STATE OF COLORADO TAKES AN ABOUT FACE ON INDIVIDUAL RETIREMENT PLANS (IRAS), 401(K), KEOGH PLANS

 Prior to September 1, 2001, the State of Colorado treated the community spouse’s self-funded pension plan (IRA, 401K ect.) as an exempt resource.  As an exempt resource, the value of the well spouses’s IRA 401(K) or other self-funded retirement plan was not counted as a resource to determine whether the spouse in the nursing facility was eligible for Medicaid.  Effective September 1, 2001, all self-funded pensions plans such as IRA’s and 401(k) will be treated as countable resource for purposes of Medicaid eligibility. 

If the value of the self-funded retirement account, along with all other non-exempt assets, exceeds the Community Spouse Resource Allowance (CSRA), the applicant will not qualify for Medicaid benefits.  The gross value of the retirement account, less any taxes due, is the amount that will be countable as a resource, regardless of whether any monthly income is being received from the account.  If the applicant cannot verify the actual amount of taxes due on the liquidation of the retirement account, the value of the retirement account shall be determined by deducting 20 percent from the gross value of the account. 

The Department will enforce this new regulations retroactively.  Therefore, any self-funded pension plans owned by the Community Spouse that was previously exempted will be counted against the institutionalized spouse at the next redetermination date.  As a result, the institutionalized spouse will lose his or her Medicaid eligibility on the next redetermination date if the well spouse has a IRA, 401(k) or other self-funded retirement account, in excess of the CSRA.  Although the Department will apply the new regulation retroactively, the Department will not seek recovery for past eligibility periods against anyone who is disqualified at his or her next redetermination date.

Can They Do This?

It is questionable whether the new regulations issued by the State of Colorado comply with Federal law.  There is a split of authority among the states as to whether the community spouses’s retirement account should be counted as a resource under federal law. 

Mistrick v. Division of Medical Assistance and Health Services. 712 A.2d 188 {N.J.. June 8,1998).  The issue presented in Mistrick was whether an IRA in the husband's name (the community spouse) must be included as a resource for purposes of determining his wife's (the institutionalized spouse) Medicaid eligibility.  The Court held that an IRA in the community spouse's name is an includable resource for purposes of determining the institutionalized spouse's Medicaid eligibility.

The facts in Mistrick are as follows:  During his retirement, Joseph, the community spouse, received income from various sources, including his IRA.  On behalf of his institutionalized wife, Sophie, Joseph applied for Medicaid benefits.  The Medicaid application listed all assets owned by the couple jointly, as well as all assets owned individually.  Joseph listed his IRA as an asset he owned individually.  The local Medicaid agency determined that Sophie was ineligible for Medicaid benefits because Joseph's IRA was an includable resource for Medicaid eligibility purposes.  Sophie requested a fair hearing to contest the denial of Medicaid benefits.

The case was appealed to the Supreme Court of New Jersey, which observed that for purposes of SSI, 20 C.F.R. § 416.1202(a) specifically excludes a community spouse's pension plans and IRAs when determining eligibility.  Thus, the court determined that had Sophie applied for SSI, Joseph’s IRA would not be considered an available resource.  However, the Court further observed that MCCA provides that it supersedes any other provision that is inconsistent with it.  Accordingly, the Court stated, "[f]or purposes of determining medically needy or optionally categorically needy eligibility, application of a methodology "no more restrictive" than the SSI methodology set forth in 20 C.F.R. § 416.1202, which excludes IRAs, would be inconsistent with MCCA, which specifies by reference to 42 U.S.C § 1382b(a) and (d) what items are excluded from the determination of resources, without excluding IRAs."  Thus. the Court held, MCCA requires the inclusion of the community spouse's IRA in the determination of the institutionalized spouse's resources.

Keip v. Wisconsin Department of Health and Family Services. 606 N.W.2d 543 (Wis Ct. Aog.. Dec. 23. 1999).  In Keip, the Wisconsin Court of Appeals held that a community spouse's IRA is not an includable asset for Medicaid eligibility purposes and reversed the local Medicaid agency's determination to deny Walter Keip Medicaid benefits.

When Caryl Keip retired, she rolled her employee pension into an IRA.  Several months thereafter, Caryl began the Medicaid application process on her husband's behalf.  She learned that the local Medicaid agency intended to count her IRA as an asset in determining Walter's Medicaid eligibility and that inclusion of the IRA would render Walter ineligible for benefits.  The Keips requested a fair hearing.

The spousal impoverishment provisions relevant to this case are at 42 U.S.C. § 1396r-5 (1994).  As in Mistrick, the petitioners in Keip relied on 20 C.F.R. 416.1202, which concerns the deeming of resources under SSI and states that pension funds that the community spouse may own are excluded in determining the institutionalized spouse's eligibility.  The Court observed that Wisconsin's Medicaid eligibility criteria may not be more restrictive than federal SSI eligibility requirements.  Furthermore, the Court held that the relevant provisions of the spousal impoverishment law are ambiguous with respect to whether the exclusion under SSI regulations applies under the subsequently enacted spousal impoverishment provisions.  The Court concluded that a reasonable interpretation of 42 U.5.C., 1396r-5 holds that the statute does not remove the exclusion for an IRA held by a community spouse when an institutionalized spouse applied for Medicaid benefits.  Thus, the Court found that the Federal spousal impoverishment provisions did not require the inclusion of a community spouse's IRA as an asset when determining the institutionalized spouse's Medicaid eligibility.  The Court further found that Congress did not intend to make it more difficult for a community spouse to remain self-sufficient by requiring that spouse spend down or diminish the value of the IRA to render the institutionalized spouse eligible for Medicaid.

An Ohio court rules that an IRA from which a community spouse is receiving minimum distributions is converted to income and is thus not countable as a resource for purposes of her husband’’s Medicaid application Sauer v. Ohio Department of Job and Family Services (Ct. Comm. Pleas, Ham. City., No. A 0102992, Dec. 11, 2001).

Raymond Sauer entered a nursing home in July 1999. Approximately one year later, Mr. Sauer applied to the Hamilton County Department of Job and Family Services for Medicaid benefits. On November 6, 2000, the Department denied his application, finding that $103,148 in the IRA account of his wife, Dolores, was a countable resource. At the time, Mrs. Sauer was receiving distributions from her IRA. On the advice of a Department caseworker, Mrs. Sauer then used her IRA funds to purchase an irrevocable annuity that paid monthly installments for five years. Mr. Sauer applied again for Medicaid on December 13, 200. This time, the Department ruled he was ineligible through March 31, 2003, finding that the purchase of the annuity was an improper transfer of countable resources. Mr. Sauer appealed the denial of both applications. When the denials were affirmed at the administrative level, Mr. Sauer sought judicial review. He died after the appeal was filed, and Mrs. Sauer prosecuted the case as executor of his estate.

The Hamilton County Court of Common Pleas rules that the Department erred in counting Mrs. Sauer’’s IRA as a resource. The court rejects the Department’’s reasoning that the IRA funds should be regarded as a resource because Mrs. Sauer was receiving only the minimum distributions allowed and so was not availing herself of all potential income. Although finding that an IRA is a resource if a lump sum can be withdrawn, the court notes that Ohio statutes compel an individual to choose periodic payments provided that option is available. The court holds that by mandating periodic payments, Ohio law indicates an intent to regard retirement funds as a source of income. ““Forcing the CS [community spouse] to spend down this resource would reduce the income available for the support of the CS, which would frustrate the purpose of the MCCA [Medicare Catastrophic Coverage Act of 1988],”” the court writes. The court’’s decision moots the appeal of the second application denial.

YOUR ACTION PLAN

If one spouse is already receiving Medicaid benefits, it will be critical that the couple take action prior to their next redetermination date.  If the well spouse does not take action by the next redetermination date, the spouse in the institution will lose his or her Medicaid coverage.

There are several options to protect the well spouse’s retirement account.  To take advantage of these options, it is critical that couples start the planning process as soon as possible.  Contact the Law Offices of Bradley J. Frigon to learn about the best option for your situation.