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Preeligibility purchase of spousal annuity upheld in Medicaid case

In Koenig v. Dungey, the First District Court of Appeals of Ohio held that the preeligibility purchase of an annuity by the wife of a Medicaid beneficiary was not an improper transfer of resources under Medicaid.

Medicaid program

Medicaid is a state-administered federal program to provide health-care coverage for individuals and families with low incomes and limited resources.

Medicaid provide special protection to married individuals. When a spouse is institutionalized in a nursing-care facility, Medicaid permits the non-institutionalized “community” spouse to retain some assets, known as the Community Spouse Resource Allowance (CSRA), while at the same time permitting the institutionalized spouse to receive Medicaid benefits. The CSRA is determined by splitting the married couple’s combined resources in half, calculated on the date of institutionalization. That figure is then subjected to a minimum and maximum amount, adjusted for inflation.

Background and procedural history

The beneficiary was admitted to a nursing-care facility in March 2011, and he subsequently applied for Medicaid benefits the following October. The beneficiary and his wife had $349,806 in countable Medicaid resources when he entered the facility and the Ohio Department of Job and Family Services determined that the CSRA for the wife was $109,560.

Shortly after the Medicaid application was filed, the wife purchased an irrevocable, nonassignable, single-premium annuity for $121,783.56 which provided monthly payments, commencing immediately, to the wife for a term of five years. Her actuarial life expectancy at the time was nine and one-half years. The annuity contract designated the State of Ohio as the first remainder beneficiary up to the amount of benefits received by the wife.

The Department caseworker subsequently approved the beneficiary’s Medicaid application, but determined that the annuity purchase was an improper transfer of resources to the wife under Medicaid regulations and ordered a period of restricted coverage on that basis.

The beneficiary requested a state hearing. The hearing officer upheld the caseworker’s decision.

The beneficiary filed an administrative appeal with the Department. While the appeal was pending the beneficiary passed away. The Department subsequently affirmed the hearing officer’s ruling.

The wife then sought judicial review of the matter in the Court of Common Pleas in Hamilton County, Ohio. The common pleas court reversed, finding that the wife’s annuity fully complied Ohio Medicaid regulations governing transfers for the “sole benefit” of spouses and that the Department acted improperly when it imposed a period of restricted coverage on the beneficiary’s Medicaid payments.

The Department filed an appeal of the common pleas court’s decision in the First District Court of Appeals.

The decision of the First District Court of Appeals

The appeals court affirmed the decision of the common pleas court. The transfer was a preeligibility purchase that occurred after the beneficiary’s institutionalization. In a prior court case known as Hughes v. McCarthy, decided by the U.S. Sixth Circuit Court of Appeals, the appellate court reviewed the federal Medicaid statutes and concluded that, prior to a determination of an applicant’s eligibility for Medicaid, unlimited transfers for the benefit of a spouse are permitted. The CSRA-transfer cap does not apply until after a determination of Medicaid eligibility. Furthermore, the annuity was actuarially sound and only benefited the wife during her lifetime, and thus, amounted to a transfer of resources for her sole benefit under Ohio Medicaid regulations.

Contact an attorney

Families faced with the challenge of arranging long-term care for a loved one should consult an attorney who is knowledgeable and experienced in financial planning for nursing home care to ensure that family assets are protected and preserved.