In Morris v. Oklahoma Dept. of Human Services, the US 10th Circuit addressed whether an institutionalized spouse could buy an annuity for the benefit of the other spouse to reduce assets considered in determining Medicare eligibility. The Court ruled in favor of Morris, concluding that an annuity meeting certain requirements can be purchased to convert countable resources into uncountable income.
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Mrs. Morris required institutionalization in a long-term care facility and in 2008 the Morrises asked the Oklahoma Department of Human Services (OKDHS) to determine their Medicaid eligibility. OKDHS calculated their “countable resources to be $107,812,” half of which were assigned to each spouse. The limit on the program to which the Morrises applied was $2,000, meaning Mrs. Morris would have to “spend down” $51,906 to be eligible for Medicaid.
The Morrises spent $15,000 on burial contracts, $4,000 in attorney’s fees, and $41,000 in an annuity, which would pay Mr. Morris monthly. Then the Morrises applied again for Medicaid program. OKDHS denied the application, again determining Mrs. Morris had more than $2,000 in resources.
The Morrises appealed, but the OKDHS appeals board affirmed, reasoning the annuity remained a countable resource, and Mrs. Morris made a transfer to Mr. Morris without receiving FMV in return, thus, requiring a disqualification period as penalty for improper transfers.
The Morrises then appealed to the Federal District Court and lost on Summary Judgment. They then appealed to the Circuit Court.
The Circuit Court first concluded that the OKDHS appeals board was incorrect in categorically determining that annuities do not count as a “spend down.” The OKDHS’s decision was inconsistent with the Medicaid statutes.
The Court cited numerous cases which concluded a couple can convert countable resources into uncountable income of the non-applying spouse by purchasing “an irrevocable actuarially sound commercial annuity for the sole benefit of the community spouse.” The Court also noted that “rather than close the annuity ‘loophole,’ Congress has twice amended the Medicaid statutes to specify the types of annuities capable of producing uncountable spousal income.”
The Court also addressed the OKDHS second contention that the Morrises violated the transfer provisions of the Medicaid statutes. This was a somewhat more difficult issue because case law arguably favored OKDHS. The issue was one of timing. Building off the case law, the District Court concluded an annuity could only qualify towards a “spend down” if it was purchased before an initial determination of ineligibility or eligibility. However, the Circuit Court, determined that the transfer limitations of the statues began after a spouse is deemed eligible, but not after a spouse is deemed ineligible. Therefore, the Morrises were not subject to the transfer limitations and the annuity could count towards a “spend down.”
This is a quite interesting policy case. On one hand, Medicaid is an expensive program that should only benefit the most deserving to preserve the program's vaibility. On the other hand, requiring that a spouse of someone who is institutionalized in a long-term facility be destitute before being eligible for Medicare is equally unnerving. Fortunately for the Court, it did not have to wrestle with the policy decision because Congress had already made it.
Cite: Morris v. Oklahoma Dept. of Human Services, 10-6241, 2012 WL 2689824 (10th Cir. July 9, 2012).