Federal Court Again Rules That The Payment Stream From An Annuity Paid To The Spouse Of A Nursing Home Resident Is Not Countable In Determining The Nursing Home Resident's Eligibility For Medicaid

The U.S. District Court for the Western District of Pennsylvania, in a case entitled Weatherbee v. Richman, ____ F. Supp. _____ (C.A. No. 07-134, January 22, 2009), has issued an opinion essentially following the reasoning of the United States Court of Appeals of the Third Judicial Circuit in James v. Richman in a case involving an annuity purchased after the passage of the Deficit Reduction Act of 2005 (DRA). In the James case, the appellate court ruled that an annuity, purchased by the institutional spouse’s wife in an amount exceeding the wife’s resource allowance allowed under the Medicaid law, may not be treated by the state Medicaid agency as an available resource in calculating the institutional spouse’s eligibility for Medicaid benefits. Since the annuity in the James v. Richman case was purchased before the passage of the DRA, there was a question about whether the holding in that case applied to annuities purchased after the DRA was enacted. The Weatherbee court has answered that question in the affirmative. The Weatherbee opinion can be viewed here –  Weatherbee v. Richman. I blogged about the James v. Richman case here – Federal Court Ruling Protects Assets Of Elderly Nursing Home Resident For His Spouse.

Plaintiff, Theodore E. Weatherbee (“Weatherbee”), a Pennsylvania resident, was admitted to a nursing facility in Pennsylvania and requested a resource assessment from the state Department of Public Welfare (“DPW”), the agency charged with administering the Pennsylvania Medicaid Program, in order to determine his eligibility for nursing home Medicaid benefits. After allowing for the available community spouse resource allowance (CSRA) permitted under the Medicare Catastrophic Coverage Act of 1988 (MCCA) and other available deductions, the DPW determined that Weatherbee had $442,696.05 in available resources to pay for nursing facility. Weatherbee’s wife, Adeline A. Weatherbee (“Adeline”), then spent $10,000 on two pre-paid funerals and $21,252.50 on a new vehicle. Both purchases were permissible under the Medicaid rules. Adeline used the remaining available resources to purchase a single premium, immediate, irrevocable annuity from the Jefferson-Pilot Life Insurance Company. This annuity was primarily funded through an existing $387,756.06 deferred annuity owned by plaintiff and his wife. The new annuity provided for a payment stream to Adeline, the community spouse, in the amount of $4,423.47 per month for 107 months. The annuity contract contained an endorsement restricting the assignment or transfer of the policy.

Plaintiff filed an application for nursing home Medicaid benefits with DPW seeking assistance with his nursing home bill. DPW did not dispute the purchase of the prepaid funerals and new vehicle, but denied eligibility after determining that the payment stream from the Jefferson-Pilot annuity was an available resource to Weatherbee because the income stream could be sold on the secondary market for cash.

Weatherbee initially requested an administrative hearing from DPW, but then filed a complaint in federal district court seeking injunctive relief. The Court first considered its jurisdiction to hear the case, and concluded that it had federal question jurisdiction over the case because one of the issues presented was whether the DPW misinterpreted federal law with respect to Weatherbee’s right to Medicaid benefits.

Thereafter, the Court tackled the merits of the case, holding that the income stream from the annuity payable to the community spouse was protected under federal law, specifically MCCA, 42 U.S.C. § 1396r-5, which provides that “no income of the community spouse shall be deemed available to the institutionalized spouse.”

The Court also held that the Pennsylvania statute upon which the DPW relied in treating the income from an otherwise compliant annuity as an available resource is inconsistent with the treatment of annuities under MCCA, and therefore invalid. As a result, the Court entered an Order enjoining the Pennsylvania Medicaid agency from denying benefits to plaintiff on the basis of the income stream to the community spouse generated by Jefferson-Pilot Life Insurance Company annuity.

As a result of James v. Richman and now Weatherbee v. Richman, it now appears that single premium, immediate, irrevocable annuities may be a new estate planning tool which may be used by married New Jersey residents to achieve Medicaid eligibility when one spouse is in an nursing home and the other spouse wishes to remain at home in the marital residence. These two cases may have significantly changed the law in New Jersey concerning the use of annuities to help elderly state residents remain in their homes.