RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 13a0308p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
Plaintiffs-Appellants, -
CAROLE L. HUGHES; HARRY HUGHES,
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No. 12-3765
v.
,
>
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Defendant-Appellee. -
JOHN B. MCCARTHY, Medicaid Director,
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Appeal from the United States District Court
for the Northern District of Ohio at Akron.
No. 5:10-cv-01781—Benita Y. Pearson, District Judge.
Argued: March 7, 2013
Decided and Filed: October 25, 2013
Before: KETHLEDGE, WHITE, and STRANCH, Circuit Judges.*
_________________
COUNSEL
ARGUED: William J. Browning, BROWNING, MEYER & BALL, CO. LPA,
Worthington, Ohio, for Appellants. Rebecca L. Thomas, OFFICE OF THE OHIO
ATTORNEY GENERAL, Columbus, Ohio, for Appellee. ON BRIEF: William J.
Browning, BROWNING, MEYER & BALL, CO. LPA, Worthington, Ohio, for
Appellants. Rebecca L. Thomas, OFFICE OF THE OHIO ATTORNEY GENERAL,
Columbus, Ohio, for Appellee. René H. Reixach, WOODS OVIATT GILMAN LLP,
Rochester, New York, Eugene P. Whetzel, OHIO STATE BAR ASSOCIATION,
Columbus, Ohio, Howard S. Scher, UNITED STATES DEPARTMENT OF HEALTH
AND HUMAN SERVICES, Washington, D.C., for Amici Curiae.
*
We amend the caption as reflected in this opinion.
1
No. 12-3765 Hughes, et al. v. McCarthy Page 2
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OPINION
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HELENE N. WHITE, Circuit Judge. Plaintiffs Carole and Harry Hughes
(collectively, the Hugheses), a nursing home resident and her community spouse, appeal
the district court’s grant of summary judgment in favor of the director of the Ohio
Department of Job and Family Services (ODJFS or the Ohio agency),1 holding that the
Ohio agency properly penalized Mrs. Hughes based on Mr. Hughes’s purchase of an
annuity for himself with funds from his IRA account. The district court held that
42 U.S.C. § 1396r-5(f)(1)2 precluded the transfer of assets because it exceeded Mr.
Hughes’s community spouse resource allowance (CSRA). Because the transfer occurred
before the Ohio agency determined that Mrs. Hughes was eligible for Medicaid coverage
and § 1396p(c)(2)(B)(i) permits an unlimited transfer of assets “to another for the sole
benefit of the individual’s spouse,” we REVERSE.
I.
A.
Congress established the Medicaid program in 1965 to provide federal and state
funding of medical care for individuals who cannot afford to cover their own medical
costs. See Social Security Amendments of 1965, Title XIX, Grants to States for Medical
Assistance Programs, Pub. L. No. 89–97, 79 Stat. 286, 343–52 (codified as amended at
1
Since this case’s inception, ODJFS has been reorganized. The duties and legal responsibilities
of the director of ODJFS have been transferred to the state Medicaid director. See Am. Sub. H.B. No. 59,
2013 Ohio Laws 25 (provisions to be codified). In this opinion, we refer to the state Medicaid agency as
the Ohio agency.
2
This provision reads:
An institutionalized spouse may, without regard to section 1396p(c)(1) . . . , transfer an
amount equal to the community spouse resource allowance . . . , but only to the extent
the resources of the institutionalized spouse are transferred to (or for the sole benefit of)
the community spouse. The transfer under the preceding sentence shall be made as soon
as practicable after the date of the initial determination of eligibility . . . .
42 U.S.C. § 1396r-5(f)(1).
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42 U.S.C. §§ 1396–1396w-5); Harris v. McRae, 448 U.S. 297, 301 (1980). The program
is administered by the Secretary of Health and Human Services (HHS or the federal
agency), who in turn exercises her authority through the Centers for Medicare and
Medicaid Services (CMS).3 To implement the program, “[e]ach participating State
develops a plan containing reasonable standards . . . for determining eligibility for and
the extent of medical assistance within boundaries set by the Medicaid statute[s] and the
Secretary of [HHS].” Wis. Dep’t of Health & Family Servs. v. Blumer, 534 U.S. 473,
479 (2002) (internal quotation marks omitted); see 42 U.S.C. § 1396a(17).
In 1988, Congress passed the Medicare Catastrophic Coverage Act (MCCA),
Pub. L. No. 100–360, 102 Stat. 683, “to protect community spouses from ‘pauperization’
while preventing financially secure couples from obtaining Medicaid assistance. To
achieve this aim, Congress installed a set of intricate and interlocking requirements with
which States must comply in allocating a couple’s income and resources.” Blumer,
534 U.S. at 480 (internal citation and parenthetical omitted). In particular, the MCCA
allows the community spouse to keep a portion of the couple’s assets—the
CSRA—without affecting the institutionalized spouse’s Medicaid eligibility.4 See
42 U.S.C. § 1396r-5(c)(2), (f)(2)(A). As the first step in determining the CSRA, the total
of all the couple’s resources is calculated as of the time the institutionalized spouse’s
institutionalization began; half of that total is allocated to each spouse (the spousal
share). Id. § 1396r-5(c)(1)(A). Once the spousal share is determined, the CSRA is
calculated by measuring the spousal share allocated to the community spouse against a
statutory formula, which is further defined under each state plan, and subject to a ceiling
and floor indexed for inflation. Id. § 1396r-5(c)(2)(B), (f)(2), (g).
“The CSRA is considered unavailable to the institutionalized spouse in the
eligibility determination, but all resources above the CSRA (excluding a small sum set
3
Until 2001, CMS was known as the Health Care Financing Administration. See CMS; State of
Organization, Functions and Delegations of Authority; Reorganization Order, 66 Fed. Reg. 35437-03 (July
5, 2001).
4
As relevant here, the term “institutionalized spouse” means an individual who is in a nursing
facility and is married to a spouse who is not in a nursing facility. The term “community spouse” means
the spouse of an institutionalized spouse. 42 U.S.C. § 1396r-5(h)(1)–(2).
No. 12-3765 Hughes, et al. v. McCarthy Page 4
aside as a personal allowance for the institutionalized spouse . . . ) must be spent before
eligibility can be achieved.” Blumer, 534 U.S. at 482–83 (citing 42 U.S.C. § 1396r-
5(c)(2)). However, a community spouse’s income is not considered available to the
institutionalized spouse for eligibility purposes, except in limited circumstances.
See 42 U.S.C. § 1396r-5(b). Moreover, “after the month in which an institutionalized
spouse is determined to be eligible for benefits . . . , no resources of the community
spouse shall be deemed available to the institutionalized spouse.” Id. § 1396r-5(c)(4).
B.
A state plan must “comply with the provisions of [§] 1396p . . . with respect to
liens, adjustments and recoveries of medical assistance correctly paid,[] transfers of
assets, and treatment of certain trusts.” 42 U.S.C. § 1396a(18) (internal footnote
omitted). Paragraph (1) of § 1396p(c) requires (in relevant part) that a state plan “must
provide that if an institutionalized individual or the spouse of such an individual . . .
disposes of assets for less than fair market value on or after the look-back date” (which,
as relevant here, is defined as thirty-six months prior to the first date on which the
institutionalized spouse applies for Medicaid assistance), “the individual is ineligible for
medical assistance for services” (such as coverage for nursing home costs) for the
numbers of months that the assets would have covered the average monthly cost of such
services. Id. § 1396p(c)(1)(A); see id. § 1396p(c)(1)(B)(i)–(ii), (C)(i)(I), (D)(ii), (E)(i).
In other words, even if the institutionalized spouse is eligible for Medicaid
coverage after spending down her assets, § 1396p(c) requires a state to impose a transfer
penalty (a period of restricted coverage) if either spouse disposed of assets for less than
fair market value during the look-back period. However, the transfer penalties under
paragraph (1) do not apply in certain circumstances. As relevant here: “An individual
shall not be ineligible for medical assistance by reason of paragraph (1) to the extent
that . . . (B) the assets [] (i) were transferred to the individual’s spouse or to another for
the sole benefit of the individual’s spouse[.]” Id. § 1396p(c)(2)(B)(i). Congress
amended § 1396p(c)(2)(B) to its current form in 1993. See Omnibus Budget
No. 12-3765 Hughes, et al. v. McCarthy Page 5
Reconciliation Act (OBRA) of 1993, Pub. L. No. 103–66, § 13611(a)(2), 107 Stat. 312;
MCCA of 1988, Pub. L. No. 100–360, § 303(b), 102 Stat. 683.
Congress later passed the Deficit Reduction Act of 2005 (DRA), Pub. L. No.
109–171, 120 Stat. 4, 62–64, as amended by the Tax Relief and Health Care Act of 2006,
Pub. L. No. 109–432, 120 Stat. 2922, 2998, which added provisions to paragraph
(1) concerning whether the purchase of certain annuities should be deemed transfers for
less than fair market value. See 42 U.S.C. § 1396p(c)(1)(F), (G). Congress did not,
however, amend § 1396p(c)(2)(B) with the DRA’s enactment.
II.
A.
Mrs. Hughes entered a nursing home in 2005. For nearly four years, Mr. Hughes
paid for his wife’s nursing home costs using the couple’s resources, which largely
consisted of funds from his IRA account. In June 2009, about three months before Mrs.
Hughes applied for Medicaid coverage, Mr. Hughes purchased a $175,000 immediate
single-premium annuity for himself using funds from his IRA account. The annuity
guarantees monthly payments of $1,728.42 to Mr. Hughes from June 2009 to January
2019, totaling nine years and seven months, which is commensurate with Mr. Hughes’s
undisputed actuarial life expectancy. Combined with other retirement income, the
annuity increased Mr. Hughes’s monthly income to $3460.64 after the annuity took
effect. In the event of Mr. Hughes’s death, Mrs. Hughes is the first contingent
beneficiary and the Ohio agency is “the remainder beneficiary for the total amount of
medical assistance furnished to annuitant[’s] spouse, [Mrs.] Hughes.”
Mrs. Hughes applied for Medicaid coverage in September 2009. In December
2009, the Stark County division of the Ohio agency issued a notice that she was eligible
for Medicaid as of the month of her application. However, the Ohio agency placed her
on restricted coverage from September 2009 to June 2010, deeming her ineligible for
coverage of nursing home costs for that time period because of Mr. Hughes’s annuity
purchase.
No. 12-3765 Hughes, et al. v. McCarthy Page 6
The Ohio agency determined that Mr. Hughes’s annuity purchase was an
improper transfer because he used a community resource (the IRA account) in an amount
that exceeded his CSRA of $109,560 and because the annuity failed to name Ohio as the
first contingent beneficiary. Thus, the Ohio agency placed Mrs. Hughes on restricted
coverage for approximately ten months, the number of months that the difference
between Mr. Hughes’s CSRA and the annuity would have paid for nursing home costs.
The Hugheses appealed the decision. The Ohio agency affirmed in a state-hearing and
administrative-appeal level decision. State-court proceedings have been stayed pending
this case’s resolution.
B.
In August 2010, the Hugheses filed this case under 42 U.S.C. § 1983, alleging
that the Ohio agency violated the federal Medicaid statutes, including
§ 1396p(c)(2)(B)(i), when it placed Mrs. Hughes on restricted coverage due to Mr.
Hughes’s purchase of an annuity with funds from his IRA account.5 They claimed, inter
alia, that the Medicaid statutes grant them the right to purchase an actuarially-sound6
immediate single-premium annuity for the sole benefit of the community spouse.
The district court granted summary judgment in favor of the Ohio agency and
denied the Hugheses’ request for injunctive relief. See Hughes v. Colbert, 872 F. Supp.
2d 612 (N.D. Ohio 2012).7 Notwithstanding the Hugheses’ argument that
§ 1396p(c)(2)(B)(i) allows an institutionalized spouse to transfer unlimited assets to her
community spouse without the transaction being considered an improper transfer, the
5
The Hugheses were originally joined by another couple as plaintiffs, who are no longer parties
to this action.
6
An annuity is actuarially sound where the entire expected return from the annuity is
commensurate with a reasonable estimate of the annuitant’s expected lifetime, as determined by the
actuarial tables published by the Office of the Actuary of the Social Security Administration. See State
Medicaid Manual § 3258.9(B).
7
The district court rejected the Ohio agency’s argument that the court should abstain from
exercising jurisdiction over this case pursuant to the Younger abstention doctrine, and ruled that the
Medicaid statutes cited by the Hugheses conferred enforceable rights under § 1983. The Ohio agency does
not contest these rulings, and neither issue affects our jurisdiction. Further, the Hugheses do not challenge
the district court’s dismissal of their equal protection claim or their claim that certain Ohio Medicaid
regulations are preempted by Federal law. We deem these issues abandoned.
No. 12-3765 Hughes, et al. v. McCarthy Page 7
court ruled that § 1396r-5(f)(1) precludes the transfer of assets to the community spouse
that exceeds the CSRA and applies to the pre-eligibility transfer at issue here; and that
§ 1396r-5’s supersession clause “requires resolution of any inconsistency between
[§ 1396r-5(f)(1)] and § 1396p(c)(2)(B) in the former clause’s favor.” Id. at 622–23. The
Hugheses timely appealed.
III.
A.
We review de novo the district court’s grant of summary judgment, as well as its
interpretation of federal statutes. Cnty. of Oakland v. Fed. Hous. Fin. Agency, 716 F.3d
935, 939 (6th Cir. 2013). In reviewing questions of statutory interpretation, we employ
a three-step framework:
[F]irst, a natural reading of the full text; second, the common-law
meaning of the statutory terms; and finally, consideration of the statutory
and legislative history for guidance. The natural reading of the full text
requires that we examine the statute for its plain meaning, including the
language and design of the statute as a whole. If the statutory language
is not clear, we may examine the relevant legislative history.
Elgharib v. Napolitano, 600 F.3d 597, 601 (6th Cir. 2010) (citations and internal
quotation marks omitted).
To the extent that HHS has issued guidance on the federal Medicaid statutes in
the form of opinion letters, an agency manual, and an amicus brief that lack the force
law, its statutory interpretations are not afforded deference under Chevron U.S.A. Inc.
v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), but “are ‘entitled to
respect’ under . . . Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944), . . . only to the
extent that those interpretations have the ‘power to persuade[.]’” Christensen v. Harris
Cnty., 529 U.S. 576, 587 (2000) (internal citation altered); see In re Carter, 553 F.3d
979, 987–88 (6th Cir. 2009) (applying Skidmore to the amicus brief filed by a federal
agency charged with administering a statutory scheme); Caremark, Inc. v. Goetz,
No. 12-3765 Hughes, et al. v. McCarthy Page 8
480 F.3d 779, 787 (6th Cir. 2007) (applying Skidmore to interpretations of Medicaid
statutes set forth by CMS).
B.
The primary issue on appeal is whether the transfer of a community resource to
purchase an annuity for the community spouse’s sole benefit, which transfer is done after
the institutionalized spouse is institutionalized but before the institutionalized spouse’s
Medicaid eligibility is determined, can be deemed an improper transfer under 42 U.S.C.
§ 1396r-5(f)(1), even though § 1396p(c)(2)(B)(i) allows a transfer of assets “to another
for the sole benefit of the individual’s spouse.”8 The district court accepted the Ohio
agency’s argument that a transfer of assets that exceeds the CSRA, even if made before
the Ohio agency determined that Mrs. Hughes was eligible for Medicaid coverage, was
improper under 42 U.S.C. § 1396r-5(f)(1) and that this provision supersedes
§ 1396p(c)(2)(B)(i) per the MCCA supersession clause, § 1396r-5(a)(1).
We reject the district court’s approach. Section 1396r-5(f)(1) reads:
An institutionalized spouse may, without regard to section 1396p(c)(1)
. . . , transfer an amount equal to the community spouse resource
allowance . . . , but only to the extent the resources of the
institutionalized spouse are transferred to (or for the sole benefit of) the
community spouse. The transfer under the preceding sentence shall be
made as soon as practicable after the date of the initial determination of
eligibility . . . .
42 U.S.C. § 1396r-5(f)(1).
The provision begins in permissive, not prohibitive, terms. The Ohio agency
acknowledges that “the first sentence tells us that a transfer to the community spouse up
to the CSRA is allowed.” That same sentence states that such transfer is permitted
8
The Ohio agency concedes that Mr. Hughes’s annuity was not a countable resource in
determining his wife’s Medicaid eligibility. Indeed, the Ohio agency determined that Mrs. Hughes was
eligible for Medicaid, but placed her on restricted coverage because it deemed improper the transfer of
funds from Mr. Hughes’s IRA account to purchase the annuity. Thus, we need not decide the question
whether the annuity may be considered a countable resource in the initial eligibility determination. See
Lopes v. Dep’t of Soc. Servs., 696 F.3d 180, 188 (2d Cir. 2012) (holding that the payment stream from a
non-assignable annuity is not a resource for purposes of determining Medicaid eligibility); Morris v. Okla.
Dep’t of Human Servs., 685 F.3d 925, 932–33 & n.5 (10th Cir. 2012) (collecting case-law).
No. 12-3765 Hughes, et al. v. McCarthy Page 9
notwithstanding § 1396p(c)(1), which governs transfer penalties. The next sentence
provides that this permitted transfer “shall be made as soon as practicable after the date
of the initial determination of eligibility.” (emphasis added). It does not say anything
about a transfer made before the initial determination of eligibility, let alone that any
pre-eligibility transfer that exceeds the CSRA is subject to a transfer penalty.
Tellingly, § 1396r-5(f)(1) is a CSRA provision. It does not appear within
§ 1396p(c)(1)’s framework, which imposes restricted coverage for the disposal of assets
for less than fair market value during the look-back period. Even assuming that § 1396r-
5(f)(1) provides authority for a state to impose a period of ineligibility for a transfer that
exceeds the CSRA,9 the statutory language and its relationship with § 1396p(c) do not
support the Ohio agency’s argument that § 1396r-5(f)(1) controls a transfer made before
Medicaid eligibility is established. Thus, § 1396r-5(f)(1) does not supersede
§ 1396p(c)(2)(B)(i) for pre-eligibility transfers because there is no inconsistency
between the provisions.
On this point, we join the Tenth’s Circuit’s holding: “To avoid rendering
§ 1396p(c)(2)(B)(i) superfluous, we agree that it and § 1396r-5(f)(1) must be read to
operate at distinct temporal periods: one period during which unlimited spousal transfers
are permitted, and one period during which transfers may not exceed the CSRA.”
Morris v. Okla. Dep’t of Human Servs., 685 F.3d 925, 935 (10th Cir. 2012). When
assets are transferred “to the individual’s spouse or to another for the sole benefit of the
individual’s spouse,” 42 U.S.C. § 1396p(c)(2)(B)(i), before the institutionalized spouse
is determined eligible for Medicaid coverage, “the unlimited transfer provision of
§ 1396p(c)(2) controls, and [a] transfer penalty [is] improper [under § 1396r-5(f)(1)].”10
Morris, 685 F.3d at 938.
9
“A State . . . may not provide for any period of ineligibility for an individual due to transfer of
resources for less than fair market value except in accordance with this subsection [(i.e., § 1396p(c))].”
42 U.S.C. § 1396p(c)(4). The provisions therein do not expressly include penalties for a transfer that
exceeds the CSRA.
10
The Supreme Court also has referenced § 1396r-5(f)(1) with a post-eligibility understanding.
See Blumer, 534 U.S. at 482 n.5.
No. 12-3765 Hughes, et al. v. McCarthy Page 10
In response to Morris’s holding, the Ohio agency asks us to follow an
unpublished district court opinion, Burkholder v. Lumpkin, No. 3:09-cv-1878, 2010 WL
522843 (N.D. Ohio Feb. 9, 2010). But Burkholder does not support its position because,
in that case, the district court held that “§ 1396r-5(f) supersedes § 1396p(c)(2) where . . .
the transfer of assets from the institutionalized spouse to the community spouse occurs
after the initial eligibility determination.” Id. at *7. By contrast, the Ohio agency seeks
to impose a penalty for a transfer that occurred before it found Mrs. Hughes eligible for
coverage.
Further, the two primary state-court cases the Ohio agency cites in
support—Feldman v. Department of Children & Families, 919 So.2d 512 (Fla. Dist. Ct.
App. 2005), and McNamara v. Ohio Department of Human Services, 744 N.E.2d 1216
(Ohio Ct. App. 2000)—are unpersuasive.11 Neither state-court decision engages in any
meaningful analysis of the statutory text. Indeed, one commentator has noted that such
rulings are “inconsistent with statutory authority” and based on “antipathy” toward
alleged sheltering of assets. Eric M. Carlson, Long-Term Care Advocacy
§ 7.12(5)(e)(ii)(A) (Matthew Bender 2012). “Policy [rationales] cannot prevail over the
text of a statute.” Tran v. Gonzales, 447 F.3d 937, 941 (6th Cir. 2006).
Our reading of the statute is supported by HHS’s guidance. In its amicus brief,
HHS explains that § 1396r-5(f)(1) “has nothing to say about the inter-spousal transfers
that are permissible before a determination of eligibility.” The federal agency’s State
Medicaid Manual confirms that § 1396r-5(f)(1) applies to post-eligibility reallocation
of resources and that § 1396p(c)(2)(B)(i) permits transfers to a third party for the sole
benefit of the individual’s spouse. See State Medicaid Manual §§ 3258.11, 3262.4.
HHS has taken the same position in a series of opinion letters issued to state plan
administrators and to the public, reasoning that § 1396r-5(f)(1) does not conflict with,
and thus does not supersede, § 1396p(c)(2)(B), as the two provisions apply to different
situations, before and after eligibility is established; and that permitting inter-spousal
11
Unlike this case, the at-issue financial product in McNamara was an “annuitized” trust rather
than a standard commercial annuity. See 744 N.E.2d at 1221.
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transfers under § 1396p(c)(2)(B) does not render § 1396r-5(f)(1) a nullity, as the latter
provision still has meaning with respect to resource allocation after eligibility is
established. We agree with amici curiae, the National Academy of Elder Law Attorneys
and the Ohio State Bar Association (who appear in support of the Hugheses), that HHS’s
view on this issue represents a “well thought out explanation of the differences between
these two statutes” and thus is due respect under Skidmore.
The Ohio agency argues that Congress intended a different result, one that would
subordinate § 1396p(c)(2)(B)(i) to § 1396r-5(f)(1)’s CSRA transfer cap. But the
statutory text does not provide any indication of such an intent for the reasons described.
Moreover, the legislative history does not support the Ohio agency’s contention. A
Senate amendment to H.R. 2264 (the bill that ultimately became OBRA, which enacted
§ 1396p(c)(2)(B)(i)) would have subjected the unlimited-transfer provision to § 1396r-
5(f)(1)’s CSRA transfer cap. See 139 Cong. Rec. 7913-01, 7986 (1993) (bill passes the
Senate with amendment); id. at 8013 (amending § 1396p(c)(2)(B)(i) to provide that
“(B) the resources-(i) were transferred to the individual’s spouse or to another for the
sole benefit of the individual’s spouse and did not exceed the amount permitted under
section 1924(f)(1)” (emphasis added)). In a conference report, the House of
Representatives receded from its disagreement with the Senate amendment, but
nevertheless offered substitute language that dropped the reference to § 1396r-5(f)(1),
and provided the current language of § 1396p(c)(2)(B)(i), which was adopted. H.R. Rep.
103-213, at 1, 324 (1993) (Conf. Rep.), reprinted in 1993 U.S.C.C.A.N. 1088. That
Congress declined to adopt language supporting the very construction of
§ 1396p(c)(2)(B)(i) that the Ohio agency now advances is a “compelling” indication
of its intent not to subordinate § 1396p(c)(2)(B)(i) to § 1396r-5(f)(1). INS v.
Cardoza-Fonseca, 480 U.S. 421, 442–43 (1987) (“Few principles of statutory
construction are more compelling than the proposition that Congress does not intend sub
silentio to enact statutory language that it has earlier discarded in favor of other
language.” (internal quotation marks omitted)).
No. 12-3765 Hughes, et al. v. McCarthy Page 12
C.
The Ohio agency raises two alternate grounds for affirmance. To the extent it did
not raise the issues before the district court, we address them to promote finality in this
litigation, as the issues require no further factual development and have been sufficiently
presented for our review. See In re Morris, 260 F.3d 654, 664 (6th Cir. 2001).
1. Section 1396p(c)(2)(B)(i)’s sole-benefit rule
The Ohio agency argues that the transfer of a community resource to purchase
an annuity by or on behalf of the community spouse cannot be “for the sole benefit of
the individual’s spouse” under § 1396p(c)(2)(B)(i) if—as here—the annuity designates
the institutionalized spouse as the first contingent beneficiary and the Ohio agency as the
second contingent beneficiary to receive payments in the event of the community
spouse’s early death, even if the annuity is actuarially sound and payments are made
only to the spouse during his life. We disagree.
The statute does not define the term “sole benefit.” Nor is the term defined by
federal regulation. The Ohio agency’s position on this issue rests primarily on the plain
meaning of the word “sole,” citing dictionaries and other authorities for the proposition
that the word means “‘only,’ ‘solitary,’ ‘single’ or ‘exclusive.’” But what a dictionary
does not tell us is whether a transfer of assets “to another for the sole benefit of the
individual’s spouse” means (as HHS contends in its amicus brief and the Hugheses
contend in their second supplemental brief) that the transfer may benefit only the spouse
during his life but may include contingent beneficiaries, so long as the financial
instrument is actuarially sound and payments are made only to the spouse during his life;
or (as the Ohio agency contends) that the transfer may benefit only the spouse at the time
of the transfer and also thereafter, such that any remaining assets in the event of the
spouse’s early death cannot pass to a contingent beneficiary. Cf. Sanford J. Schlesinger
and Barbara J. Scheiner, Medicaid After OBRA ‘93, 21 Est. Plan. 74, 76 (1994) (opining
that it is an open question whether, under the sole-benefit rule, “a trust for the sole
No. 12-3765 Hughes, et al. v. McCarthy Page 13
benefit of the spouse for life, with the remainder to someone else, [would] be a trust for
the sole benefit of the spouse”).
The Ohio agency argues that HHS’s position on this issue is inconsistent. The
State Medicaid Manual, § 3258.11, explains:
The exception for transfers to a third party for the sole benefit of the
spouse may have greater impact on eligibility because resources may
potentially be placed beyond the reach of either spouse and thus not be
counted for eligibility purposes. However, for the exception to be
applicable, the definition of what is for the sole benefit of the spouse (see
§ 3257) must be fully met. This definition is fairly restrictive, in that it
requires that any funds transferred be spent for the benefit of the spouse
within a time-frame actuarially commensurate with the spouse’s life
expectancy. If this requirement is not met, the exemption is void, and a
transfer to a third party may then be subject to a transfer penalty.
In turn, § 3257 of the manual states:
A transfer is considered to be for the sole benefit of a spouse, blind or
disabled child, or a disabled individual if the transfer is arranged in such
a way that no individual or entity except the spouse, blind or disabled
child, or disabled individual can benefit from the assets transferred in any
way, whether at the time of the transfer or at any time in the future.
Id. § 3257.
Although the phrase “at any time in the future” might be interpreted to mean that
contingent beneficiaries cannot be named in the financial instrument, this is not the
federal agency’s position. As HHS has reasoned in its amicus brief and in a prior
opinion letter, the designation of contingent beneficiaries to receive funds remaining in
an annuity in the event of the spouse’s early death would not necessarily violate the sole-
benefit rule, so long as the annuity is actuarially sound and provides for payments only
to the spouse during his life. Accord Mertz v. Houstoun, 155 F. Supp. 2d 415, 426 n.14
(E.D. Pa. 2001) (“If an annuitant receives the amount invested [plus interest] during his
lifetime, the annuity is actuarially sound and for his sole benefit.”).
No. 12-3765 Hughes, et al. v. McCarthy Page 14
HHS’s position is mirrored by Ohio’s implementing regulation:
A transfer for the sole benefit of the spouse, blind or disabled child or
disabled individual in which there is a provision within the trust, contract
or other binding instrument to expend all of the transferred resources [for
the benefit of the individual during that individual’s life expectancy] may
provide for other beneficiaries.
Ohio Admin. Code § 5101:1-39-07(F)(1).12
The Ohio agency asserts that HHS’s position and its state’s regulation are wrong.
But if we were to adopt the Ohio agency’s definition of sole benefit, it is difficult to
conceive what type of financial arrangement could meet it. Under the definition urged
by the Ohio agency, it acknowledges that, “universally, . . . it seems that no annuity (or
at least no typical annuity) could meet this [definition] because it seems to be typical that
an annuity instrument names at least one [contingent] beneficiary.” We take its
reasoning two steps further. Even if an annuity or another financial arrangement does
not designate a contingent beneficiary, or even if the arrangement (such as a pure life
annuity) expressly provides that payments shall terminate upon the spouse’s death,
someone other than the spouse will benefit. In the first scenario, the presence of
contingent beneficiaries is a certainty under the law whether the beneficiaries are
designated in the financial instrument, in the spouse’s will, or by the Ohio statute of
descent and distribution, Ohio Rev. Code. § 2105.06. In the second scenario, the entity
that issued the financial product will benefit upon forfeiture of future payment.
Were we to adopt the Ohio agency’s definition, no transfer “to another for the
sole benefit of the individual’s spouse” under most standard financial arrangements
could satisfy § 1396p(c)(2)(B)(i). We reject this “acontextual approach to statutory
interpretation.” Flores v. Rios, 36 F.3d 507, 513 (6th Cir. 1994); see Davis v. Mich.
Dep’t of Treasury, 489 U.S. 803, 809 (1989) (“It is a fundamental canon of statutory
12
As another source of guidance, the Social Security Administration—in setting forth its policy
that a special needs trust must be for the sole benefit of the designated individual—has defined the term
to mean that the trust must benefit no one but that individual, “whether at the time the trust is established
or at any time for the remainder of the individual’s life.” Social Security Program Operations Manual
System (POMS), SI 011120.201(F)(2).
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construction that the words of a statute must be read in their context and with a view to
their place in the overall statutory scheme.”).
We cannot presume that Congress operated in a vacuum when it enacted
§ 1396p(c)(2)(B)(i). By providing that a couple may transfer assets “to another for the
sole benefit of the individual’s spouse,” the term “another” is not limiting. It naturally
encompasses standard financial arrangements (such as an annuity) crafted for the
spouse’s sole benefit during his life. Our reading is supported by HHS, which takes the
position that the term “another” includes an entity that issues the annuity. In this
context, HHS’s construction of the sole-benefit rule gives the statute meaning. The
actuarial-soundness requirement reasonably assures that the assets were transferred to
a third party for the individual spouse’s sole benefit. Any contingent interest becomes
relevant only if the spouse dies early. To extend the sole-benefit requirement past a
spouse’s death is nonsensical. The federal agency’s construction is reasonable,
supported by the statutory structure, and, thus, due respect under Skidmore.
2. Whether an annuity that satisfies § 1396p(c)(2)(B)(i)’s sole-benefit rule must
also satisfy the annuity rules under § 1396p(c)(1)(F)
The Ohio agency argues the transfer of a community resource to purchase an
annuity by or on behalf of the community spouse that satisfies § 1396p(c)(2)(B)(i)’s
sole-benefit rule must also satisfy the annuity rules under § 1396p(c)(1)(F), and that
because Mr. Hughes’s annuity does not name Ohio as “the remainder beneficiary in the
first position,” it fails to satisfy § 1396p(c)(1)(F).13 However, its reading of the two
provisions defies the text and structure of the statute.
As the Hugheses correctly contend in their second supplemental brief, an annuity
that satisfies § 1396p(c)(2)(B)(i) need not satisfy § 1396p(c)(1)(F). The annuity rules
13
The Ohio agency does not dispute that Mr. Hughes’s annuity would satisfy § 1396p(c)(1)(F)
if it named Ohio as the first contingent beneficiary for at least the total amount of medical assistance paid
on behalf of the institutionalized spouse and Mrs. Hughes as the second contingent beneficiary. To the
extent the transfer here (based on Mr. Hughes’s purchase of an annuity) is not for fair market value under
§ 1396p(c)(1)(F), it is because of the contingent remainder interest held by the institutionalized spouse,
the value of which was not transferred because it is retained by her.
No. 12-3765 Hughes, et al. v. McCarthy Page 16
under § 1396p(c)(1)(F) fall within § 1396p(c)(1)’s (paragraph (1)) overall transfer-
penalty regime:
“For purposes of this paragraph, the purchase of an annuity shall be
treated as the disposal of an asset for less than fair market value unless–
(i) the State is named as the remainder beneficiary in the
first position for at least the total amount of medical
assistance paid on behalf of the institutionalized
individual under this subchapter; or
(ii) the State is named as such a beneficiary in the second
position after the community spouse or minor or disabled
child and is named in the first position if such spouse or
a representative of such child disposes of any such
remainder for less than fair market value.
42 U.S.C. § 1396p(c)(1)(F) (emphasis added). On the other hand, § 1396p(c)(2)(B)(i)
is an exception to transfer penalties under paragraph (1):
An individual shall not be ineligible for medical assistance by reason of
paragraph (1) to the extent that-- (B) the assets-- (i) were transferred to
the individual’s spouse or to another for the sole benefit of the
individual’s spouse[.]
Id. § 1396p(c)(2)(B)(i) (emphasis added).
In its amicus brief, HHS takes the position that an annuity that satisfies
§ 1396p(c)(2)(B)(i)’s sole-benefit rule must also satisfy § 1396p(c)(1)(F). It does so
without any reference to the statutory text, meaningful analysis, or reference to authority.
The only proffered support for HHS’s position is a 2006 CMS letter enclosure
concerning the treatment of annuities under the DRA. In that letter, the federal agency
reasoned:
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Unlike the new section 1917(c)(1)(G)[14] added by section 6012(c) of the
DRA . . . , section 1917(c)(1)(F) does not restrict application of its
requirements only to an annuity purchased by or on behalf of an
annuitant who has applied for medical assistance for nursing facility or
other long termcare services. Therefore, we interpret section
1917(c)(1)(F) as applying to annuities purchased by an applicant or by
a spouse, or to transactions made by the applicant or spouse.
CMS, Changes in Medicaid Annuity Rules under the DRA of 2005 § II.B (July 27,
2006).
As the Ohio agency acknowledges, HHS applies § 1396p(c)(1)(F) to an annuity
that otherwise satisfies § 1396p(c)(2)(B)(i) without acknowledging or addressing the
structure of § 1396p(c), which places § 1396p(c)(1)(F) within paragraph (1)’s transfer-
penalty framework and specifically sets forth § 1396p(c)(2)(B)(i)’s sole-benefit rule as
an exception to paragraph (1). HHS’s rationale lacks reasoning and contravenes the
plain language of § 1396p(c)(2)(B)(i) and § 1396p(c)(1)(F). Thus, we decline to afford
its interpretation respect under Skidmore. See Flores v. USCIS, 718 F.3d 548, 554–55
(6th Cir. 2013).
14
The provision provides:
(G) For purposes of this paragraph with respect to a transfer of assets, the term “assets”
includes an annuity purchased by or on behalf of an annuitant who has applied for
medical assistance with respect to nursing facility services or other long-term care
services under this subchapter unless--
(i) the annuity is-- (I) an annuity described in subsection (b) or (q) of section
408 of the Internal Revenue Code of 1986 [Title 26, U.S.C.A.]; or
(II) purchased with proceeds from-- (aa) an account or trust described in
subsection (a), (c), or (p) of section 408 of such Code; (bb) a simplified
employee pension (within the meaning of section 408(k) of such Code); or
(cc) a Roth IRA described in section 408A of such Code; or
(ii) the annuity-- (I) is irrevocable and nonassignable; (II) is actuarially sound
(as determined in accordance with actuarial publications of the Office of the
Chief Actuary of the Social Security Administration); and (III) provides for
payments in equal amounts during the term of the annuity, with no deferral and
no balloon payments made.
42 U.S.C. § 1396p(c)(1)(G) (internal paragraph formatting altered). We need not address the Hugheses’
argument that the annuity is saved by § 1396p(c)(1)(G) given our disposition of this appeal on other
grounds.
No. 12-3765 Hughes, et al. v. McCarthy Page 18
Rather than adopt HHS’s rationale, the Ohio agency asks us to hold that
Congress could not have enacted § 1396p(c)(1)(F) without intending it to supplement
the earlier and more general provision of § 1396p(c)(2)(B)(i).
We disagree with the Ohio agency’s characterization of the two provisions.
Although “it is axiomatic that a general provision yields to a specific provision when
there is a conflict,” Reg’l Airport Auth. of Louisville v. LFG, LLC, 460 F.3d 697, 716
(6th Cir. 2006), there is no inherent conflict between the two provisions, and each
provision is specific in its own way. Section 1396p(c)(1)(F) purports to govern all
annuities through the imposition of a transfer penalty under paragraph (1) if the annuity
does not satisfy certain rules. On the other hand, § 1396p(c)(2)(B)(i) carves out an
exception to paragraph (1)’s transfer penalties. The language of § 1396p(c)(1)(F) limits
its annuity rules “[f]or purposes of this paragraph.” The language of § 1396p(c)(2)(B)(i)
provides that “[a]n individual shall not be ineligible for medical assistance by reason of
paragraph (1)” if a transfer satisfies, in relevant part, the sole-benefit rule. The two
provisions complement rather than contradict one another.15 Section 1396p(c)(1)(F) is
not rendered illusory. It applies to all annuities not excepted by another provision such
as § 1396p(c)(2)(B), including annuities benefiting non-exempt children or a spousal
annuity that is not actuarially sound.
Because the provisions are not in conflict, that Congress enacted
§ 1396p(c)(1)(F) after § 1396p(c)(2)(B)(i) does not support a finding that
§ 1396p(c)(2)(B)(i) must give way to the newer provision, § 1396p(c)(1)(F). See United
States v. Clay, 982 F.2d 959, 963 (6th Cir. 1993) (“When interpreting the effect of a new
law upon an old one, ‘[o]nly a clear repugnancy between the old law and the new results
15
With respect to annuity disclosures, 42 U.S.C. § 1396p(e)(1) provides that the Medicaid
application must include “a statement that under paragraph (2) the State becomes a remainder beneficiary
under such an annuity or similar financial instrument by virtue of the provision of such medical
assistance.” The referenced “paragraph 2” of subsection (e) limits itself to annuities that are subject to
§ 1396p(c)(1)(F)’s annuity rules (such as naming the state as the remainder beneficiary). See id.
§ 1396p(e)(2)(A) (“In the case of disclosure concerning an annuity under subsection (c)(1)(F) of this
section, the State shall notify the issuer of the annuity of the right of the State under such subsection as a
preferred remainder beneficiary in the annuity for medical assistance furnished to the individual.”). Thus,
subsection (e) reenforces the conclusion that § 1396p(c)(1)(F) does not control all annuities.
No. 12-3765 Hughes, et al. v. McCarthy Page 19
in the former giving way and then only pro tanto to the extent of the repugnancy.’”
(alteration in original) (quoting Georgia v. Penn. R. Co., 324 U.S. 439, 457 (1945))).
Last, the Ohio agency’s reference to floor statements by members of
Congress—indicating in general terms that the DRA was enacted to close loopholes
related to the purchase of annuities—is unavailing given that the statutory language
unambiguously limits § 1396p(c)(1)(F) to paragraph (1) and § 1396p(c)(2)(B)(i) is an
exception to paragraph (1)’s transfer penalties and was unamended by the DRA.16 See
Barnhart v. Sigmon Coal Co., 534 U.S. 438, 457 n.15 (2002) (noting that floor
statements cannot override clear statutory text); Conn. Nat’l Bank v. Germain, 503 U.S.
249, 253–54 (1992) (“We have stated time and again that courts must presume that a
legislature says in a statute what it means and means in a statute what it says there.
When the words of a statute are unambiguous, then, this first canon is also the last:
judicial inquiry is complete.” (internal citations and quotation marks omitted)). If
Congress prefers the interpretation that applies § 1396p(c)(1)(F) notwithstanding
§ 1396p(c)(2)(B)(i), it need only amend the statute.
IV.
For the foregoing reasons, we REVERSE the district court’s judgment and
remand for further proceedings consistent with this opinion.
16
In any event, such referenced statements do not reveal Congressional intent to subject
§ 1396p(c)(2)(B)(i) to § 1396p(c)(1)(F)’s annuity rules.