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Cox v. Iowa Department of Human Services

Supreme Court of Iowa

November 30, 2018

SUSAN E. COX and EDWARD A. COX, Appellants,

          Appeal from the Iowa District Court for Polk County, Scott D. Rosenberg, Judge.

         Petitioners appeal district court judgment affirming agency ruling imposing Medicaid long-term care eligibility penalties based on their transfer of assets to a pooled special needs trust. AFFIRMED.

          Rebecca A. Brommel of Brown, Winick, Graves, Gross, Baskerville, and Schoenebaum, P.L.C., Des Moines, for appellants.

          Thomas J. Miller, Attorney General, and Matthew K. Gillespie, Assistant Attorney General, for appellee.

          Matthew Bollman of Pearson Bollman Law, West Des Moines, and Ron M. Landsman, Rockville, Maryland, for amici curiae National Academy of Elder Law Attorneys, Inc. and Special Needs Alliance, Inc.

          WATERMAN, Justice.

         In this appeal, we must determine whether the district court correctly interpreted the Federal Medicaid Act concerning eligibility for benefits for long-term institutional care. States must adhere to federal eligibility requirements to ensure that benefits are reserved for persons who lack financial means and who have not transferred personal assets that could pay for their care. The petitioners, husband and wife, are disabled and reside in a nursing home. At age sixty-five, they transferred over one-half million dollars to a pooled special needs trust. The Iowa Department of Human Services (DHS) determined the transfers were for less than fair market value and required a delay in their eligibility for Medicaid benefits. An administrative law judge (ALJ) affirmed the determination but required recalculation of the wife's penalty delay. After exhausting intra-agency appeals, the petitioners sought judicial review. The district court affirmed the DHS position, and we retained the petitioners' appeal.

         On our review, we conclude the district court and DHS correctly construed and applied federal law requiring the delay in Medicaid benefits for long-term institutional care, effectively requiring the petitioners to tap their pooled trust assets first to pay for their nursing home care. Our determination is based on the plain meaning of the statutory text. Other appellate courts and the federal and Iowa agencies administering Medicaid have reached the same conclusion that Congress chose to treat transfers into pooled special needs trusts by such recipients under age sixty-five differently than transfers by those age sixty-five or older. Substantial evidence supports the DHS finding that the transfers were for less than fair market value. Accordingly, we affirm the district court judgment.

         I. Background Facts and Proceedings.

         Edward and Susan Cox, both born in 1950, are a married couple currently living at Westview Care Center in Indianola, Iowa. Both Edward and Susan are disabled and are unable to live on their own. Edward has lymphedema, which causes swelling and makes his left arm unusable. He has had two kidney transplants and takes a number of medications daily. Susan had a stroke, which has induced left-side neglect.

         In 2015, Susan received a settlement from a medical malpractice lawsuit relating to her stroke. Edward also received a settlement from the lawsuit for loss of consortium. They decided to transfer most of the funds they received from the settlement into separate pooled special needs trusts with The Center for Special Needs Trust Administration (the Center), a Florida-based nonprofit association. On February 8, 2016, when Edward and Susan were sixty-five years old, they executed joinder agreements for the trust. These joinder agreements created individual subaccounts within the trust for Edward and Susan. Edward's subaccount received $101, 921.81 and Susan's subaccount received $474, 457.88. The Center is the trustee of the trust accounts and is required to distribute the funds in accordance with the trust documents. The Center may only use the funds in these pooled trusts for Edward and Susan's respective care.

         In 2016, around the time the couple moved to the Westview Care Center, Edward and Susan applied for Medicaid long-term care benefits. The couple provided the pooled trust documents to the DHS for review. On June 14, the DHS issued Disposal of Assets Penalty Notices of Decision to Edward and Susan, denying their applications for long-term care benefits on the basis that they "transferred assets for less than fair market value." Edward's notice of decision imposed an eighteen-month and twenty-five-day penalty, making him ineligible for Medicaid long-term care benefits through July 25, 2017. Susan received a penalty of eighty-seven months and twenty-two days, making her ineligible for Medicaid long-term care benefits through July 22, 2023.

         Edward and Susan appealed their notices of decision and requested a hearing. The DHS consolidated the appeals. After the hearing, an ALJ issued a proposed decision finding that because Edward and Susan had made the transfers to the pooled trusts when they were sixty-five and had transferred assets for less than fair market value, they were subject to a penalty period. The ALJ found

[t]he Department determined the accounts constituted legitimate pooled trusts under 42 U.S.C. § 1396p(d)(4)(c) and, as such, the trusts were generally exempt from Medicaid eligibility rules. However, the Department further determined that the deposits into those subaccounts on February 8, 2016, after Edward and Susan had each turned 65 years old, constituted transfers of assets for less than fair market value requiring the imposition of penalty periods within which neither Mr. nor Mrs. Cox would be eligible for long term care assistance.

         The ALJ affirmed the DHS's decision as to Edward. With regard to Susan, the ALJ affirmed the decision that the transfer made her ineligible for Medicaid long-term care benefits, but remanded the matter to the DHS for a recalculation of the penalty period because it improperly included amounts paid for her care prior to the beginning of the penalty period. Under the revised calculation, Susan is ineligible for Medicaid long-term care benefits through April 28, 2023.

         Edward and Susan appealed the proposed decision. Charles Palmer, then the director of the DHS, issued a final decision adopting the ALJ's proposed decision in its entirety.

         Edward and Susan filed a petition for judicial review challenging the DHS's decision. The district court affirmed the final decision, concluding that the DHS had correctly interpreted the relevant statutory provisions relating to pooled special needs trusts and found that the transfer of assets after Edward and Susan had turned sixty-five subjected them to penalty periods. The district court also concluded that the DHS interpretation of the relevant statutory provisions did not constitute a per se approach to determining the Coxes' penalties and the DHS had "conduct[ed] an individual review of the record, and concluded that the assets were transferred for less than fair market value."

         Edward and Susan appealed the district court decision, and we retained their appeal.

         II. Scope of Review.

         Iowa Code section 17A.19 governs judicial review of this agency action. Iowa Dental Ass'n v. Iowa Ins. Div., 831 N.W.2d 138, 142 (Iowa 2013); see also Iowa Code § 17A.19 (2016). This case turns on the interpretation of a federal statute, the Medicaid Act. Although the DHS is the state agency administering Medicaid benefits, we decline to give deference to the DHS interpretation of the Act and the DHS's rules and regulations regarding Medicaid. See Am. Eyecare v. Dep't of Human Servs., 770 N.W.2d 832, 836 (Iowa 2009) (declining to defer to the DHS's interpretation of its rules implementing Medicaid). But cf. Perry v. Dowling, 95 F.3d 231, 237 (2d Cir. 1996) (granting substantial deference to state agency's interpretation of Federal Medicaid statute as joint federal-state program when "the state has received prior federal-agency approval to implement its plan, the federal agency expressly concurs in the state's interpretation of the statute, and the interpretation is a permissible construction of the statute").

         By contrast, we apply federal law on judicial deference to the federal statutory interpretation of the Centers for Medicare and Medicaid Services (CMS), the federal agency administering Medicaid. The CMS interpretation is set forth in its "State Medicaid Manual" and by opinion letter. The CMS interpretation was not the product of "a formal adjudication or notice-and-comment rulemaking." See Christensen v. Harris County, 529 U.S. 576, 587, 120 S.Ct. 1655, 1662 (2000). The Supreme Court has determined that "[i]nterpretations such as those in opinion letters-like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law-do not warrant Chevron-style deference." Id.[1] "In Chevron, we held that a court must give effect to an agency's regulation containing a reasonable interpretation of an ambiguous statute." Id. at 587-88, 120 S.Ct. at 1662. "Instead, interpretations contained in formats such as opinion letters are 'entitled to respect' under our decision in Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124 (1944), but only to the extent that those interpretations have the 'power to persuade.'" Christensen, 529 U.S. at 587, 120 S.Ct. at 1663. In Skidmore, the United States Supreme Court clarified the level of deference to give to agency opinion letters.

We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight [accorded to an administrative] judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.

323 U.S. at 140, 65 S.Ct. at 164.

         Accordingly, we will give Skidmore deference to the CMS statutory interpretation of the relevant statutory provisions. We will review the rulings on statutory interpretation by the DHS and district court for correction of errors at law. Iowa Dental Ass'n, 831 N.W.2d at 142-43.

         We will apply substantial evidence review to the factual findings of the DHS, which has the authority to determine whether an individual is eligible for Medicaid. See generally 42 U.S.C. § 1396a (2012) (establishing requirements for state plans for medical assistance); Iowa Code § 249A.3(11)(a) ("In determining the eligibility of an individual for medical assistance, the department shall consider transfers of assets made on or after August 11, 1993, as provided by the federal Social Security Act, section 1917(c), as codified in 42 U.S.C. § 1396p(c)."); id. § 249A.4 (enumerating the duties of the DHS director with regard to medical assistance).

If an agency has been clearly vested with the authority to make factual findings on a particular issue, then a reviewing court can only disturb those factual findings if they are "not supported by substantial evidence in the record before the court when that record is reviewed as a whole."

Burton v. Hilltop Care Ctr., 813 N.W.2d 250, 256 (Iowa 2012) (quoting Iowa Code § 17A.19(10)(f)). "In other words, the question on appeal is not whether the evidence supports a different finding than the finding made . . ., but whether the evidence 'supports the findings actually made.'" Meyer v. IBP, Inc., 710 N.W.2d 213, 218 (Iowa 2006) (quoting St. Luke's Hosp. v. Gray, 604 N.W.2d 646, 649 (Iowa 2000)).

On the other hand, the application of the law to the facts . . . takes a different approach and can be affected by other grounds of error such as erroneous interpretation of law; irrational reasoning; failure to consider relevant facts; or irrational, illogical, or wholly unjustifiable application of law to the facts.


         III. Analysis.

         We must decide whether the DHS correctly imposed Medicaid eligibility penalties for long-term institutional care after the petitioners, at age sixty-five, transferred assets to a pooled special needs trust. This is a question of federal statutory law. We are not writing on a blank slate-the same legal issue has been adjudicated by the United States Court of Appeals for the Eighth Circuit, the South Dakota Supreme Court, and other courts. We join those courts in holding that the plain meaning of the controlling statutory provision mandates the delay in eligibility.

         We begin our analysis with an overview of Medicaid. We then focus on the text of the dispositive statutory provision and the caselaw applying that provision. Finally, we address the remaining arguments for reversal by the counsel for Mr. and Mrs. Cox and amici curiae National Academy of Elder Law Attorneys, Inc. and Special Needs Alliance, Inc.

         A. Overview of Medicaid.

         The Medicaid program, established in 1965 and codified at 42 U.S.C. §§ 1396-1396w-5 (the Medicaid Act), "was designed to serve individuals and families lacking adequate funds for basic health services, and it was designed to be a payer of last resort." In re Estate of Melby, 841 N.W.2d 867, 875 (Iowa 2014); see also Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 1758 (2006) (stating that Medicaid "provides joint federal and state funding of medical care for individuals who cannot afford to pay their own medical costs"). "To be eligible for Medicaid, a person must have income and resources less than thresholds set by the Secretary." Ctr. for Special Needs Trust Admin., Inc. v. Olson, 676 F.3d 688, 695 (8th Cir. 2012); see also 42 U.S.C. § 1396a(a)(17). "[T]he program contemplates that families will spend available resources first, and when those resources are completely depleted, Medicaid may provide payment." In re Estate of Melby, 841 N.W.2d at 875.

         The Secretary of Health and Human Services administers the Medicaid program and "exercises his authority through the Centers for Medicare and Medicaid Services (CMS)." Ahlborn, 547 U.S. at 275, 126 S.Ct. at 1758. State participation in the Medicaid program is voluntary, but states choosing to participate "must comply with all federal statutory and regulatory requirements." Lankford v. Sherman, 451 F.3d 496, 504 (8th Cir. 2006). "Among these requirements, states must 'comply with the provisions of section 1396p . . . with respect to . . . treatment of certain trusts.'" Olson, 676 F.3d at 694-95 (quoting 42 U.S.C. § 1396a(a)(18)).

         B. Pooled Special Needs Trust Provisions.

         This case requires us to interpret provisions relating to pooled special needs trusts. Eligibility determinations for Medicaid benefits are complex, with certain requirements for eligibility for general benefits such as medical treatment and additional limitations on eligibility for long-term care in nursing homes. A two-tiered analysis is required. We begin with the general provisions and then address the controlling long-term care provisions.

         1. General Medicaid eligibility determinations.

         Medicaid administrators will consider assets held in most types of trusts as available resources for Medicaid general eligibility determinations. 42 U.S.C. § 1396p(d). There are three types of trusts exempted from this general rule. Id. § 1396p(d)(4)(A), (B), (C); see also Iowa Admin Code r. 441- 75.24(3)(a), (b), (c) (providing the same exemptions). At issue here is the pooled special needs trust. 42 U.S.C. § 1396p(d)(4)(C); Iowa Admin Code r. 441-75.24(3)(c).

         "[A] pooled special-needs trust . . . pays for a disabled person's Medicaid-ineligible expenses, such as clothing, phone service, vehicle maintenance, and taxes." Olson, 676 F.3d at 695. Pooled special needs trusts are "special arrangement[s] with a non-profit organization that serves as trustee to manage assets belonging to many disabled individuals, with investments being pooled, but with separate trust 'accounts' being maintained for each disabled individual." Lewis v. Alexander, 685 F.3d 325, 333 (3d Cir. 2012) (quoting Jan P. Myskowski, Special Needs Trusts in the Era of the Uniform Trust Code, 46 N.H. Bar J., Spring 2005, at 16, 16). These trusts are "intended for individuals with a relatively small amount of money. By pooling these small accounts for investment and management purposes, overhead and expenses are reduced and more money is available to the beneficiary." Id.

         Because pooled special needs trusts are not countable as assets for general Medicaid benefit eligibility purposes, an individual of any age may place his or her assets into a pooled special needs trust without incurring penalties delaying his or her eligibility for general Medicaid benefits. The statute provides,

(d) Treatment of trust amounts
. . . .
(4) This subsection shall not apply to any of the following trusts:
. . . .
(C) A trust containing the assets of an individual who is disabled (as defined in section 1382c(a)(3) of this title) that meets the following conditions:
(i) The trust is established and managed by a nonprofit association.
(ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.
(iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1382c(a)(3) of this title) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.
(iv) To the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of ...

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