Susan E. Cox and Edward A. Cox v. Iowa Department of Human Services , 920 N.W.2d 545 ( 2018 )

IN THE SUPREME COURT OF IOWA
No. 18–0026
Filed November 30, 2018
SUSAN E. COX and EDWARD A. COX,
Appellants,
vs.
IOWA DEPARTMENT OF HUMAN SERVICES,
Appellee.
Appeal from the Iowa District Court for Polk County, Scott D.
Rosenberg, Judge.
Petitioners appeal district court judgment affirming agency ruling
imposing Medicaid long-term care eligibility penalties based on their
transfer of assets to a pooled special needs trust. AFFIRMED.
Rebecca A. Brommel of Brown, Winick, Graves, Gross, Baskerville,
and Schoenebaum, P.L.C., Des Moines, for appellants.
Thomas J. Miller, Attorney General, and Matthew K. Gillespie,
Assistant Attorney General, for appellee.
Matthew Bollman of Pearson Bollman Law, West Des Moines, and
Ron M. Landsman, Rockville, Maryland, for amici curiae National Academy
of Elder Law Attorneys, Inc. and Special Needs Alliance, Inc.
2
WATERMAN, Justice.
In this appeal, we must determine whether the district court
correctly interpreted the Federal Medicaid Act concerning eligibility for
benefits for long-term institutional care. States must adhere to federal
eligibility requirements to ensure that benefits are reserved for persons
who lack financial means and who have not transferred personal assets
that could pay for their care. The petitioners, husband and wife, are
disabled and reside in a nursing home. At age sixty-five, they transferred
over one-half million dollars to a pooled special needs trust. The Iowa
Department of Human Services (DHS) determined the transfers were for
less than fair market value and required a delay in their eligibility for
Medicaid benefits. An administrative law judge (ALJ) affirmed the
determination but required recalculation of the wife’s penalty delay. After
exhausting intra-agency appeals, the petitioners sought judicial review.
The district court affirmed the DHS position, and we retained the
petitioners’ appeal.
On our review, we conclude the district court and DHS correctly
construed and applied federal law requiring the delay in Medicaid benefits
for long-term institutional care, effectively requiring the petitioners to tap
their pooled trust assets first to pay for their nursing home care. Our
determination is based on the plain meaning of the statutory text. Other
appellate courts and the federal and Iowa agencies administering Medicaid
have reached the same conclusion that Congress chose to treat transfers
into pooled special needs trusts by such recipients under age sixty-five
differently than transfers by those age sixty-five or older. Substantial
evidence supports the DHS finding that the transfers were for less than
fair market value. Accordingly, we affirm the district court judgment.
3
I. Background Facts and Proceedings.
Edward and Susan Cox, both born in 1950, are a married couple
currently living at Westview Care Center in Indianola, Iowa. Both Edward
and Susan are disabled and are unable to live on their own. Edward has
lymphedema, which causes swelling and makes his left arm unusable. He
has had two kidney transplants and takes a number of medications daily.
Susan had a stroke, which has induced left-side neglect.
In 2015, Susan received a settlement from a medical malpractice
lawsuit relating to her stroke. Edward also received a settlement from the
lawsuit for loss of consortium. They decided to transfer most of the funds
they received from the settlement into separate pooled special needs trusts
with The Center for Special Needs Trust Administration (the Center), a
Florida-based nonprofit association. On February 8, 2016, when Edward
and Susan were sixty-five years old, they executed joinder agreements for
the trust. These joinder agreements created individual subaccounts
within the trust for Edward and Susan. Edward’s subaccount received
$101,921.81 and Susan’s subaccount received $474,457.88. The Center
is the trustee of the trust accounts and is required to distribute the funds
in accordance with the trust documents. The Center may only use the
funds in these pooled trusts for Edward and Susan’s respective care.
In 2016, around the time the couple moved to the Westview Care
Center, Edward and Susan applied for Medicaid long-term care benefits.
The couple provided the pooled trust documents to the DHS for review.
On June 14, the DHS issued Disposal of Assets Penalty Notices of Decision
to Edward and Susan, denying their applications for long-term care
benefits on the basis that they “transferred assets for less than fair market
value.” Edward’s notice of decision imposed an eighteen-month and
twenty-five-day penalty, making him ineligible for Medicaid long-term care
4
benefits through July 25, 2017. Susan received a penalty of eighty-seven
months and twenty-two days, making her ineligible for Medicaid long-term
care benefits through July 22, 2023.
Edward and Susan appealed their notices of decision and requested
a hearing. The DHS consolidated the appeals. After the hearing, an ALJ
issued a proposed decision finding that because Edward and Susan had
made the transfers to the pooled trusts when they were sixty-five and had
transferred assets for less than fair market value, they were subject to a
penalty period. The ALJ found
[t]he Department determined the accounts constituted
legitimate pooled trusts under 42 U.S.C. § 1396p(d)(4)(c) and,
as such, the trusts were generally exempt from Medicaid
eligibility rules. However, the Department further determined
that the deposits into those subaccounts on February 8, 2016,
after Edward and Susan had each turned 65 years old,
constituted transfers of assets for less than fair market value
requiring the imposition of penalty periods within which
neither Mr. nor Mrs. Cox would be eligible for long term care
assistance.
The ALJ affirmed the DHS’s decision as to Edward. With regard to Susan,
the ALJ affirmed the decision that the transfer made her ineligible for
Medicaid long-term care benefits, but remanded the matter to the DHS for
a recalculation of the penalty period because it improperly included
amounts paid for her care prior to the beginning of the penalty period.
Under the revised calculation, Susan is ineligible for Medicaid long-term
care benefits through April 28, 2023.
Edward and Susan appealed the proposed decision. Charles
Palmer, then the director of the DHS, issued a final decision adopting the
ALJ’s proposed decision in its entirety.
Edward and Susan filed a petition for judicial review challenging the
DHS’s decision. The district court affirmed the final decision, concluding
that the DHS had correctly interpreted the relevant statutory provisions
5
relating to pooled special needs trusts and found that the transfer of assets
after Edward and Susan had turned sixty-five subjected them to penalty
periods. The district court also concluded that the DHS interpretation of
the relevant statutory provisions did not constitute a per se approach to
determining the Coxes’ penalties and the DHS had “conduct[ed] an
individual review of the record, and concluded that the assets were
transferred for less than fair market value.”
Edward and Susan appealed the district court decision, and we
retained their appeal.
II. Scope of Review.
Iowa Code section 17A.19 governs judicial review of this agency
action. Iowa Dental Ass’n v. Iowa Ins. Div., 831 N.W.2d 138, 142 (Iowa
2013); see also Iowa Code § 17A.19 (2016). This case turns on the
interpretation of a federal statute, the Medicaid Act. Although the DHS is
the state agency administering Medicaid benefits, we decline to give
deference to the DHS interpretation of the Act and the DHS’s rules and
regulations regarding Medicaid. See Am. Eyecare v. Dep’t of Human Servs.,
770 N.W.2d 832, 836 (Iowa 2009) (declining to defer to the DHS’s
interpretation of its rules implementing Medicaid). But cf. Perry v. Dowling,
95 F.3d 231, 237 (2d Cir. 1996) (granting substantial deference to state
agency’s interpretation of Federal Medicaid statute as joint federal–state
program when “the state has received prior federal-agency approval to
implement its plan, the federal agency expressly concurs in the state’s
interpretation of the statute, and the interpretation is a permissible
construction of the statute”).
By contrast, we apply federal law on judicial deference to the federal
statutory interpretation of the Centers for Medicare and Medicaid Services
(CMS), the federal agency administering Medicaid. The CMS interpretation
6
is set forth in its “State Medicaid Manual” and by opinion letter. The CMS
interpretation was not the product of “a formal adjudication or notice-and-
comment rulemaking.” See Christensen v. Harris County, 529 U.S. 576,
587, 120 S. Ct. 1655, 1662 (2000). The Supreme Court has determined
that “[i]nterpretations such as those in opinion letters—like interpretations
contained in policy statements, agency manuals, and enforcement
guidelines, all of which lack the force of law—do not warrant Chevron-style
deference.” Id. 1 “In Chevron, we held that a court must give effect to an
agency’s regulation containing a reasonable interpretation of an
ambiguous statute.” Id. at 587–88, 120 S. Ct. at 1662. “Instead,
interpretations contained in formats such as opinion letters are ‘entitled
to respect’ under our decision in Skidmore v. Swift & Co., 323 U.S. 134,
140, 65 S. Ct. 161, 164, 89 L. Ed. 124 (1944), but only to the extent that
those interpretations have the ‘power to persuade.’ ” Christensen, 529 U.S.
at 587, 120 S. Ct. at 1663. In Skidmore, the United States Supreme Court
clarified the level of deference to give to agency opinion letters.
We consider that the rulings, interpretations and
opinions of the Administrator under this Act, while not
controlling upon the courts by reason of their authority, do
constitute a body of experience and informed judgment to
which courts and litigants may properly resort for guidance.
The weight [accorded to an administrative] judgment in a
particular case will depend upon the thoroughness evident in
its consideration, the validity of its reasoning, its consistency
with earlier and later pronouncements, and all those factors
which give it power to persuade, if lacking power to control.
323 U.S. at 140, 65 S. Ct. at 164.
Accordingly, we will give Skidmore deference to the CMS statutory
interpretation of the relevant statutory provisions. We will review the
1See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842–44, 104
S. Ct. 2778, 2781–82 (1984).
7
rulings on statutory interpretation by the DHS and district court for
correction of errors at law. Iowa Dental Ass’n, 831 N.W.2d at 142–43.
We will apply substantial evidence review to the factual findings of
the DHS, which has the authority to determine whether an individual is
eligible for Medicaid. See generally 42 U.S.C. § 1396a (2012) (establishing
requirements for state plans for medical assistance); Iowa Code
§ 249A.3(11)(a) (“In determining the eligibility of an individual for medical
assistance, the department shall consider transfers of assets made on or
after August 11, 1993, as provided by the federal Social Security Act,
section 1917(c), as codified in 42 U.S.C. § 1396p(c).”); id. § 249A.4
(enumerating the duties of the DHS director with regard to medical
assistance).
If an agency has been clearly vested with the authority to
make factual findings on a particular issue, then a reviewing
court can only disturb those factual findings if they are “not
supported by substantial evidence in the record before the
court when that record is reviewed as a whole.”
Burton v. Hilltop Care Ctr., 813 N.W.2d 250, 256 (Iowa 2012) (quoting Iowa
Code § 17A.19(10)(f)). “In other words, the question on appeal is not
whether the evidence supports a different finding than the finding made
. . ., but whether the evidence ‘supports the findings actually made.’ ”
Meyer v. IBP, Inc., 710 N.W.2d 213, 218 (Iowa 2006) (quoting St. Luke’s
Hosp. v. Gray, 604 N.W.2d 646, 649 (Iowa 2000)).
On the other hand, the application of the law to the facts . . .
takes a different approach and can be affected by other
grounds of error such as erroneous interpretation of law;
irrational reasoning; failure to consider relevant facts; or
irrational, illogical, or wholly unjustifiable application of law
to the facts.
Id.
8
III. Analysis.
We must decide whether the DHS correctly imposed Medicaid
eligibility penalties for long-term institutional care after the petitioners, at
age sixty-five, transferred assets to a pooled special needs trust. This is a
question of federal statutory law. We are not writing on a blank slate—the
same legal issue has been adjudicated by the United States Court of
Appeals for the Eighth Circuit, the South Dakota Supreme Court, and
other courts. We join those courts in holding that the plain meaning of
the controlling statutory provision mandates the delay in eligibility.
We begin our analysis with an overview of Medicaid. We then focus
on the text of the dispositive statutory provision and the caselaw applying
that provision. Finally, we address the remaining arguments for reversal
by the counsel for Mr. and Mrs. Cox and amici curiae National Academy
of Elder Law Attorneys, Inc. and Special Needs Alliance, Inc.
A. Overview of Medicaid. The Medicaid program, established in
1965 and codified at 42 U.S.C. §§ 1396–1396w-5 (the Medicaid Act), “was
designed to serve individuals and families lacking adequate funds for basic
health services, and it was designed to be a payer of last resort.” In re
Estate of Melby, 841 N.W.2d 867, 875 (Iowa 2014); see also Ark. Dep’t of
Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S. Ct. 1752,
1758 (2006) (stating that Medicaid “provides joint federal and state
funding of medical care for individuals who cannot afford to pay their own
medical costs”). “To be eligible for Medicaid, a person must have income
and resources less than thresholds set by the Secretary.” Ctr. for Special
Needs Trust Admin., Inc. v. Olson, 676 F.3d 688, 695 (8th Cir. 2012); see
also 42 U.S.C. § 1396a(a)(17). “[T]he program contemplates that families
will spend available resources first, and when those resources are
9
completely depleted, Medicaid may provide payment.” In re Estate of
Melby, 841 N.W.2d at 875.
The Secretary of Health and Human Services administers the
Medicaid program and “exercises his authority through the Centers for
Medicare and Medicaid Services (CMS).” Ahlborn, 547 U.S. at 275, 126
S. Ct. at 1758. State participation in the Medicaid program is voluntary,
but states choosing to participate “must comply with all federal statutory
and regulatory requirements.” Lankford v. Sherman, 451 F.3d 496, 504
(8th Cir. 2006). “Among these requirements, states must ‘comply with the
provisions of section 1396p . . . with respect to . . . treatment of certain
trusts.’ ” Olson, 676 F.3d at 694–95 (quoting 42 U.S.C. § 1396a(a)(18)).
B. Pooled Special Needs Trust Provisions. This case requires us
to interpret provisions relating to pooled special needs trusts. Eligibility
determinations for Medicaid benefits are complex, with certain
requirements for eligibility for general benefits such as medical treatment
and additional limitations on eligibility for long-term care in nursing
homes. A two-tiered analysis is required. We begin with the general
provisions and then address the controlling long-term care provisions.
1. General Medicaid eligibility determinations. Medicaid
administrators will consider assets held in most types of trusts as available
resources for Medicaid general eligibility determinations. 42 U.S.C.
§ 1396p(d). There are three types of trusts exempted from this general
rule. Id. § 1396p(d)(4)(A), (B), (C); see also Iowa Admin Code r. 441—
75.24(3)(a), (b), (c) (providing the same exemptions). At issue here is the
pooled special needs trust. 42 U.S.C. § 1396p(d)(4)(C); Iowa Admin Code
r. 441—75.24(3)(c).
“[A] pooled special-needs trust . . . pays for a disabled person’s
Medicaid-ineligible expenses, such as clothing, phone service, vehicle
10
maintenance, and taxes.” Olson, 676 F.3d at 695. Pooled special needs
trusts are “special arrangement[s] with a non-profit organization that
serves as trustee to manage assets belonging to many disabled individuals,
with investments being pooled, but with separate trust ‘accounts’ being
maintained for each disabled individual.” Lewis v. Alexander, 685 F.3d
325, 333 (3d Cir. 2012) (quoting Jan P. Myskowski, Special Needs Trusts
in the Era of the Uniform Trust Code, 46 N.H. Bar J., Spring 2005, at 16,
16). These trusts are “intended for individuals with a relatively small
amount of money. By pooling these small accounts for investment and
management purposes, overhead and expenses are reduced and more
money is available to the beneficiary.” Id.
Because pooled special needs trusts are not countable as assets for
general Medicaid benefit eligibility purposes, an individual of any age may
place his or her assets into a pooled special needs trust without incurring
penalties delaying his or her eligibility for general Medicaid benefits. The
statute provides,
(d) Treatment of trust amounts
....
(4) This subsection shall not apply to any of the following
trusts:
....
(C) A trust containing the assets of an individual who is
disabled (as defined in section 1382c(a)(3) of this title)
that meets the following conditions:
(i) The trust is established and managed by a
nonprofit association.
(ii) A separate account is maintained for each
beneficiary of the trust, but, for purposes of
investment and management of funds, the trust
pools these accounts.
(iii) Accounts in the trust are established solely
for the benefit of individuals who are disabled (as
defined in section 1382c(a)(3) of this title) by the
11
parent, grandparent, or legal guardian of such
individuals, by such individuals, or by a court.
(iv) To the extent that amounts remaining in the
beneficiary’s account upon the death of the
beneficiary are not retained by the trust, the trust
pays to the State from such remaining amounts
in the account an amount equal to the total
amount of medical assistance paid on behalf of
the beneficiary under the State plan under this
subchapter.
42 U.S.C. § 1396p(d)(4)(C). 2 The Coxes and amici argue the lack of an age
limit in this provision is dispositive and the DHS erred by counting their
funds in the pooled special needs trust to delay their eligibility for Medicaid
long-term care benefits. We disagree, because the Medicaid Act requires
additional steps to determine eligibility for long-term care benefits. That
is where we confront the dispositive age-cutoff.
2. Medicaid long-term care benefit eligibility. “Long-term care
assistance is an optional category of Medicaid coverage.” In re Pooled
Advocate Trust, 813 N.W.2d 130, 141 (S.D. 2012). Long-term care benefits
include nursing facility services. 42 U.S.C. § 1396p(c)(1)(C)(i)(I).
When an individual applies for long-term care benefits, the state
must conduct additional analysis regarding the individual’s transfers of
assets. Id. § 1396p(c). Unlike general Medicaid eligibility determinations,
states are specifically required to determine whether an applicant for long-
term care benefits transferred assets for less than fair market value within
2There is, however, an age limit with regard to one of the other exceptions in
subsection (d):
A trust containing the assets of an individual under age 65 who is disabled
. . . and which is established for the benefit of such individual by a parent,
grandparent, legal guardian of the individual, or a court if the State will
receive all amounts remaining in the trust upon the death of such
individual up to an amount equal to the total medical assistance paid on
behalf of the individual under a State plan under this subchapter.
42 U.S.C. § 1396p(d)(4)(A) (emphasis added); see also Olson, 676 F.3d at 701–02
(discussing the differences between § 1396p(d)(4)(A) and (C)).
12
the relevant look-back period. Id. § 1396p(c)(1)(A). If so, the applicant will
be ineligible for long-term care benefits for a penalty period. Id. “Although
an applicant is ineligible for long-term care benefits during the penalty
period, the applicant may be eligible for medical-only benefits during that
time.” In re Pooled Advocate Trust, 813 N.W.2d at 141.
There are certain transfers of assets, set out in § 1396p(c)(2), that
will not qualify as transfers for less than fair market value. These transfers
are exempt from the ineligibility and penalty period requirements. One
exception to the ineligibility requirement for long-term care benefits is a
transfer to a pooled special needs trust by an individual under the age of
sixty-five.
(c) Taking into account certain transfers of assets
....
(2) An individual shall not be ineligible for medical assistance
by reason of paragraph (1) to the extent that—
....
(B) the assets—
....
(iv) were transferred to a trust (including a trust
described in subsection (d)(4) of this section)
established solely for the benefit of an individual
under 65 years of age who is disabled (as defined
in section 1382c(a)(3) of this title)[.]
42 U.S.C. § 1396p(c)(2)(B)(iv); see also Iowa Admin. Code r. 441—
75.23(5)(b)(4). This case turns on this age limit for determining countable
assets for eligibility for long-term care benefits. The Coxes transferred over
one-half million dollars into their pooled special needs trusts after they
reached age sixty-five. They therefore missed the safe harbor this statute,
by its plain meaning, expressly limits to those under age sixty-five.
When interpreting a statute, we look first to the statute’s plain
meaning. State v. Nall, 894 N.W.2d 514, 518 (Iowa 2017). “When the text
13
of a statute is plain and its meaning clear, the court should not search for
meaning beyond the express terms of the statute . . . .” State v. Tesch, 704
N.W.2d 440, 451 (Iowa 2005) (quoting State v. Schultz, 604 N.W.2d 60, 62
(Iowa 1999)). If unambiguous, we will apply the statute as written. Nall,
894 N.W.2d at 518. We do so here.
Congress placed age limits in certain provisions for Medicaid
eligibility, and not others. “[W]here Congress includes particular language
in one section of a statute but omits it in another section of the same Act,
it is generally presumed that Congress acts intentionally and purposely in
the disparate inclusion or exclusion.” Chestnut v. Montgomery, 307 F.3d
698, 701–02 (8th Cir. 2002) (alteration in original) (quoting Russello v.
United States, 464 U.S. 16, 23, 104 S. Ct. 296, 300 (1983)); accord Oyens
Feed & Supply, Inc. v. Primebank, 808 N.W.2d 186, 193 (Iowa 2011).
“When interpreting the meaning of the statute, we give effect to all the
words in the statute unless no other construction is reasonably possible.”
Oyens, 808 N.W.2d at 193 (quoting State v. Osmundson, 546 N.W.2d 907,
910 (Iowa 1996)).
“By the omission of an age limit in the [pooled special needs trust]
paragraph of subsection (d), Congress’s intent was to permit disabled
persons over age 65 to participate in [pooled special needs] trusts.” Olson,
676 F.3d at 702. The court in Olson distinguished between an individual’s
participation in a pooled special needs trust and the individual’s
temporary disqualification from Medicaid long-term care benefits based on
that participation. Id.
Edward and Susan argue that the DHS incorrectly interpreted the
statutes relating to Medicaid eligibility and pooled special needs trusts and
improperly treated the pooled special needs trusts as countable assets for
purposes of their Medicaid long-term care eligibility determinations. The
14
amici argue that the trust provision in § 1396p(d) applies to all trust
transactions while the transfer provision of § 1396p(c) applies to all
transfers to others. For that reason, the amici contend that § 1396p(c),
which penalizes transfers of assets to pooled special needs trusts by
individuals over the age of sixty-five, would be inapplicable here.
The Eighth Circuit, the South Dakota Supreme Court, and the
Kansas Court of Appeals have already addressed the issue we face today.
We find their reasoning persuasive.
The Eighth Circuit, considering both § 1396p(c) and (d), concluded,
When all paragraphs of the statute are read together, a
disabled individual over 65 may establish a [pooled special
needs] trust, but may be subject to a delay in Medicaid
benefits. Despite the lack of an age limit within paragraph
1396p(d)(4)(C) for purposes of counting resources, Congress
intended to exempt transfers of assets into pooled [special
needs] trusts from the transfer penalty rules of subsection
1396p(c)(1) only if the transfers were by those under age 65.
Id.
The South Dakota Supreme Court reached the same conclusion. In
re Pooled Advocate Trust, 813 N.W.2d at 142. The court considered CMS’s
and the Social Security Administration’s interpretations of § 1396p(c) and
(d), finding these interpretations reasonable and that they “bolster[ed] [the
court’s] reading of the unambiguous statutory language requiring penalty
periods for transfers of assets for less than fair market value into pooled
trusts by beneficiaries age 65 or older.” Id. at 145–46. The court looked
specifically to a CMS memorandum, which stated,
Although a pooled trust may be established for beneficiaries
of any age, funds placed in a pooled trust established for an
individual age 65 or older may be subject to penalty as a
transfer of assets for less than fair market value. When a
person places funds in a trust, the person gives up ownership
of the funds. Since the individual generally does not receive
anything of comparable value in return, placing funds in a
trust is usually a transfer for less than fair market value. The
15
statute does provide an exception to imposing a transfer
penalty for funds that are placed in a trust established for a
disabled individual. However, only trusts established for a
disabled individual 64 or younger are exempt from application
of the transfer of assets penalty provisions . . . .
Id. at 144 (quoting Memorandum from Gale P. Arden, Dir. of Disabled &
Elderly Health Programs Grp., Ctr. for Medicaid & State Operations, Balt.
to Jay Gavens, Acting Assoc. Reg’l Adm’r, Div. of Medicaid & Children’s
Health (Apr. 14, 2008)). CMS’s State Medicaid Manual also provides,
Establishing an account in [a pooled trust] may or may not
constitute a transfer of assets for less than fair market value.
For example, the transfer provisions exempt from a penalty
trusts established solely for disabled individuals who are
under age 65 or for an individual’s disabled child. As a result,
a special needs trust established for a disabled individual who
is age 66 could be subject to a transfer penalty.
Id. at 145 (quoting Ctrs. for Medicare & Medicaid Servs., The State
Medicaid Manual, § 3259.7(B) [hereinafter State Medicaid Manual]). The
court concluded,
Considering the unambiguous language of the statutes,
coupled with the reasonable agency interpretations, we
conclude that transfers of assets into pooled trusts by
beneficiaries age 65 or older may be subject to a transfer
penalty period for Medicaid eligibility purposes.
Id. at 147. We give the CMS interpretation Skidmore deference under
federal law. Skidmore, 323 U.S. at 140, 65 S. Ct. at 164.
In Hutson v. Mosier, 401 P.3d 673 (Kan. Ct. App. 2017), the Kansas
Court of Appeals reached the same conclusion and, after “considering all
of the provisions of 42 U.S.C. § 1396p together rather than in isolation,”
held,
[W]e find the plain language of the statute to mean that a
person age 65 or older who transfers assets to a pooled
supplemental or special needs trust is subject to the
imposition of a transfer penalty under the rules of subsection
42 U.S.C. § 1396p(c)(1) if the transfer is for less than fair
market value.
16
Id. at 681. The court “recognize[d] that in some cases the impact of a
transfer penalty may seem harsh, [but] the imposition of such penalties
are specifically authorized by federal law as well as state regulation, and
they serve a legitimate purpose.” Id. at 682. “[P]ooled trusts are intended
to assist individuals with a relatively small amount of money who lack the
financial resources to secure long-term care.” Id. at 681–82. “They are
not intended to be vehicles for affluent individuals to use in order to divert
scarce Medicaid resources from those truly in need.” Id. at 682.
A United States District Court recently reached the same
conclusion, stating, “The text of (c)(2)(B)(iv) explicitly limits its reach to
trusts ‘established solely for the benefit of an individual under 65 years of
age.’ ” Richardson ex rel. Carlin v. Hamilton, No. 2:17–CV–00134–JAW,
2018 WL 1077275, at *16 (D. Maine Feb. 27, 2018) (quoting 42 U.S.C.
§ 1396p(c)(2)(B)(iv)), appeal docketed, No. 18–1223 (1st Cir. Mar. 22,
2018). “As such, § 1396p(c)(2)(B)(iv) does not immunize transfers of assets
into pooled special needs trusts for beneficiaries age sixty-five and older
from subsection (c)’s provisions that penalize transfers of assets for less
than market value.” Id. at *17.
We agree with the foregoing authorities. Sections 1396p(c)(2)(B)(iv)
and (d)(4)(C) are unambiguous. While an individual age sixty-five and
older may establish a pooled special needs trust, the individual may be
subject to a delay in Medicaid long-term care benefits if transfers to the
trust after the individual reached the age of sixty-five were for less than
fair market value.
Congress may have had policy reasons for penalizing such transfers
by those age sixty-five or older. Medicaid is “a payer of last resort,” and
benefits are intended for those who are truly unable to afford medical care.
In re Estate of Melby, 841 N.W.2d at 875. Congress could reasonably
17
choose to help younger disabled individuals with longer life expectancies
conserve their resources. Conversely, “Congress could have rationally
concluded that the benefits of making special needs trusts available to
elderly individuals outweighed the burden of the penalty. As it stands,
congressional intent—as exemplified by the text of the statute—is clear.”
Lewis, 685 F.3d at 352.
The DHS and the district court properly interpreted the relevant
statutory provisions with regard to pooled special needs trusts. We turn
next to the Coxes’ argument that the DHS erred when it determined the
transfers were for less than fair market value.
C. The Transfer for Less Than Fair Market Value. The Coxes
argue the DHS erred when it determined that the transfers to the pooled
special needs trusts were a disposal of assets for less than fair market
value. Specifically, they contend the DHS did not conduct an
individualized factual analysis to determine whether the deposits were
(1) a “transfer or disposal of assets” and (2) for fair market value. Iowa
Admin. Code r. 441—75.23(8). We begin with the transfer argument.
1. Transfer or disposal of assets. The Coxes argue that their
deposits into the pooled special needs trusts were not a “transfer or
disposal of assets” under Iowa Administrative Code section 441—75.23(8)
because a pooled special needs trust is not listed among the six examples
enumerated in that rule.
“Transfer or disposal of assets” means any transfer or
assignment of any legal or equitable interest in any asset as
defined above, including:
1. Giving away or selling an interest in an asset;
2. Placing an interest in an asset in a trust that is not
available to the grantor (see 75.24(2) “b” (2));
3. Removing or eliminating an interest in a jointly
owned asset in favor of other owners;
18
4. Disclaiming an inheritance of any property, interest,
or right pursuant to Iowa Code section 633.704 on or after
July 1, 2000 (see Iowa Code section 249A.3(11) “c”);
5. Failure to take a share of an estate as a surviving
spouse (also known as “taking against a will”) on or after
July 1, 2000, to the extent that the value received by taking
against the will would have exceeded the value of the
inheritance received under the will (see Iowa Code section
249A.3(11) “d”); or
6. Transferring or disclaiming the right to income not
yet received.
Id. We agree with the DHS and district court that the Coxes transferred
assets within the meaning of this rule when they moved their money into
the pooled special needs trust. The transfer falls within the plain meaning
of the rule’s first sentence, as “any transfer or assignment of any legal or
equitable interest in any asset.” Edward transferred $101,921.81 and
Susan $474,457.88 of their respective cash assets into the trust, thereby
relinquishing full control and legal title of their funds in favor of a trustee.
We will not disregard the reality of the Coxes’ transfers merely because the
rule includes a nonexhaustive list of examples without specifically naming
pooled special needs trusts.
Our conclusion complies with well-settled canons of construction.
“[W]hen a statute uses the word ‘includes’ rather than ‘means’ in defining
a term, it does not imply that items not listed fall outside the definition.”
White v. Nat’l Football League, 756 F.3d 585, 595 (8th Cir. 2014) (quoting
United States v. Whiting, 165 F.3d 631, 633 (8th Cir. 1999)); see also Am.
Eyecare, 770 N.W.2d at 837 (“Generally ‘the verb “includes” imports a
general class, some of whose particular instances are those specified in
the definition.’ ” (quoting Helvering v. Morgan’s, Inc., 293 U.S. 121, 125
n.1, 55 S. Ct. 60, 61 n.1 (1934))). To determine the meaning of “includes”
we examine the context in which it is used. Am. Eyecare, 770 N.W.2d at
837–38.
19
Here, the rule’s first sentence defines “transfer or disposal of assets”
broadly as “any transfer or assignment of any legal or equitable interest in
any asset.” Iowa Admin. Code r. 441—75.23(8). The list that follows,
introduced by the term “includes,” gives examples of the general class of
transfers covered by the rule, not a closed universe excluding types of
trusts not specifically mentioned. Moreover, the Coxes’ pooled special
needs trust falls within the transfer defined under subsection (2), “placing
an interest in an asset in a trust that is not available to the grantor.” Id.
r. 441—75.23(8)(2).
The Coxes’ contrary interpretation of rule 441—75.23(8) would
render it invalid under the supremacy clause. See Oberschachtsiek v. Iowa
Dep’t of Soc. Servs., 298 N.W.2d 302, 304 (Iowa 1980) (“State regulations
which contravene the federal regulatory scheme are invalid under the
supremacy clause.”). The Federal Medicaid Act applies to transfers into
pooled special needs trusts. See, e.g., 42 U.S.C. § 1396p(c)(2)(B)(iv). We
decline to interpret the Iowa rule in a manner that renders it void under
federal law. For these reasons, we hold the Coxes’ trusts meet the Iowa
Administrative Code’s broad definition of a “transfer or disposal of assets.”
The amici also argue that funding a trust is not a transfer and that
[n]o transfer occurs when the asset is given to a trustee—it is
still available and belongs to the applicant—but it is
transferred once it is given to a third person (or the trustee
can no longer use it for the applicant). That is when the
penalty period starts—later, after a period when the asset was
deemed available—and thus rendering the applicant ineligible
for a longer period of time.
We disagree. The South Dakota Supreme Court refuted the amici’s
argument as follows:
Under 42 U.S.C. § 1396p(d)(4)(C), a pooled trust is “[a] trust
containing the assets of an individual who is disabled . . . .”
(Emphasis added.) While parents, grandparents, legal
20
guardians, or courts may establish a pooled trust for a
disabled beneficiary, these third parties may not fund the
pooled trust with third-party assets. See 42 U.S.C.
§ 1396p(d)(4)(C)(iii). Thus, when a third party places his or
her own assets into a pooled trust for the benefit of a pooled
trust beneficiary, the trust would not qualify as a[] Medicaid
pooled trust in the first place.
In re Pooled Advocate Trust, 813 N.W.2d at 146–47.
A United States district court also rejected the amici’s argument.
Subsection (d)’s text does not support [the Main Pooled
Disability Trust’s] assertion that it governs transfers into
trusts. Subsection (d) speaks repeatedly and exclusively to
transfers from trusts—that is funds outgoing from trusts (to
beneficiaries)—not to transfers into trusts. This corresponds
to the implication from the subsection’s title—“treatment of
trust amounts.” It stands to reason that an amount does not
become a “trust amount” until it is transferred into the trust.
[The Maine Department of Health and Human Services]
penalizes transfers of funds pursuant to subsection (c) when
they are transferred—conceptually prior to the completed
transfer and deposit into the trust and conversion into “trust
amounts.”
Richardson, 2018 WL 1077275, at *16 (footnote omitted).
We find this reasoning persuasive. We conclude that Edward and
Susan’s deposits into the pooled special needs trusts constituted a
“transfer or disposal of assets.”
2. Fair market value. The Coxes argue that any transfer into the
trust was not automatically disqualifying and the DHS failed to conduct a
factual analysis to determine whether the funds placed in trust constituted
a transfer for fair market value. The Coxes ask us to determine that the
assets were transferred for fair market value rather than remanding the
case back to the DHS for fact finding.
To avoid the ineligibility period, the Coxes were required to make a
showing that
(i) the individual intended to dispose of the assets either at fair
market value, or for other valuable consideration, (ii) the
assets were transferred exclusively for a purpose other than
21
to qualify for medical assistance, or (iii) all assets transferred
for less than fair market value have been returned to the
individual.
42 U.S.C. § 1396p(c)(2)(C). 3
The Coxes argue there is no evidence that the transfers were made
for less than fair market value. The Coxes submitted proposed budgets
and argue the funds will be used to purchase items for fair market value.
The Coxes argue we should decide fair market value after the trust has
spent the money based on the value of the items the trust actually
purchases. Further, the Coxes argue that because the trustee monitors
the trust and can only use the funds for purchases for fair market value,
and because the trustee is unable to use the funds in a way that would
jeopardize the Coxes’ Medicaid eligibility, the Coxes transferred the assets
for fair market value. The Coxes cite various unpublished trial court
decisions for the proposition that the agency must conduct a factual
analysis to determine if a transfer was for less than fair market value. 4
In our view, the DHS and district court correctly determined that the
Coxes transferred their assets into the pooled trust for less than fair
market value. The Coxes admittedly gave up full control over their own
funds totaling $576,379 by placing that combined amount into the pooled
special needs trust. They will benefit as the trust pays out for their care
3An individual may also prevent the application of a penalty period if they can
show denial of eligibility would cause undue hardship. 42 U.S.C. § 1396p(c)(2)(D). The
Coxes have not argued undue hardship, and we do not reach that issue.
4Doe v. State Dep’t of Health Care Policy & Fin., No. XXXXX (Colo. Dist. Ct. July 31,
2018); Masters v. Dep’t of Human Servs., No. 2011-5372-AA (Macomb Cty., Mich. Cir. Ct.
Aug. 9, 2012); Estate of Wierzbinski v. Mich. Dep’t of Human Servs., No. 2010-4343-AA
(Macomb Cty., Mich. Cir. Ct. July 26, 2011); Beinke v. Minn. Dep’t of Human Servs., No.
CV-14-271 (Minn. Dist. Ct. June 24, 2014); Peittersen v. Minn. Dep’t of Human Servs., No.
19HA-CV-11-5630 (Minn. Dist. Ct. Oct. 2, 2012); Dziuk v. Minn. Dep’t of Human Servs.,
No. 21-CV-09-1074 (Minn. Dist. Ct. Feb. 7, 2012); Doe v. El Paso Cty. Dep’t of Human
Servs., No. SHP 2014-0929 (Colo. Office of Admin. Cts. Jan. 26, 2015); Doe (Redacted) v.
Winona Cty. Dep’t of Human Servs., No. 186029 (Minn. Dep’t of Human Servs. Mar. 13,
2017). None of these decisions are controlling.
22
over time. But future specified benefits inherently are worth less than
present full control over cash on hand.
In the proposed decision, later adopted as the final decision by the
DHS, the ALJ addressed whether the transfers were for fair market value.
The ALJ found the DHS position to be consistent with state and federal
rules and regulations.
[T]he Department agrees that any funds placed in trust for
either of the Coxes which were actually paid for his or her
benefit prior to the beginning of the applicable penalty period
should be deducted from the amount of the uncompensated
transfer which was used to calculate the penalty periods. . . .
The Department’s position on this issue is consistent with
state and federal rules and regulations and the State Medicaid
Manual and, as such, is found to be correct. As noted above,
any payments made for a beneficiary’s benefit for market
value prior to the beginning of the penalty date cannot be
considered to have been transfers for less than fair market
value. However, once the penalty periods began, all funds that
have not been used for a beneficiary’s benefit must be
considered to have been transferred for less than fair market
value. Thereafter, Medicaid law provide[s] an exception from
the penalty rules only if all assets transferred for less
than fair market value have been returned. 42 USC
[§] 1396p(c)(2)(C)(iii); 441 IAC 75.23(5)(c)(3).
In the discussion accompanying the final decision, the DHS director
agreed with the ALJ, stating, “[O]nce the penalty periods began, all funds
that have not been used for a beneficiary’s benefit must be considered to
have been transferred for less than fair market value.” The South Dakota
Supreme Court reached the same conclusion. In re Pooled Advocate Trust,
813 N.W.2d at 147.
The DHS determined that transfers to pooled special needs trusts
are per se transfers for less than fair market value. The DHS relies on
CMS interpretations to support its argument. With regard to fair market
value, CMS has stated,
23
When a person places funds in a trust, the person gives up
ownership of those funds. Since the individual generally does
not receive anything of comparable value in return, placing
funds in a trust is usually a transfer for less than fair market
value.
Ctrs. for Medicare & Medicaid Servs., Dep’t of Health & Human Servs.,
State Agency Regional Bulletin No. 2008-05 (May 12, 2008), available at
http://www.sharinglaw.net/elder/CMS-d4c.pdf.
Valuable consideration means that an individual receives in
exchange for his or her right or interest in an asset some act,
object, service, or other benefit which has a tangible and/or
intrinsic value to the individual that is roughly equivalent to
or greater than the value of the transferred asset.
State Medicaid Manual § 3258.1(A)(2). Again, we give the CMS
interpretation Skidmore deference. Skidmore, 323 U.S. at 140, 65 S. Ct.
at 164.
The DHS argues that, in considering the facts of this case, the
transfers were for less than fair market value. The DHS argues the trustee
controls how the funds are spent and the Coxes have to pay the trustee
for trust maintenance. The DHS also argues the transfers were not made
for valuable consideration because the Coxes received nothing in return
for their transfers. Finally, from a policy perspective, the DHS argues it
should be able to evaluate fair market value at the time the assets are
transferred to the trust rather than after the trust funds have been spent.
After reviewing the DHS findings in light of all of the evidence in the
record, we conclude that substantial evidence supports the DHS finding
that the transfers were made for less than fair market value. The value of
readily available assets is greater than the value of assets that are
restricted in a trust for future use. Even if the trustee were obligated to
pay out trust funds over a period of time, these funds are still worth less
than unrestricted cash. The trustee may only use the funds in the pooled
24
trusts for Edward and Susan’s care. Edward and Susan cannot later
decide to use some of the funds for other purposes such as paying for the
college tuition of their grandchildren. Also, if there are funds left in the
trust when Edward and Susan die, the trustee will keep the funds or use
the funds to reimburse the State for Medicaid expenses. The funds will
not go to the estate to pay estate debt nor will the funds go to beneficiaries
of the estate. We conclude the DHS conducted an adequate individualized
factual analysis with regard to both Edward and Susan to determine the
length of the penalty period.
IV. Disposition.
For these reasons, we affirm the judgment of the district court.
AFFIRMED.
All justices concur except Appel, J., who dissents.
25
#18–0026, Cox v. Iowa DHS
APPEL, Justice (dissenting).
I respectfully dissent.
I acknowledge, at the beginning, that the undertaking of making
sense of the Medicaid statute is no easy feat. The Act has been called “an
aggravated assault on the English language.” Friedman v. Berger, 409 F.
Supp. 1225, 1226 (S.D.N.Y. 1976). And, it has been said that the Act is
the equivalent of a “Serbonian bog . . . Where armies whole have been
sunk.” Cherry ex rel. Cherry v. Magnant, 832 F. Supp. 1271, 1273 n.4
(S.D. Ind. 1993) (quoting John Milton, Paradise Lost, bk. 2, ll.592–94
(1667)).
While I will not add to the colorful language, I will simply state that
I do not find this statute nearly as easy to penetrate as does the majority.
I take on our assignment in this case with caution. Based on my review
of the entire statutory section in context, however, I come to a different
conclusion than the majority. In any event, it is clear to me that the
questions posed in this appeal have repeatedly surfaced in administrative
appeals in a number of states with mixed results. Authoritative
clarification of the dispute would require congressional action or a
definitive interpretation from the United States Supreme Court.
I. Relationship Between Subsections d and c in 42 U.S.C.
§ 1396p.
The first interpretive question in this case is the relationship
between 42 U.S.C. § 1396p(d) (2012), entitled “Treatment of trust
amounts,” and § 1396p(c), entitled “Taking into account certain transfers
of assets.” In order to understand the relationship between these two
provisions, a close reading of the statutory language is a prerequisite.
26
The “Treatment of trust amounts” provision, § 1396p(d), is a
comprehensive provision designed to address the question of how trusts
will be treated for purposes of Medicaid eligibility. Subsection d begins
with a very broad definition indicating that an individual is considered to
have established a trust by putting any assets into the corpus. Id.
§ 1396p(d)(2)(A). The subsection then addresses two general categories of
trusts, revocable and irrevocable trusts. Id. § 1396p(3)(A)–(B).
Assets in a revocable trust are considered resources available to the
individual in determining Medicaid eligibility. Id. § 1396p(d)(3)(A)(i). And,
payments from the trust to the individual are considered income of the
individual. Id. § 1396p(d)(3)(A)(ii). In short, these provisions prohibit the
use of revocable trusts to shield assets for the purpose of Medicaid
eligibility determinations.
Assets held in an irrevocable trust are next considered in subsection
d. Id. § 1396p(d)(3)(B). To the extent that payments from the assets in an
irrevocable trust could be made for the benefit of the individual, that
portion of the corpus is considered as resources available to the individual
in making Medicaid eligibility determinations. Id. § 1396p(d)(3)(B)(i).
Further, to the extent payments are made from an irrevocable trust for the
benefit of an individual, it is considered income of that individual. Id. §
1396p(d)(3)(B)(i)(I). Conversely, if payments are made from an irrevocable
trust for any other purpose, it is considered to be an asset transferred by
the individual for purposes of subsection c. Id. § 1396p(d)(3)(B)(i)(II).
Similarly, to the extent there are portions of an irrevocable trust that
cannot be used under any circumstances to pay the individual, those
portions are considered assets disposed by the individual for purposes of
subsection c. Id. § 1396p(d)(3)(B)(ii).
 27
Subsection d thus generally eliminates the possibility of using
creative estate planning devices to achieve eligibility for Medicaid. In
particular, establishing a trust with a residual benefit for heirs, or a trust
that only conditionally removes assets from the individual’s control, will
not work as a tool to avoid restrictions on Medicaid eligibility. But there
are three exceptions to the general rule: trusts related to providing benefits
to disabled persons; trusts related to certain pension, Social Security, or
other income (commonly known as Miller trusts); and pooled trusts
established for a disabled individual. Id. § 1396p(d)(4)(A)–(C). The latter
category is germane to this litigation.
Certain pooled trusts are not subject to the unfavorable treatment
for Medicaid eligibility purposes under a number of conditions. Id.
§ 1396(d)(4)(C). These pooled trusts must contain the assets of an
individual who is disabled; be established and managed by a nonprofit
association; maintain a system of separate accounts; be maintained for
the sole benefit of individuals who are disabled; and to the extent that
amounts remaining in the beneficiary’s account upon death are not
retained by the trust, pay to the state an amount equal to the total amount
of medical assistance paid on behalf of the beneficiary. Id.
In this case, there is no dispute that the trusts qualify under
§ 1396p(d)(4)(C). So, funds in the trust that could in the future be made
payable to the benefit of the individual are not considered available for
purposes of Medicaid eligibility, and the payment of funds from the trusts
are not considered income for purposes of Medicaid eligibility.
I now turn to subsection c. It generally provides that if an
institutionalized individual disposes of assets for less than fair market
value, the individual is ineligible for medical assistance for long-term care
services during a penalty period. Id. § 1396p(c)(1)(A). The subsection
28
further provides that an individual is not ineligible for medical assistance
for long-term care under certain exceptions. One set of exceptions relates
to transfer of a home to certain family members. Id. § 1396p(c)(2)(A).
Other exceptions involve a situation where the assets were transferred to
a trust described under subsection d solely for the benefit of the
individual’s disabled child or where funds were transferred to a trust
established solely for the benefit of an individual under sixty-five years of
age who is disabled. Id. § 1396p(c)(2)(B)(iii)–(iv).
It seems to me that the best reading of the statutory provisions in
tandem is that, generally, the establishment of a pooled trust itself is not
a transfer of assets under the statute. Subsection d clearly outlines the
situations under which funds placed in trust are to be considered
(1) available to the individual for Medicaid purposes, (2) regarded as
income, or (3) considered to have been disposed of and thus subject to the
benefit-limiting provisions of subsection c. While the Medicaid statute
does not define “transfer,” I conclude that if you establish a qualifying
pooled trust, no transfer occurs. In short, I think subsection d addresses
the question of when and under what circumstances transactions
involving a pooled trust established for the benefit of the individual are
considered transfers subject to unfavorable treatment for purposes of
Medicaid eligibility.
I think this interpretation makes sense. The purpose of subsection
d is to lay out the general rules regarding the establishment of trusts for
Medicaid eligibility. In contrast, I view subsection c as designed to handle
situations where individuals seek to divest themselves of assets for the
benefit of third parties while at the same time seeking to qualify for
Medicaid long-term care benefits.
29
I understand there are contrary interpretations. In particular,
Center for Special Needs Trust Administration, Inc. v. Olson, 676 F.3d 688
(8th Cir. 2012), and In re Pooled Advocate Trust, 813 N.W.2d 130 (S.D.
2012), are consistent with the majority opinion and contrary to my
approach. These cases, however, do not seem to address the
interpretation presented here. By way of example, these courts do not
consider that, because their approach implicitly assumes that subsection
c applies to all transactions funding a trust, the treatment of assets in
§ 1396p(d)(3)(B)(ii) would be redundant under their approach. In addition,
because they assume that subsection c applies to all transactions funding
a trust, a person could simultaneously be penalized for having an available
asset and penalized under subsection c for a transfer. For instance, a
person who places money into an irrevocable trust in which the trustee
can use the money to purchase benefits for the person, i.e., a transaction
covered under § 1396p(d)(3)(B)(i), would be penalized for having an
available asset and penalized for a transfer. I read § 1396p(d)(3) as
providing for either an availability penalty or a transfer penalty, but not
both.
Finally, I do not think that those courts adequately considered the
reasons why § 1396p(c)(2)(B)(iv) may apply to transactions benefitting
others but not transactions in which an individual funds her own pooled
trust. That provision mentions “subsection (d)(4)” trusts, but the
reference, it seems to me, is included because an individual ordinarily
could not deposit resources into the pooled trust of another person without
incurring a transfer penalty under subsection c. See id.
§ 1396p(d)(3)(B)(ii). The exemption in § 1396p(c)(2)(B)(iv) allows the
individual to make such a deposit when the other person is disabled and
under age sixty-five. Olson did not evaluate that argument. In re Pooled
30
Advocate Trust, on the other hand, seems to have missed the import of the
argument in stating that third parties could never fund a pooled trust since
“a pooled trust is ‘[a] trust containing the assets of an individual who is
disabled.’ ” 813 N.W.2d at 146–47 (alteration in original) (quoting 42
U.S.C. § 1396p(d)(4)(C)). But if an individual places assets in a trust and
names another person as the beneficiary, that person ordinarily has
equitable title to the assets. Thus, an individual can fund another person’s
pooled trust and the assets in the trust can still “contain[] the assets of an
individual who is disabled.” 42 U.S.C. § 1396p(d)(4)(C).
There is one case, however, where the issues raised here have been
addressed, at least in part, and that is Richardson ex rel. Carlin v.
Hamilton, No. 2:17-CV-00134-JAW, 2018 WL 1077275, at *16 (D. Me. Feb.
27, 2018), appeal docketed, No. 18–1223 (1st Cir. Mar. 22, 2018). The
district court in Richardson decided the case adverse to the individual
establishing the trust. This case, however, is on appeal to the United
States Court of Appeals for the First Circuit.
Although it is not completely clear, it appears that the majority
opinion turns on federal rather than state law. In relying on federal law,
the majority cites Skidmore deference. See Skidmore v. Swift & Co., 323
U.S. 134, 139–40, 65 S. Ct. 161, 164 (1944). None of the parties in this
litigation claimed that Skidmore deference should be afforded to
interpretations of the statute by Centers for Medicare & Medicaid Services
(CMS). In any event, Skidmore deference is a weak rather than robust
doctrine. It turns on the ability of the agency to persuade. United States
v. Mead Corp., 533 U.S. 218, 227–28, 121 S. Ct. 2164, 2171–72 (2001). I
am not persuaded by the CMS analysis in this case and do not find that
any Skidmore deference saves the day for the State.
31
I also want to mention briefly the practical effect of the approach
adopted here. If an individual places funds in a qualified pooled trust, the
funds will be used during the lifetime of the individual only for
supplemental benefits that Medicaid authorizes to be provided without
affecting Medicaid eligibility. Upon death, if there are funds remaining in
the trust corpus not retained by the nonprofit managing the trust, the
funds are used to reimburse Medicaid for benefits provided to the
recipient. As a result, the qualified pooled trust does not put Medicaid in
an inferior position with respect to the assets, but ensures that Medicaid
is in the first position to be reimbursed for expenses in the pooled trust
that have not been expended on approved supplemental expenses.
As such, I believe that the decision of the director of the department
of human services is based upon an erroneous interpretation of 42 U.S.C.
§ 1396p(c)–(d) and that interpretation of those provisions is not clearly
vested in the agency’s discretion. Therefore, I would reverse that decision.
See Iowa Code § 17A.19(10)(c) (2016).
II. Transfer for Fair Market Value.
Even assuming the establishment of the trust in this case amounted
to a transfer under subsection c, there is a question whether the individual
establishing the trust received fair market value for the assets placed in
the trust.
It seems to me that the Coxes received fair market value for their
assets. As a result of their establishment and funding of the trust, they
received the investment and management services of a trustee and a
method for financing the provision of supplemental services that Medicaid
does not provide but does not regard payment for as income affecting
Medicaid eligibility. There is no reason to think the Coxes took a haircut
on their assets, and nothing that they have done is designed to move assets
32
to the benefit of third parties such as heirs while maintaining Medicaid
eligibility.
The Coxes provide a number of unappealed decisions in other states
where fact finders adopt a version of the position they advocate here. For
instance, in Peittersen v. Minnesota Department of Human Services, No.
19HA-CV-11-5630 (Minn. Dist. Ct. Oct. 2, 2012), the district court held
that whether an individual received fair market value for assets placed in
a pooled trust could not be determined by a per se rule. Id. at 6–7. Thus,
it rejected the approach of the majority here, namely, that the transfer of
assets into a pooled trust is per se not a transfer for fair market value
because the use of the assets is restricted. See id. To the Minnesota court,
an individualized showing is required. Id.; see also Dziuk v. Minn. Dep’t of
Human Servs., No. 21-CV-09-1074, at 2 (Minn. Dist. Ct. Feb. 7, 2012)
(holding that state offered insufficient evidence showing assets were
transferred for less than fair market value).
A different approach to fair market value was taken by the
Minnesota Department of Social Services. In Doe (Redacted) v. Winona
County Department of Human Services, No. 186029 (Minn. Dep’t Soc.
Servs. Mar. 10, 2017), a human services judge held that the time for
determining fair market value of assets deposited by a seventy-seven-year-
old individual in a pooled trust was the time the funds were deposited in
the trust. Id. at 9. The judge determined that the individual placing the
funds in the trust “gained an immediate vested equitable interest in the
trust assets, the value of which roughly equaled the value of appellant’s
interest.” Id. A similar approach was embraced by the Minnesota district
court in Beinke v. Minnesota Department of Human Services, No. CV-14-
271 (Minn. Dist. Ct. June 24, 2014). The Beinke court observed that a
seventy-two-year-old individual who placed funds in a pooled trust
33
received “the value of an equitable interest in the remaining trust assets,”
as well as the value of the managing and investing services of the trustee
and fiduciary. Id. at 8. And, in Doe v. El Paso County Department of
Human Services, Appeal No. SHP 2014-0929 (Colo. Office of Admin. Cts.
Jan. 26, 2015), an administrative law judge in Colorado held there was
nothing in the department’s regulations that required “a full and
immediate exchange of value.” Id. at 9. The Colorado administrative law
judge noted that other legally binding documents such as annuities
provide for future performance but are considered fair consideration. Id.
A Michigan administrative law judge has come to a similar result based on
similar reasoning. Estate of Wierzbinski v. Mich. Dep’t of Human Servs.,
No. 2010-4343-AA, at 5 (July 26, 2011).
The various unreported district court decisions cited above, of
course, are not binding precedent on this court. But they do suggest that
the question of fair market value of any transfer in this case is subject to
fair debate. I am inclined to believe that absent extraordinary
circumstances, the placement of assets in a qualified pooled trust is
ordinarily an exchange for fair market value because of the equitable rights
retained by the individual.
I believe that the director’s determination that the transfers were for
less than fair market value is unreasonable, arbitrary, and capricious.
Therefore, I would reverse that decision. See Iowa Code § 17A.19(10)(n).
III. Conclusion.
For the above reasons, I would reverse the decision of the district
court.