James v. Richman, 465 F. Supp. 2d 395 (M.D. Pa. 2006). Robert and Josephine James were married when Robert went to the nursing home. A resource assessment was done and Medicaid determined they had $278,343 in available resources. To reduce their resources, Josephine purchased a $250,000 single premium immediate irrevocable annuity from General Electric Assurance Company. She then purchased a new vehicle for $8,550 and filed a Medicaid application. The application was denied after a caseworker determined Robert did not receive fair consideration when Josephine purchased the annuity. The notice of denial found that Robert had excess resources due to the annuity and determined the annuity’s value was $185,000; the Department tendered the declaration of J.G. Wentworth’s CEO that his company would purchase the annuity despite its non-assignment language. Plaintiff’s appealed the denial and filed a complaint in district court; the administrative appeal was still pending when the district court ruled. In district court, Plaintiff’s sought a temporary restraining order and an injunction preventing the Department from denying Medicaid eligibility. Because the State relied exclusively on federal law in denying the application, the court found the question presented was one of federal law, thus vesting the court with jurisdiction. The Department contended the denial was proper because (1) the purchase of the annuity was a transfer and (2) because even if there was no transfer penalty, the annuity was a countable asset. The Court found that CMS, in HCFA 64, indicates there can be no penalty on an annuity that is irrevocable and actuarially sound where it is purchased for the sole benefit of a community spouse. The Court then found that counting the market value of the Community Spouse’s income stream would undermine that portion of federal law that exempt the Community Spouse’s income when determining the institutionalized spouse’s eligibility. Consistent with the Court’s findings, the Court granted Plaintiff’s request for a permanent injunction and enjoined the Department from denying eligibility based on the annuity purchased.

James v. Richman, 547 F.3d 214 (3rd Cir. 2008). The Circuit Court affirmed the decision above enjoining the State from counting an annuity purchased for the community spouse as an available resource. The Medicare Catastrophic Coverage Act of 1988 (MCCA), 42 U.S.C. § 1396r-5, provides that no income of the community spouse shall be deemed available to the institutionalized spouse. Robert, the institutionalized spouse, was admitted to a nursing home on August 10, 2005. On September 12, 2005, Josephine, the Community Spouse, purchased a $250,000 single premium immediate irrevocable annuity from General Electric Assurance Company. Prior to this transaction, the countable resources available to the community spouse were $381,443. After a new car was purchased, Josephine argued the remaining resources were under the community spouse resource allowance. The State nonetheless denied Medicaid eligibility, contending the annuity had value of not less than $185,000 because J.G. Wentworth would purchase it despite the non-assignment clause. The district court found that the State’s denial of Medicaid was improper and enjoined it from denying Medicaid. On appeal, the Court found that the central issue was “whether a non-revocable, non-transferrable annuity may be treated as an available resource by the Department for the purposes of calculating Medicaid eligibility.” In finding that the annuity was not a resource, the Court initially found that 42 U.S.C. § 1396a(a)(10)(C)(i)(III) prohibits the State from using a methodology more restrictive than that employed by the Supplemental Security Income regulations in determining whether the resource is countable. The SSI regulations provide that “if an individual has the right, authority or power to liquidate the property, or his or her share of the property, it is considered a[n] (available) resource.” 20 C.F.R. § 416.1201(a)(1). The Court then referred to the POMS, finding that “the power to liquidate referred to by the regulation is not simply the de facto ability to accomplish a change in ownership of an asset, but must also include the power to do so without incurring legal liability.” POMS SI 01110.115. Examining the annuity, the Court found that Josephine lacked such authority to change ownership because, even if she had a de facto right to do so, it would require breaching the annuity contract and incurring liability. The court rejected alternative arguments that Josephine could “hypothetically” create a new annuity by selling the existing annuity because there is no statutory basis for counting hypothetical proceeds from the creation of a new annuity as a currently available resource and because doing so would tend to undermine the MCCA rule that a community spouse’s income is not countable. Finally the court rejected the State’s argument that allowing this transaction to stand undercuts the Medicaid program by transforming it into a general welfare program. The Medicaid rules are exhaustive and the court declines to substitute its own sense of the law’s purpose rather than seeking to implement the text of the statute. Congress provided a detailed set of rules governing transactions that it considered specious and the purchase of an annuity was not among them.

Weatherbee v. Richman, 2009 U.S. Dist. LEXIS 4402 (W.D. Pa. 2009). After the Third Circuit decided James v. Richman, the State of Pennsylvania attempted to distinguish that holding by contending that DRA modified the treatment of annuities purchased after February 8, 2006. The State argued that DRA allows the State to treat annuities as countable resources. The district court rejected that argument, relying on that portion of James which indicates that a community spouse’s income cannot be deemed available. The court further noted that 42 U.S.C. § 1396r-5 supersedes any other inconsistent provision of the Medicaid subchapter. Finally, the court found that Congress, in DRA, defined those annuities that would not be treated as transfers subject to a penalty. The court reasoned that the State’s argument was inconsistent with DRA because it was unreasonable to infer that Congress would have intended to take with one hand (i.e., through the operation of 42 U.S.C. § 1396p(e)(4) that which it had just given with the other. If Congress had intended to “ring the death knell” for otherwise compliant annuities, it would have said so and it did not. Affirmed in Non-Precedential Opinion.

Mertz v. Houstoun, 155 F. Supp. 2d 415 (E.D. Pa. 2001). Immediately prior to applying for nursing home Medicaid, the Community Spouse purchased two annuities for $106,000 paying him approximately $2,000 per month for 5 years, having a total payout of $119,000. His life expectancy was 9.4 years (determined using Social Security’s Period Life Table). The application for Medicaid was denied. The State found that the annuities were purchased for fair market value; the basis for the denial was that resources were transferred for the purpose of qualifying for Medicaid. The court found that no asset transfer penalty can be imposed when there is a transfer between spouses. The court noted that a community spouse may then shelter resources by placing them in an actuarially sound irrevocable annuity, noting that this appeared to be a “loophole” exploited by lawyers. Nonetheless, the Court held that it is not for the court to compensate for an apparent legislative oversight and found that Plaintiff would likely prevail on her claim that the denial of eligibility is inconsistent with federal law. The injunction, however, was not granted because Plaintiff had not shown irreparable harm.

See also Cook v. Glover, 295 Ga. 495 (2014).