule 56(a) stmt. ("Pl.'s LR
56") ¶ 10.) After payment of attorney's fees,
medical bills not covered by Medicaid, a Medicare lien, and
repayment of $233, 037.77 to the Connecticut Department of
Administrative Services pursuant to the Medicaid Recovery
Act, his net proceeds were $966, 102.69. (Ex. 3 (Affidavit
of Laura Catarino) to Def.'s Mot. for Summary Judgment
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. (Id. ¶ 12.) She
subsequently purchased an actuarially sound single premium
annuity with the money from the second
transfer.On September 30, 2015 Mr. Fagan reapplied
for Medicaid long-term care, by which time his wife's
assets countable by the Medicaid program were less than the
CSRA she was allowed to retain without affecting her
husband's Medicaid eligibility. (Id.
¶¶ 15, 17.)
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 to Mrs. Fagan were improperly
transferred assets. (Id. ¶ 19.) Mr. Fagan
disputed DSS's preliminary decision, arguing that because
the transfers to his wife were pre-eligibility transfers they
were exempt from § 1396r-5(f)(1)'s CSRA cap.
(Id.¶ 20.) However, DSS disagreed and issued
its final decision notice on December 22, 2015 affirming its
conclusion that Mr. Fagan improperly transferred assets to
Mrs. Fagan, and consequently imposing a transfer of assets
penalty precluding Mr. Fagan from receiving any Medicaid
long-term benefits until March 7, 2022. (Id.
¶ 22; Pl.'s LR 56 ¶ 22.) Mr. Fagan is now
responsible for paying his monthly Masonicare bill of
approximately $13, 000. (Pl.'s LR 56 ¶ 25.)
There is no Factual Dispute and Only The Single Legal
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).
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.
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).
Neither the Courts nor HSS have Addressed Whether a Break in
Eligibility After the Initial Determination Resets 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
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.
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.
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. ...