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Certain Annuities Purchased by Medicaid Applicants Ruled Exempt from Federal Asset Transfer Penalty

Certain Annuities Purchased by Medicaid Applicants Ruled Exempt from Federal Asset Transfer Penalty

ERISA and Life Insurance News
(June 6, 2013)

The Georgia Court of Appeals reviewed consolidated appeals by four applicants who sought Medicaid assistance in connection with their residential nursing home care. They argued that the Georgia Department of Community Health (“DCH”) had improperly imposed an asset transfer penalty prescribed by the federal Medicaid statute relating to long term care benefits. The applicants were considered “institutionalized spouses” under the relevant Medicaid statutes and provisions.

Near the time of their Medicaid applications, the spouses of three of the applicants (“the community spouses”) used marital assets to purchase irrevocable, non-assignable, and actuarially sound annuities, naming themselves as the beneficiaries. The fourth applicant purchased a similar annuity, but named himself as the beneficiary.

Pursuant to § 2239 of the DCH’s Medicaid Manual, married applicants are required to name the state as the remainder beneficiary of any annuities.

While DCH ultimately approved the applications for Medicaid benefits, it withheld the nursing home benefit payments during a multi-month penalty period. The applicants claimed in part that the state Medicaid Manual violated the federal Medicaid statute, because the annuities did not fall within the definition of an “asset” for the purpose of imposing the penalty.

As the court noted, the federal Medicaid statute requires that a state plan for medical assistance must comply with federal law regarding transfers of assets, which requires state plans to impose a penalty for “disposal of assets for less than fair market value” during a certain look-back period. Under 42 U.S.C. § 1396p(c)(1)(F), the purchase of an annuity is treated as the “disposal of an asset for less than fair market value” unless the state is named as a remainder beneficiary.

The court’s ruling turned, however, on the next subsection of the statute, which provides that the term “assets” includes an annuity purchased “by or on behalf of an annuitant who has applied for medical assistance … unless … the annuity is irrevocable and nonassignable; is actuarially sound ...; and provides for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments made.” 42 USC § 1396p(c)(1)(G)(ii).

The court determined that a plain reading of both subsections showed that annuities benefitting community spouses must name the state as a remainder beneficiary to avoid being treated automatically as the disposal of an asset for less than fair market value, but that annuities benefitting applicants who are institutionalized spouses, and that conform to the requirements of subsection (c)(1)(G)(ii), need not do so.

Accordingly, the court held that § 2339 of the Georgia Medicaid Manual violated the federal Medicaid statute, because it failed to exempt annuities that complied with subsection (c)(1)(G) from the requirement of naming the state as a remainder beneficiary. The court reversed the DCH’s ruling that the “institutionalized spouse” who purchased the annuity for himself was not subject to the transfer of assets penalty, and upheld the DCH’s ruling imposing a penalty on the applicants whose spouses named themselves as beneficiaries.

Click here to view the full June 2013 Edition of the ERISA and Life Insurance News.

H. Sanders Carter
T (404) 962-1015
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Kenton J. Coppage
T (404) 962-1065
F (404) 962-1256
Dorothy H. Cornwell
T (404) 962-1096
F (404) 962-1246

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