SUSAN E. COX and EDWARD A. COX, Appellants,
IOWA DEPARTMENT OF HUMAN SERVICES, Appellee.
from the Iowa District Court for Polk County, Scott D.
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.
Rebecca A. Brommel of Brown, Winick, Graves, Gross,
Baskerville, and Schoenebaum, P.L.C., Des Moines, for
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.
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
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.
Background Facts and Proceedings.
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.
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.
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.
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
[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.
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.
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.
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
and Susan appealed the district court decision, and we
retained their appeal.
Scope of Review.
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").
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. "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.
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.
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
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.
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.
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.
Overview of Medicaid.
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.
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. §
Pooled Special Needs Trust Provisions.
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.
General Medicaid eligibility determinations.
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.
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.
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
(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 ...