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Fagan v. Bremby

United States District Court, D. Connecticut

March 21, 2017

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.



         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.

         I. Background

         A. Medicaid: The Statutory Landscape

         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)).[1]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 resources." Id.

         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").[2] 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.

         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).[3] Any such disposition of assets would result in a "penalty period" of ineligibility.[4] 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).

         As explained by the Centers for Medicare & Medicaid Services ("CMS"), [5] "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).)[6] 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.

         B. Facts

         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.[7](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, [8] 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.[9] (Ex. 3 (Affidavit of Laura Catarino)[10] to Def.'s Mot. for Summary Judgment ¶ 12.)

         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.[11] (Id. ¶ 12.) She subsequently purchased an actuarially sound single premium annuity with the money from the second transfer.[12]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.)

         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[13] 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.[14] (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.)

         II. Discussion[15]

         A. There is no Factual Dispute and Only The Single Legal Issue

         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).[16]

         B. Neither the Courts nor HSS have Addressed Whether a Break in Eligibility After the Initial Determination Resets the Process

         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.[17]

         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. ...

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