Application for Long Term Care denied for over resource
DCIS No Redacted
Laurence Levinson, Esquire, counsel for Redacted
Dale Krause, Esq., annuity sales person
Lynn Wilson, Deputy Attorney General, counsel for Division of Social Services
Tanya McBride, Case Worker/Case Manager, Division of Social Services
Redacted, (the institutionalized spouse), applied for Medicaid Long Term Care ("LTC") in June 2004. The application was denied because DSS found that the couple's resources exceeded the Medicaid resource limit of $94,760.00. Redacted (the community spouse) previously purchased two single premium immediate annuities that he believed should have reduced the couple's available resources below the $94,760.00 limit. (The first annuity in the amount of $195,000.00 was purchased on May 20, 2004 with a first payment date of June 1, 2004. The second annuity in the amount of $105,960.89 was purchased on June 30, 2004 with the first payment date of August 1, 2004.) The Appellant asserts that the start date for the annuity payments that reduced the couple's resources below the resource limit should be June 1, 2004, the date when the first annuity's payments were scheduled to begin.
The Division of Social Services ("DSS") contends that they cannot approve the Appellant's Medicaid LTC application until they determine the start date for the annuities. DSS maintains that the start date should be the date when the annuity income was first deposited into Mr. Pearl's account signifying that the funds were annuitized. Alternatively, DSS argues that a 20-day "look-back" period applies to insurance contracts executed in the state of Delaware where insurance contracts can be rescinded without penalty up to 20 days after the contract was signed. When considering the 20-day period, DSS asserts that the start date should be the date the contracts were signed + 20 days to take the 20 day "look-back" period into consideration.
The Appellant initially applied for Medicaid Long Term Care ("LTC") in June 2004. The application was denied because the Appellant's resources were over the limit by $283,360.64. At the time DSS reviewed the application, the report listed Appellant's annuity from Fidelity Guaranty in the amount of $298,500.00 , which was counted as an available resource. (Exhibit 2). (The $298,500.00 amount was derived from an annuity illustration (or quote) provided by Fidelity and Guaranty Life Insurance Company received by Irwin Pearl on or about April 26, 2004. This annuity was ever purchased. The correct annuity amounts to deduct from available resources should be $300,960.89 ($195,000.00 + $105,960.89).) Because the Appellant was over resourced by $283,360.64, DSS denied Appellant's application for Medicaid LTC.
The Appellant filed a request for fair hearing dated October 21, 2004. (Exhibit 3)
The Appellant was notified by certified letter dated December 7, 2004 that a fair hearing would be held on January 5, 2005. On December 17, 2004, the Appellant requested a continuance in the matter. A continuance was granted on December 23, 2004. The Appellant was notified by certified letter dated December 17, 2004 that a fair hearing would be held on January 28, 2005. On December 30, 2004, counsel for DSS requested a continuance in the matter. A continuance was granted on January 6, 2005. The Appellant was notified by certified letter dated January 24, 2005 that a fair hearing would be held on March 10, 2005. The hearing was conducted on that date in Conference Room 258, Lewis Building, Herman Holloway Campus, 1901 N. DuPont Highway, New Castle, DE. This is the decision resulting from that hearing.
Jurisdiction for this hearing is pursuant to §5304 of the Division of Social Services Manual (DSSM). Under §5304:
an opportunity for a hearing will be granted to any applicant who requests a hearing because his/her claim is denied and to any recipient who is aggrieved by any action of the Division of Social Service.
On or about May 20, 2004, Redacted purchased a single premium immediate annuity in the amount of $195,000 with community resources. On or about June 30, 2004, Irwin Pearl purchased a single premium immediate annuity in the amount of $105,960.89 with community resources Sometime in June 2004, the Appellant applied for Medicaid LTC. Initially, DSS denied Appellant's application by indicating that the annuities could be sold and should be considered as available resources. At the time of the denial, DSS had calculated the resource limit for the Redacted at $94,760.00, pursuant to DSSM §20950.
DSS set forth in the notice denying benefits that, because the Redacted resources were over the limit, Appellant's Medicaid LTC application was denied. At hearing, DSS admitted that they did not have a "strong enough policy" at the time the Appellant applied for Medicaid LTC and DSS "made a mistake" in considering the annuities as available resources. In effect, DSS conceded that they would no longer pursue a denial based upon a determination that the annuities could be sold. Instead, DSS indicated that the start dates for the annuities were at issue to determine when the Appellant's resources were spent down for Medicaid LTC eligibility purposes.
The Division of Social Services of the Department of Health and Social Services operates the Medicaid Program under Title XIX of the federal Social Security Act and under the authority it derives from 31 Del. C. 502(5), 503(b) and 505(3). The Medicaid Program provides for services to defined groups of individuals and families and is financed with State and federal funds. Children qualifying for benefits must meet income, resource and status eligibility tests.
In computing the financial eligibility of a candidate for Medicaid Long Term Care, 20950 DSSM sets a maximum allowable resource level for the resources of both the institutionalized individual and the community spouse. That figure is determined by adding the Community Spouse Maximum Resource Allowance ("CSMRA"), pursuant to DSSM 20910.10 with the maximum resource allowance ("MRA") for the individual seeking benefits set at $2,000. In this case, the CSMRA was set at $92,760.00 and, when added to the MRA, the total allowable resources for the couple were determined to be $94,760.00. As DSS had computed the couple's resources to be $378,120.64, which included an annuity contract valued at $298,500.00 , they determined that the couple was $283,360.64 above the resource limit and denied eligibility for Medicaid LTC benefits.(As noted in footnote 2, the $298,500.00 is incorrect in determining the actual annuity amounts. The figure should be $300,960.89 to correspond with the two annuities purchased by Irwin Pearl.)
In 1988, Congress enacted the Medicare Catastrophic Coverage Act of 1998 ("MCCA") (Codified at 42 U.S.C. §1396r-5) to protect married couples when one spouse was institutionalized, so that the spouse continuing to live in the community is not impoverished and has sufficient income and resources to live independently.
Here, the contract, by its terms, was not assignable, could not be transferred or surrendered, or returned for payment of the premium paid. In addition, while the contract itself allowed for a payee change, the Endorsement on the contract, shown by the Medicaid Single Premium Immediate Annuity Waiver Endorsement, does not allow any change in the contract.
In the case of Dean v. Department of Health and Social Services, 2000 Del. Super. LEXIS 490, summarily aff'd, 781 A2d. 693 (Del. 2001), the Court held that the institutionalized spouse was eligible for Medicaid benefits because the community spouse's purchase, with the couple's excess resources, of an irrevocable, nonassignable, immediate and actuarially sound annuity constituted an exempt resource for Medicaid eligibility.
The Court in Dean, despite noting their dissatisfaction with a loophole allowing such action, held that the action taken by Mr. Dean in converting a countable resource into income was proper given the current state of both state and federal law. In addition, the Court reviewed Health Care Financing Administration Transmittal 64 ("Tr. 64" Codified at 42 U.S.C. §1396r-5), and specifically, Section 3258.9 (B) which addresses annuities, noting that this is the only guidance the Secretary of Health and Social Services has issued regarding annuities, and Delaware has no regulation governing annuities in the Medicaid context.
Next, the Court in Dean reviewed the federal and state definitions of resources and determined that not only is the annuity not considered a resource, but the property right that flows from the annuity is not a resource, but rather income. In addition, the Dean Court noted that in Delaware, pursuant to DSSM §20990, "income eligibility is determined by considering the income of the institutionalized spouse only."
Reviewing the Code of Federal Regulations and the Delaware Social Service Manual, the Dean Court opined that the federal and state definitions are consistent. Specifically, the Dean Court noted that if the individual has the right, authority, or power to liquidate the property, or his or her share of property, it is considered a resource. In order to be considered a resource, the individual must have: some form of ownership interest in the property; a legal right to access the property; and the legal ability to use the property for his/her own support and maintenance. Applying this definition to the standard, commercial, irrevocable annuity, such as the one at issue herein, the Dean Court noted that the purchase of the annuity no longer entitles the buyer to the purchasing funds, but only to an income stream. As such, the Dean Court determined that the property right in the annuity cannot be liquidated and is therefore not considered a resource.
The Dean Court then went a step further and defined income as, "the total amount of money authorized (designated by the payor) for the recipient's benefit. [and] includes anything received by the individual, in cash or in kind, that can be used to meet needs for food, clothing or shelter."(The Dean Court citing Johnson v. Guhl, 91 F. Supp. 2d. 754, 764 (D.N.J. 2000)) The Dean Court noted that Tr. 64 is in accord with referring to payments from a standard commercial annuity in terms of income. Accordingly, the Dean Court determined that the annuity is not a resource, but the annuity payments constitute income for Medicaid purposes. It should be noted that neither CMS nor Delaware has made any legislative, administrative or regulatory changes regarding annuities since Dean was decided, there remains no authority in Delaware, other than Dean, to address annuities in the context of Medicaid eligibility.
DSS argues that the start date to determine when the annuity is no longer an available resource should be the date upon which the annuity payments were deposited into Irwin Pearl's account. To accept DSS's argument would be contrary to the Dean Court's analysis. The Dean Court identifies the annuity before the income stream begins (prior to annuitization) and exempts it from consideration as a resource. Second, the Dean Court distinguishes the income stream that is created after annuitization as income. Accordingly, the point at which the fund is annuitized represents the point at which the purchased annuity transmutes from exempted resource to income for purposes of Medicaid resource calculations.
DSS assumes that the relevant time period to calculate the annuity, as an exempted resource, is to postpone the calculation until after the annuity transmutes into an income stream. However, at that point, the annuity has been changed into income. Applying this logic would, in effect, postpone the application approval date for Appellant's Medicaid LTC in a manner inconsistent with Dean.
As previously noted, the Dean Court determined that if the individual has the right, authority, or power to liquidate the property, or his or her share of property, it is considered a resource. In order to be considered a resource, the individual must have: some form of ownership interest in the property; a legal right to access the property; and the legal ability to use the property for his/her own support and maintenance. In this case, on the date the annuity contracts were signed, Redacted could no longer exercise his right, authority or power to liquidate the property as evidenced by the following language on the waiver endorsement (Exhibit 7): "in compliance with applicable laws and regulations governing Medicaid eligibility, the annuity applied for is non-transferable, non-assignable, non-commutable, non-surrenderable, totally and permanently irrevocable, and has no cash value." Therefore, on the date the contracts were signed their status as potential resources ended.
In addition, DSS's contends that Medicaid regulations require that the annutization date be used to calculate when the Appellant's resources are spent down. However, as previously explained neither CMS nor Delaware has made any legislative, administrative or regulatory changes regarding annuities since Dean was decided; thus, there remains no authority in Delaware, other than Dean, to address annuities in the context of Medicaid eligibility. DSS did not provide any guidance or documentation confirming their position that Medicaid regulations support their view of the correct calculation date for annuities and its impact on resource calculations. Therefore, their contention is without merit.
Alternatively, DSS argues that a statutorily provided "look-back" period under the insurance statutes provides a 20-day period for the annuity purchaser to rescind the contract. In the present case, DSS has not submitted statutory support for their position with regard to statutorily created "look-back" period for annuities. A review of relevant insurance statutes does not reveal a statute that supports DSS"s contention.
While Fidelity and Guaranty Life Insurance Company's Single Premium Immediate Annuity's cover page (Exhibit 5) reveals the following right to cancel language:
[i]f you decide not to keep this policy, return it within 20 days after you receive it. It may be returned to the agent who sold this policy or it may be mailed to our Home Office. The return of this policy will void it from the beginning. The single premium paid, less any annuity payments made, will be refunded. We will make any refund within 10 days of our receipt of this policy,
this provision was superceded by the Endorsement discussed above.
Similarly, the Appellant's contention that the date to determine the annuities effective date should be June 1, 2004, must fail. While the correct date to determine when the first annuity became an excluded resource is May 20, 2004 (the date the first annuity contract was signed), the Appellant's remaining resources would have continued to be calculated above the resource limit because the second annuity would not qualify as an excluded resource on that date. Instead, the applicable date when the Appellant's resources fell below the resource limit is June 30, 2004; the date the second annuity contract was signed by Irwin Pearl. When Irwin Pearl signed the second annuity contract both annuity amounts, or $300,960.89, would have been excluded resources bringing the Appellant's remaining resources to $79,620.64, or an amount under the $94,760.00 level. Therefore, on June 30, 2004, the Appellant qualified for Medicaid LTC.
Accordingly, DSS has failed to provide a basis on which to sustain its' denial of Medicaid Long Term Care for the Claimant. Accordingly, Medicaid LTC benefits should be approved for the Claimant retroactive to June 30, 2004.
For these reasons, the decision of the Division of Social Services to deny the Claimant Medicaid Long Term Care is REVERSED. DSS is directed to grant Medicaid benefits retroactive to June 30, 2004 DSS is also ordered to make prompt corrective payment, if any, pursuant to DSSM §5501.
MICHAEL L. STEINBERG, J.D.
THE FOREGOING IS THE FINAL DECISION OF THE DIVISION OF SOCIAL SERVICES
Laurence Levinson, Esquire for Redacted
Lynn Wilson, Esquire for DSS
EXHIBITS FILED IN OR FOR THE PROCEEDING
- EXHIBIT #1 - DSS Hearing Summary consisting of two (2) pages date-stamped December 10, 2004.
- EXHIBIT #2 - Copy of Spousal Impoverishment Resource Calculation Sheet for resource effective date of September 8, 2004, consisting of three (3) pages.
- EXHIBIT #3 - The Appellant's request for a fair hearing date stamped December 1, 2004 consisting of one (1) page.
- EXHIBIT #4 - Fidelity & Guaranty Life Single Premium Immediate Annuity Guaranty Income Plan Application.
- EXHIBIT #5 - Fidelity & Guaranty Life Single Premium Immediate Annuity Guaranty Income Policy and Cover Page issued May 20, 2004.
- EXHIBIT #6 - Fidelity & Guaranty Life Single Premium Immediate Annuity Guaranty Income Policy issued June 30, 2004.
- EXHIBIT #7 - Fidelity & Guaranty Life Single Premium Immediate Annuity Waiver Endorsement