An important consideration in any crisis planning case is the issue of estate recovery. Estate recovery is where the state attempts to recoup costs for services rendered under the State Medicaid program upon the Medicaid recipient’s death. A recent Massachusetts case, Dermody v. Executive Office of Health and Human Services, (Mass. Super. Ct., No 1781CV02342, Jan. 16, 2020), illustrated some limitations on estate recovery.
The case facts in Dermody are straightforward. Robert Hamel purchased a single premium immediate annuity (SPIA) in order to qualify his wife, Joan Hamel, for long-term care Medicaid benefits. Mr. Hamel named the Commonwealth of Massachusetts as the primary beneficiary on the annuity to the extent of benefits paid. It is important to clarify that this language did not specifically mention the institutionalized individual, Mrs. Hamel. Mr. Hamel named his daughter and the Plaintiff in this case, Laurie A. Dermody, as the contingent beneficiary on the annuity.
Mr. Hamel, who had never received Medicaid benefits, subsequently passed away while Mrs. Hamel was in the nursing facility. The Commonwealth demanded payment under the terms of the SPIA for services rendered to Mrs. Hamel, even though she was not the owner or annuitant on the policy. The annuity company paid the Commonwealth for Mrs. Hamel’s long-term care and the Plaintiff sued both the Commonwealth and the annuity company claiming she was entitled to the remaining balance of the contract. The Court agreed.
In Dermody, the Plaintiff argued that because the annuity named the Commonwealth as primary beneficiary but only to the extent of benefits paid, and because Mr. Hamel did not receive benefits, that the Commonwealth was not entitled to payment under the annuity contract. Accordingly, the Plaintiff argued that she was then entitled to the remaining benefit under the policy as contingent beneficiary. The Court decided the case on summary judgment motion.
The decision in Dermody turned on the Court’s analysis of “the sole benefit rule” under 42 U.S.C. § 1396(c)(2)(B), which permits an asset transfer to a spouse so long as the transfer is for “the sole benefit” of that spouse. The Court placed the sole benefit rule in context, addressing the passage of the Deficit Reduction Act of 2005 (DRA) and the additional eligibility requirements added thereunder, specifically the language requiring that the state be named remainder beneficiary. The Court explained that if the annuity must satisfy both the sole benefit rule and the DRA beneficiary requirement, the Commonwealth would be entitled to the remaining benefit under Mr. Hamel’s annuity.
In determining that the Plaintiff was entitled to the benefits, the Court noted the absence of information identifying Mrs. Hamel on the annuity contract or application. The Court ruled that the plain language of the relevant statutory provisions was unambiguous and that any transaction satisfying the sole benefit rule is exempt from transfer penalty rules in 42 U.S.C. § 1396(c)(1), including the annuity rules in subparagraph (F) – which includes the beneficiary language.
In the Dermody decision, the Middlesex Superior Court noted the DRA “did not amend or revoke the sole benefit rule.” Where an annuity satisfies the sole benefit rule it does not have to comply with the DRA rules under § 1396p(c)(1)(F). More specifically, the Court ruled that because the requirements of subsection (c)(1)(F) apply to annuities not exempted by the sole benefit rule in paragraph (c)(2), the annuity purchased by a spouse who did not receive Medicaid benefits does not have to name the state as beneficiary. The Court clarified that the DRA requirements of (c)(1)(F) would apply to “annuities benefiting non-exempt children or a spousal annuity that is not actuarially sound.”
In January 2023, the Massachusetts Supreme Judicial Court heard oral arguments surrounding the application of 42 U.S.C. 1396p(c)(2)(B)(I) and 42 U.S.C 1396p(c)(F)(i) related to annuities. The argument focused on whether the Commonwealth must be named the primary beneficiary of MassHealth Compliant Annuities owned by the community spouse. The court determined that the language provided within 42 U.S.C 1396p(c)(1)(F)(i)—the beneficiary naming provision—does not allow for a separate exclusion related to 42 U.S.C. 1396p(c)(2)(B)(i) for annuities that were purchased for the sole benefit of the community spouse. The court interpreted the sole benefit provision as applying to any asset transfers, whereas the requirement to name the Medicaid agency as a beneficiary still applied to annuity purchases.
Upon review of the appellee’s argument, the court determined that the argument that the beneficiary naming provision can be disregarded on annuities owned by a community spouse directly contradicts Congress’s intent to limit the use of annuities for Medicaid planning purposes. Therefore, an annuity purchased by the community spouse must list the state as the remainder beneficiary to the extent benefits are paid to avoid a transfer penalty.
On May 9, 2024, the Solicitor General filed their Brief for the United States as Amicus Curiae as was ordered by the Court in October 2023. In that brief, they recommended denying the Writ of Certiorari because the Massachusetts Supreme Court properly ruled the case and there was not a conflict of law. The Petitioners filed a Supplemental Brief in response to the Solicitor General’s recommendation for denial hoping to convince the Court that the merits of the case required their consideration.
Ultimately, the Court denied the Writ for Certiorari. The beneficiary requirements for a Medicaid Compliant Annuity remain unchanged and require MassHealth to be named as a remainder beneficiary in order to be compliant with federal and state Medicaid rules.
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