Many people believe that if they give away an amount equal to the annual gift tax exclusion -- which is currently $15,000 to...Read more
Court Rules on Whether IRAs May Be Counted by Medicaid
- August 31st, 2004
A federal appeals court has ruled that while states may consider retirement accounts held by the spouses of nursing home residents as resources in determining Medicaid eligibility, such a rule may violate federal law in specific instances. This is the first federal appeals court ruling on this issue, although it is binding only in Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming.
In 1996, Stepheny Sellers entered a nursing home and began receiving Medicaid benefits. Her husband, Gene, retired four years later and rolled his retirement portfolio into an IRA. On September 1, 2001, Colorado began including self-funded retirement accounts held by the spouses of nursing home residents (called "community spouses") as countable resources in determining an institutionalized spouse's Medicaid eligibility. Colorado applied this new rule both to initial applications for Medicaid benefits and to its annual eligibility redeterminations. On December 18, 2001, Mr. Sellers was notified that, based on Colorado's new rule, the state had determined the Sellers had excess resources of $356,715.93. Mrs. Sellers' Medicaid benefits were terminated and Mr. Sellers was forced to end his retirement and return to work.
The Sellers and three other married couples sued Colorado's Department of Health Policy claiming that Colorado's new rule violated federal Medicaid law. The district court agreed with Colorado on all claims. The Sellers appealed, arguing that federal law does not permit the classification of retirement plans held by community spouses as resources available to the institutionalized spouse; and that the court's decision, as applied to them, violated the Medicaid law's prohibition against states taking resources from the community spouse for the institutionalized spouse's benefit at any time following the eligibility determination.
The U.S. Court of Appeals for the Tenth Circuit agreed with the Sellers and reversed the district court's ruling.
The court went along with the district court in ruling that federal law permits states to classify self-funded retirement accounts as countable resources for Medicaid purposes. However, the court went on to hold that "there will be instances where a rule requiring that retirement accounts be included in assessing a couple's 'resources' has unintended consequences at odds with [the federal law's] purpose", which is to prevent community spouses from becoming impoverished. The court rules that the Sellers' situation, in which Mr. Sellers was forced to end his retirement, represents one such instance.
The court also rules that Colorado's application of its rule to its annual reassessments of whether Medicaid recipients are still eligible for Medicaid clearly violates federal Medicaid law. "Congress," the court writes, "appears to have meant what it said: once the institutionalized spouse's eligibility is determined, the state is not authorized to take any resources belonging to the community spouse and deem them available to the institutionalized spouse." [emphasis in original]
Houghton v. Reinertson (10th Cir., No. 03-1074, Aug. 24, 2004). For the full text of this decision, go to: http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=10th&navby=case&no=031074.
Local Elder Law Attorneys in Ashburn, VA
Hale Ball Carlson Baumgartner Murphy PLC
Attorney Samantha Simmons Fredieu is an associate at Hale Ball. Ms. Fredieu graduated magna cum laude from Vermont Law School where she was the symposium editor on the Vermont Law Review, a production editor on the Vermont Journal of Environmental Law, and a member of the Moot Court Advisory Board. She has clerked for...
Felinton Elder Law & Estate Planning Centers
Mindy Felinton concentrates in the areas of Medicaid planning, Veterans' Benefits, asset protection, nursing home planning, elder law, wills, estate planning, trusts, living wills, powers of attorney, probate administration and trust administration and began her legal career 30 years ago as an Assistant State Attorney...
Margaret A. O'Reilly, PC
Margaret A. O’Reilly is an estate planning and elder law attorney with over thirty-five years of legal experience. Attorney O’Reilly graduated from Duke University with a degree in psychology, and received her law degree from Northeastern University School of Law in Boston, Massachusetts. For over 15 y...