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Medicaid Annuity Report

November 2009



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Annuity Purchase by Community Spouse upheld in Federal Appeals Court Decision

Written By: Attorney Jeffrey A. Marshall, CELA*

In a much anticipated decision, the Federal 3rd Circuit Court of Appeals has affirmed the lower court ruling in Weatherbee v. Richman. The lower court had allowed a community spouse to purchase a DRA annuity[1] to protect savings from the costs of her husband's nursing home care.

When her husband entered a nursing home, Adeline A. Weatherbee purchased a DRA compliant annuity for approximately $400,000. It paid her $4,423 per month in income. Her husband then applied for Medical Assistance to help pay for the cost of his care.

The Department of Public Welfare (DPW) denied the requested benefits. DPW took the position that under the Deficit Reduction Act (DRA) and Pennsylvania's Act 42, the $4,423 in monthly payments Adeline received was an available resource that she could sell. Thus, DPW argued, Mrs. Weatherbee had too much in the way of resources for Mr. Weatherbee to qualify for Medical Assistance with his nursing home costs.

The lower court in Weatherbee rejected DPW's arguments and precluded it from denying the requested benefits. The Court found that DPW's interpretation of the DRA was unreasonable. The provision of the DRA upon which DPW was relying to deny eligibility "is unambiguous and does not support DPW's reading of it."

In addition, the lower court found that "the Pennsylvania statute upon which the DPW relies [62 PA.STAT.ANN § 441.6(b)] in treating the income from an otherwise compliant annuity as an available resource is inconsistent with the treatment of annuities under the Medicaid Act." Thus, section 441.6(b), which attempts to void anti-assignment provisions in annuities, is preempted by the Medicaid Act.

DPW refused to accept the Federal District Court 's decision and appealed the case to the 3rd Circuit Court of Appeals. On November 12th, the Appeals Court issued its opinion. The Appeals Court opinion fully affirms the decision made by the lower court.

In affirming the lower court, the 3rd Circuit Court of Appeals found that:

(1) The Deficit Reduction Act did not change the longstanding rule that a community spouse's income is not available to an institutionalized spouse (42 U.S.C. §1396r-5). Contrary to DPW's arguments, 42 U.S.C. §1396p(e)(4) provides no basis by which DPW may deny eligibility for benefits where the annuity otherwise complies with the law.

(2) As it decided in James v. Richman, there is no merit to DPW's assertion that the annuity was a resource because it could be sold on a secondary market. (Lead counsel on the James v. Richman case was Matthew Parker, CELA* who is President of PCM).

(3) The state law relied upon by DPW (62 P.S.§441.6(b)) is preempted by federal law.


Since 1994 federal law has allowed a community spouse to purchase a properly structured immediate annuity in order to accelerate qualification for Medicaid and protect assets from the cost of long term care.[2] Although states are supposed to follow federal law, officials at the Pennsylvania Department of Public Welfare (DPW) have nevertheless long attempted to prevent or discourage this type of "Medicaid Planning." These attempts have failed. Six separate federal and state courts have now considered the legality of the various procedures used by DPW to limit community spouse annuity purchases. [3] Every one of these courts has found that the DPW limitations violate federal law.

As a result of effective advocacy by elder law attorneys in these cases,[4] it appears that in Pennsylvania , at least, a community spouse can purchase a DRA compliant annuity of unlimited value to convert excess resources into protected income. Pennsylvania lawyers can get more information on DRA annuities and assistance with their purchase by contacting Pennsylvania Care Management.

Attorney Marshall can be contacted at webmail@paelderlaw.com or at 1-800-401-4552. More information about Attorney Marshall is available at www.paelderlaw.com/staff.html

PCM helps attorneys obtain the right annuity products to meet their client's long term care planning needs. Unlike other annuity providers, PCM specializes in serving only Pennsylvania attorneys and their clients. For over ten years PCM has been the Pennsylvania lawyer's trusted resource for Medicaid annuities. It is the premier source for fast, efficient, competent, trustworthy, Pennsylvania-specific Medicaid annuity services.

Don't Miss Upcoming CLE Presentations on Medicaid Annuities

PBI Elder Law Update
Wednesday, November 19, 2009 in Philadelphia

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Attorney Tammy Weber from Marshall , Parker & Associates will serve on the faculty for this Wednesday's Elder Law Update. In her session, Planning Tips & Technique Updates, she will discuss using annuities in Medicaid planning and the new ruling just handed down in Weatherbee.

Philadelphia County Elder Law Committee Meeting

April 29, 2010 12:00 PM- 2:00 PM, Philadelphia Bar Association Building, Philadelphia

Attorney Parker will update members of the Philadelphia Bar Association about using Medicaid Annuities in their practice.

For more detailed information on how to use DRA annuities to benefit your clients, Pennsylvania attorneys may consult the PCM website, www.paannuity.com or contact PCM at 570-326-1890 or webmail@paannuity.com.


If you would like to be added or removed from our mailing list, please e-mail PCM at webmail@paannuity.com.


*Attorneys Marshall and Parker are Certified as Elder Law Attorneys by the National Elder Law Foundation.

[1] DRA annuities are specially structured immediate annuities that comply with the requirements of the Deficit Reduction Act of 2005. PCM is a leading provider of DRA compliant annuities to the clients of Pennsylvania lawyers.

[2] In State Medicaid Manual, Health Care Financing Administration Pub. No. 45-3, Transmittal 64, §3258 (November 1994) the federal government provided instructions to Medicaid caseworkers at the state level regarding the treatment of annuities. Federal guidelines like Transmittal 64, although not a statute or a regulation, are entitled to deference by the courts as long as it is "consistent with the plain language and purposes of the statute and if [it is] consistent with prior administrative views." Cleary v. Waldman, 167 F.3d 801, 808 (3d Cir. 1999).

[3] Mertz v. Houstoun, 155 F. Supp. 2d 415 (E.D. Pa. 2001); James v. Richman, 465 F.Supp.2d 395 (M.D. Pa. 2006), aff’d 547 F.3d 214 (3d Cir. 2008); Ross v. DPW, 936 A.2d 552 (2007 Pa.Commw); Weatherbee v. Richman, 595 F. Supp. 2d 607 (W.D.Pa.2009); aff’d ___F,3d___ (3dCir. 2009).

[4] The attorneys who handled these cases are Stanley Vasiliadis, Matthew Parker, John Payne, and Kemp Scales.



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