As the U.S. Court of Appeals, 2nd Circuit, held in Lopes v. Dep’t of Social Services, 696 F.3d 180 (2d Cir. 2012) and the U.S. Court of Appeals, 3rd Circuit, held in James v. Richman, 547 F.3d 214 (3d Cir. 2008) when resolving the same issue, the U.S. Court of Appeals, 8th Circuit, has now also held that an annuity purchased by a Medicaid applicant’s spouse after the applicant entered a nursing home cannot be counted as an available resource.  Geston v. Anderson (8th Cir., No. 12-2224, Sept. 10, 2013).

After John Geston, a resident of Bismarck, North Dakota, entered a full-time care facility, his wife continued living in their primary residence. The Gestons filed an “asset assessment” form with county welfare board to determine John’s potential eligibility for Medicaid benefits. The Board determined that the Gestons’ countable assets exceeded the statutory limit by $586,854.80. As a result, the Gestons began to reduce their resources by purchasing assets that do not count toward an applicant’s eligibility for Medicaid. For example, they sold their primary residence and purchased a more expensive home, Mrs. Geston sold her car and purchased a more expensive car, and each purchased prepaid burial services. Mrs. Geston also purchased a single-premium immediate annuity for $400,000. The annuity was scheduled to pay her $2,734.65 per month over 13 years for a total return of $426,605.40. The annuity contract provided that the contract was “irrevocable” and could not be “transferred, assigned, surrendered or commuted during [Mrs. Geston’s] lifetime.” A separate provision prohibited Mrs. Geston from revoking the payment stream.

Mr. Geston then applied for nursing home Medicaid benefits. The state denied the application for two reasons: first, the state found that the annuity was an available resource under state Medicaid law, and second, the state found that the income received by Mrs. Geston from the annuity, when combined with the couple’s other income, exceeded the income limit established by state law.

The Gestons filed a lawsuit in federal district court seeking relief declaring the state law invalid and preempted by federal law because it is more restrictive than federal law. According to the Gestons, the state law impermissibly allowed the state (1) to count the spouse’s annuity as a resource in determining Medicaid eligibility, and (2) to consider a community spouse’s income in determining an institutionalized spouse’s Medicaid eligibility, both of which were contrary to federal law.  The United States District Court for the District of North Dakota in the same case when it was entitled Geston v. Olson ruled that the state law was more restrictive than federal law and violated the federal Medicaid statute. The court, therefore, declared the state law invalid. The state appealed, arguing that federal law allows the state to count the annuity as a resource.

The U.S. Court of Appeals, 8th Circuit, affirmed the district court’s ruling, holding the annuity is not a resource. According to the court, because Mrs. Geston had no “right, authority or power” to liquidate the annuity, the annuity benefits are not a resource, but rather are income as indicated by the federal statute defining “unearned income.” The court also rejected the state’s argument that the annuity was a resource because it was purchased with the couple’s resources after Mr. Geston entered the nursing home. The court found the argument unpersuasive, holding that “[i]f resources are converted to uncountable income after institutionalization but before the filing of an application, then they do not affect the institutionalized spouse’s eligibility. When Mr. Geston applied for Medicaid benefits, Mrs. Geston had already acquired the annuity. At the relevant time, therefore, the annuity was an uncountable stream of unearned income, not a resource.” Finally, the court held that the income received by Mrs. Geston from the annuity was not countable under federal law in determining Mr. Geston’s eligibility for Medicaid, and that state law to the contrary was invalid.

The case is annexed here – Geston v. Anderson