The “Name On The Check Rule" Upheld in Indiana
POSTED ON - July 6, 2020
Written By Scott Engstrom, J.D.
On June 30th, 2020, the Court of Appeals of Indiana issued a decision upholding the “Name On The Check Rule.” Today, we are discussing Hotmer v. Indiana Family and Social Services Administration.
In April of 2017, Mr. Hotmer entered a nursing facility. After entering the facility, he purchased two annuities. On the annuity applications, Mr. Hotmer directed that payments be made to his wife as payee and further named her as primary beneficiary. The annuity contracts were irrevocable and non-assignable. In setting up the annuities in this way, Mr. Hotmer was utilizing the “Name On The Check Rule” whereby annuity income is attributed to the community spouse for purposes of Medicaid eligibility because her name is on the annuity check.
Mr. Hotmer applied for Medicaid in October of 2017. The Indiana Family and Social Services Administration (FSSA) determined that the annuity payments were attributable to Mr. Hotmer and not his wife as directed on the annuity applications. Due to this income attribution, Mr. Hotmer was over the income eligibility limit and his application was denied.
Mr. Hotmer challenged the FSSA’s determination at a fair hearing. The ALJ overturned the FSSA’s decision. However, after some procedural wrangling, the FSSA ultimately reversed the ALJ’s decision based on language contained in 42 C.F.R. 435.608, which requires Medicaid applicants to take necessary steps to obtain annuities to which they are entitled. Mr. Hotmer petitioned for judicial review at the trial court and the FSSA decision was upheld.
It is important to note that while Mr. Hotmer’s case was pending, there were other “Name On The Check Rule” cases in Indiana that faced similar issues. In another case that was recently decided at the Indiana trial court level, the trial court had again upheld the FSSA’s attribution of the income to the institutionalized spouse. After the adverse decision at the trial level, that case did not continue. However, Mr. Hotmer did appeal his adverse trial court ruling to the Court of Appeals of Indiana.
In its June 30th decision on the Hotmer appeal, the Court restated the relevant case facts and procedural posture. Upon review for an arbitrary and capricious determination by the FSSA (the Court of Appeals has the same standard of review as the trial court for review of administrative decisions), the Court of Appeals of Indiana ruled that the FSSA’s income attribution was incorrect and remanded the matter for further proceedings consistent with the Court’s ruling.
The Court’s Hotmer decision is one of the few and most specific examples of a court addressing the “Name On The Check Rule.” The Court’s determination turned on the Code of Federal Regulations language discussed above and the annuity contract language. Specifically, the Court held that because the annuity contracts were irrevocable and “unalterable” (citing Black’s Law Dictionary), Mr. Hotmer could not change the payee designation without breaching the contract.
In rendering its decision, the Court reasoned that it was undisputed Mr. Hotmer transferred the annuity payments to his wife for her benefit. Further, because the payments were made solely in Mrs. Hotmer’s name, the income should be attributable to Mrs. Hotmer pursuant to 42 U.S.C. § 1396r-5 (federal authority for the “Name On The Check Rule”). The Court of Appeals of Indiana ruled that the FSSA’s income attribution had been arbitrary and capricious.
While the reasoning and opinion of the Court of Appeals of Indiana in the Hotmer case are interesting, there are also some important items addressed in the decision’s footnotes. Footnote 4, for example, addressed language from the Indiana Health Coverage Program Policy Manual that states, “The individual who has title to the proceeds of a payment or property is the individual who ‘owns’ the income. If the income is received by an individual’s legal representative or guardian, the individual still owns the income.” The Court went on in the footnote to state, “[T]here is no indication that Hotmer’s wife is his legal representative or guardian, and to the extent that this policy conflicts with [42 U.S.C. §] 1396r-5, it is invalid.” This does leave open the question of how the issue would be addressed if Mrs. Hotmer had been Mr. Hotmer’s representative or guardian, but based on the way the Court frames the statement, there is some indication that an interpretation inconsistent with the income attribution rules in 42 U.S.C. § 1396r-5 would be preempted.
Footnotes 5 and 6 from the Hotmer decision also pose interesting questions. Specifically, footnote 5 indicates that the Court of Appeals of Indiana did not address the issue of whether Mr. Hotmer “was obligated to make the annuity payments available to himself before he applied for Medicaid benefits” (emphasis added). The Court did not address the issue because the FSSA did not directly raise it on appeal. Consequently, the Court did not address Mr. Hotmer’s contention that there was a due process violation as the FSSA first cited the Code Of Federal Regulations language in its final decision, thus not affording Mr. Hotmer notice or opportunity to respond to the argument (see footnote 6).
So where does all of this leave the “Name On The Check Rule” in Indiana? The decision in this case is favorable and the Hotmers were justified in their appeal. However, it is unclear whether or to what extent the FSSA will continue to challenge this strategy. When using the “Name On The Check Rule” strategy, Indiana attorneys should work with those experienced in these types of cases and plan conservatively by following best practices, such as using the client’s full life expectancy and avoiding this strategy in cases where the annuity is of minimal value or provides minimal income.
Read the full decision here.
If you have any questions regarding the “Name On The Check Rule” or the Hotmer case specifically, please do not hesitate to contact our office.