In June 2009, Plaintiff purchased a Single Premium Immediate Annuity (SPIA) in the amount of $175,000 using funds from his IRA. The annuity guaranteed equal monthly payments for 115 months and was structured in accordance with Plaintiff’s actuarial life expectancy. The State of Ohio was named as the first remainder beneficiary of the annuity for the total amount of medical assistance furnished to Plaintiff’s spouse. Three months later, the institutionalized spouse applied for Medicaid coverage. Following review of the application, the agency issued a notice to the applicant that she was found eligible for Medicaid as of the month of her application. However, due to the Plaintiff’s annuity purchase, she would be subject to a period of ineligibility. The agency determined that the annuity purchase was to be considered an improper transfer because Plaintiff used a community resource in an amount that exceeded his Community Spouse Resource Allowance (CSRA) and because the annuity failed to name Ohio as the first contingent beneficiary. The Plaintiff’s appealed the decision alleging that the Ohio agency violated the federal Medicaid statutes, including §1396p(c)(2)(B)(i) when it placed the institutionalized spouse on restricted coverage due to Plaintiff’s purchase of an annuity with funds from his IRA account. Notwithstanding the Plaintiff’s argument that §1396p(c)(2)(B)(i) allows an institutionalized spouse to transfer unlimited assets to the community spouse without the transaction being considered an improper transfer, the court ruled that §1396r-5(f)(1) precludes the transfer of assets to the community spouse that exceeds the CSRA and applies to the pre-eligibility transfer at issue here. Furthermore, the court asserted that §1396r-5 includes a supersession clause that “requires resolution of any inconsistency between §1396r-5(f)(1) and §1396p(c)(2)(B) in the former clause’s favor. The Plaintiff’s appealed.



The primary issue on appeal is whether the transfer of a community resource to purchase an annuity for the community spouse’s sole benefit, which transfer is done after the institutionalized spouse is institutionalized but before the institutionalized spouse’s Medicaid eligibility is determined, can be deemed an improper transfer under 42 U.S.C §1396r-5(f)(1), even though §1396p(c)(2)(B)(i) allows a transfer of assets “to another for the sole benefit of the individual’s spouse.”



The Court rejected the district court’s approach and reversed the district court’s judgment.



In analyzing the two statutes, the Court presumed that it was unlikely that Congress operated in a vacuum when it enacted §1396p(c)(2)(B)(i). By providing that a couple may transfer assets “to another for the sole benefit of the individual’s spouse”, the term “another” is not limiting. As such, it naturally encompasses standard financial arrangements (such as an annuity) crafted for the spouse’s sole benefit during their lifetime. The actuarial-soundness requirement reasonably assures that the assets were transferred to a third party for the individual spouse’s sole benefit and any contingent interest only becomes relevant if the spouse dies early. Therefore, to extend the sole-benefit requirement past a spouse’s death is nonsensical. Furthermore, §1396p(c)(1)(F) intends to govern all annuities through the imposition of a transfer penalty under paragraph (1) if the annuity does not satisfy certain rules. On the other hand, §1396p(c)(2)(B)(i) carves out an exception to paragraph (1)’s transfer penalties providing that “an individual shall not be ineligible for medical assistance by reason of paragraph (1)” if a transfer satisfies, in relevant part, the sole benefit rule. The language of §1396p(c)(1)(F) limits its annuity rules “for purposes of this paragraph.” As such the two provisions are structured to complement each other rather than contradict one another. Even assuming that §1396r-f(f)(1) provides authority for a state to impose a period of ineligibility for a transfer that exceeds the CSRA, the statutory language and its relationship with §1396p(c) do not support the Ohio agency’s argument that 1396r-5(f)(1) controls a transfer made before Medicaid eligibility is established. Thus §1396r-5(f)(1) does not supersede §1396p(c)(2)(B)(i) for pre-eligibility transfers because there is no inconsistency between the provisions.


Read the full case decision here.