Hughes v. McCarthy
POSTED ON - February 4, 2018
Written By Krause Financial Services
Hughes v. McCarthy validated the ability for the community spouse to purchase an annuity for their sole benefit before the institutionalized spouse is Medicaid eligible but after they have been institutionalized.
Carol and Harry Hughes appealed the court’s decision that was in favor of the director of the Ohio Department of Job and Family Services (ODJFS). Carol was a nursing home resident, and Harry was her community spouse. They challenged ODJFS penalty imposed against Mrs. Hughes because Mr. Hughes purchased an annuity for himself with funds from his IRA account. The court reversed the decision.
The Medicare Catastrophic Coverage Act (MCCA) was passed by Congress in 1988. This Act helped “to protect community spouses from ‘pauperization’ while preventing financially secure couples from obtaining Medicaid assistance.” Congress also created requirements necessary for States to abide by in allocating income and resources. For example, this Act “allows the community spouse to keep a portion of the couple’s assets – the Community Spouse Resource Allowance (CSRA) – without affecting the institutionalized spouse’s Medicaid eligibility.” This CSRA was considered unavailable to the institutionalized spouse when applying for Medicaid eligibility but any resources above the CSRA had to be spent down before being approved for Medicaid benefits.
After having paid for Mrs. Hughes nursing home care for almost four years, using mostly Mr. Hughes’ IRA funds, he purchased an annuity for $175,000, again with funds from his IRA account. A few months after this purchase, in September 2009, Mrs. Hughes applied for Medicaid. She was ineligible for Medicaid until June 2010 because of her husband’s annuity purchase.
The denial was because the annuity purchase was an improper transfer of funds that exceeded his CSRA of $109,560, to which the Hugheses argued that 1396p(c)(2)(B)(i) allowed an institutionalized spouse to transfer unlimited assets to the community spouse without the transaction being considered an improper transfer. The court, however, ruled that 1396r-5(f)(1) “precludes the transfer of assets to the community spouse that exceeds the CSRA and applies to the pre-eligibility transfer at issue here.” ODJFS was also not named as first contingent beneficiary on the annuity. The Hugheses appealed but ODJFS decisions were affirmed in the hearing.
What needed to be determined was whether a community spouse can purchase an annuity for their sole benefit while their institutionalized spouse is in an institution but before applying for Medicaid benefits. The court needed to review if this situation was an improper transfer.
In Section 1396p(c)(1) states that a transfer “shall be made as soon as practicable after the date of the initial determination of eligibility.” There is no mention of a transfer made before this determination.
The court agreed with Tenth’s Circuit’s holding: “To avoid rendering 1396p(c)(2)(B)(i) superfluous, we agree that it and 1396r-5(f)(1) must be read to operate at distinct temporal periods: one period during which unlimited spousal transfers are permitted, and one period during which transfers may not exceed the CSRA.”
The district court reversed the decision and remanded for further proceedings consistent with this opinion.
The full document text can be found here.