James v. Richman, 465 F. Supp. 2d 395 (D. Pa. 2006)

A community spouse purchased an actuarially sound single-premium irrevocable annuity for $250,000 for the purpose of spending down excess assets so her husband, a nursing home resident, would qualify for Medicaid. Pennsylvania denied eligibility, contending that the annuity was an available asset and that Medicaid eligibility could not be established until that asset was spent down. Plaintiff requested a temporary restraining order, which was granted, and later filed a motion for summary judgment. A prior case, Mertz v. Houstoun, 155 F. Supp 2d 416 (E.D. Pa. 2001), indicated that available assets become unavailable when a community spouse uses assets to purchase an irrevocable actuarially sound commercially sound for her sole benefit. The State countered that notwithstanding a non-assignment clause, the annuity has market value and therefore is liquid. Alternatively, the State argued that the stream of income derived from the annuity has market value. The Court rejected the State’s first argument because HCFA 64, § 3258.9B, “clearly states that annuities purchased as part of a valid retirement plan — regardless of their putative marketability in the view of a third party and the generally prevailing rules of contract law — are not to be penalized. As such, if such an irrevocable actuarially sound commercial annuity were purchased as part of a retirement plan for the sole benefit of the community spouse, there can be no penalty imposed upon the Medicaid applicant.” It rejected the second argument because 42 U.S.C. § 1396r-5(b)(1) provides that “no income of the community spouse shall be deemed available to the institutionalized spouse.” The Plaintiff’s motion for summary judgment was granted. Prior decision: James v. Richman, 2006 U.S. Dist. LEXIS 28384 (D. Pa. 2006).

Note: Other States such as New Jersey and Georgia are taking the position that even non-assignable, irrevocable annuities have market value and, therefore, are countable assets. This issue may be litigated around the country with varying results. This case is included to show that Medicaid eligibility issues is not automatic, that the issues are complex and that an Elder Law Attorney familiar with the Medicaid rules should be involved when continuing eligibility is sought.