In the recent matter of Geston v. Anderson, the U.S. Court of Appeals for the Eighth Circuit has affirmed a judgment in a North Dakota married couple case on calculating assets for Medicaid eligibility.
Mr. Geston became a resident at a nursing home facility in July of 2010, while his wife continued to reside in the couples' North Dakota home. In November of 2011 the Gestons received a resource assessment, outlining the level of countable resources causing them to be ineligible for Medicaid benefits - their spend-down amount. The Gestons reduced their countable resource level by purchasing a new residence, a new car, prepaid burials, and lastly, a single premium immediate annuity with an amount of $400,000. The annuity was owned by Mrs. Geston - the community spouse - and structured over Mrs. Geston's Medicaid life expectancy, providing a monthly payout of $2,734.65, and a total payout of $426,605.40. The annuity contract provides that it is irrevocable and cannot be transferred, assigned, surrendered or commuted during Mrs. Geston's lifetime. Another provision prohibits Mrs. Geston from revoking her receipt of the payment stream.
A Medicaid application was made shortly thereafter, wherein the North Dakota Department of Human Services ("the Department") denied it, reasoning that the remaining value of the corpus of the annuity constituted a countable resource. Also, North Dakota Century Code § 50-24.1-02.8(7)(b) provides that "annuity payments received by a community spouse will be treated as income only if they do not raise the community spouse's total income over a certain threshold." This is a unique rule to North Dakota, and Mrs. Geston's annuity raised her over that threshold.
The district court concluded that there was a conflict between federal and state law, because federal law treated the annuity as income to Mrs. Geston, whereas the state classified the annuity as a countable resource, resulting in ineligibility for Mr. Geston. The court thus granted the Gestons' motion for summary judgment. The Department appealed, arguing that their inclusion of the annuity as a countable resource is in accordance with federal law.
Several of the Department's arguments include, but are not limited to:
- An argument that the final paragraph of 42 USC § 1396p(e)(1) - "Nothing in this subsection shall be construed as preventing a State from denying eligibility for medical assistance for an individual based on the income or resources derived from the annuity described in paragraph (1) - gave participating States additional authority to deny eligibility based on annuities where the State believes that the use of an annuity is "abusive."
- An argument that "if an individual sells, exchanges or replaces a resource, the receipts are not income. They are still considered to be a resource." 20 CFR § 416.1207(e). The Department argued that the annuity received in exchange for cash must also be a resource.
- An argument that Mrs. Geston's use of the couple's resources to purchase the annuity constituted an excessive increase in her spousal allowance in violation of a provision commonly known as the "income-first rule." The Department argued that she was not entitled to resources above the spousal allowance, and that the annuity purchase effectively gave her $400,000 in additional resources in violation of the income-first rule.
- An argument that the annuity counts towards Mr. Geston's eligibility under the separate set of rules governing classification of "trust-like devices," under which trusts and similar instruments are generally treated as either resources or transfers of assets subject to certain fair-market-value requirements.
- An argument that only the portion of the annuity payments that constitute interest on Mrs. Geston's investment should be considered income.
- An argument that the contractual provisions that prevent Mrs. Geston from liquidating the annuity are invalid because they are contrary to the State's public policy.
The Department's litigation position suggested that the Secretary treat certain annuities not in compliance with IRC § 408 to be treated as "trust-like devices." The district court saw "no warrant, however, to implement any of [the] measures through judicial decision under the current law and [believes] that the suggestions must be directed to the policymaking branches." Mrs. Geston's annuity was considered income instead of a resource accordingly, resulting in eligibility for Mr. Geston.
