Case Note: Maine Pooled Disability Trust v. Hamilton

By Ron M. Landsman, Esq., CAP, Fellow

Court rules that federal law does not prohibit states from imposing Medicaid long-term care penalty periods on individuals over age 64 for funding pooled special needs trust accounts. The NAELA Foundation provided two grants in support of the litigation opposed to the position taken by the Maine Department of Health and Human Services with the Special Needs Alliance and Maine Pooled Disability Trust contributing as well.

The U.S. Court of Appeals for the First Circuit has ruled that federal law does not prohibit states from imposing Medicaid long-term care penalty periods on individuals over age 64 for funding pooled special needs trust accounts. (Maine Pooled Disability Trust v. Hamilton, decided June 20, 2019, 2019 WL 2536845.) It affirmed a federal district court decision, Richardson by Carlin v. Hamilton, that dismissed a complaint by an 87-year-old woman challenging the termination of her nursing home benefits after her guardian funded an account with the proceeds from the sale of her former home. 

The district court had held that the individual’s argument that she had received fair market value was not ripe, but that the trust had standings of its own to challenge whether the transfer rule applied at all. Only the trust appealed. Mrs. Richardson’s claim that she got fair market value is still pending in a state court appeal of the Maine Medicaid agency’s termination. 

The court of appeals held that the broad anti-transfer rule for long - term care benefits generally, 42 U.S.C. § 1396p(c), applied by its terms. Maine Pooled Disability Trust (MPDT) argued that the trust provision, § 1396p(d), was a cognate section covering all trust transactions, transfers as well as availability, so that the transfer rule applied only when specifically cross-referenced by it. The court rejected that view. It noted that the trust provision itself provided for transfer penalties in some situations, and read MPDT’s claim to be that the lack of penalties for other transactions give rise to a negative inference that no penalty was intended because specific trust terms control over general transfer terms. The court rejected that argument, saying CMS limited its application when necessary to avoid double penalties, which was not the problem here. 

Perhaps more seriously, it noted that the exception for the (d)(4) trusts applied to all of (d), quoting with approval the Second Circuit case, Wong v. Doar, 571 F.3d 247, 260 (2009), that the exemption “is silent about the nature or scope of the rules the agency should apply in their stead.” (Slip op. at 14-15.)

It supports its argument with the point most emphasized in the earlier decisions, that reading the transfer and trust subsections as operating in separate spheres would leave the trust transfer exceptions in (c)(2)(B)(iii) and (iv) “entirely irrelevant [and] superfluous.” (Slip op. at 15.) It reads both provisions as involving self-settled trusts of the Medicaid applicant , so that it necessarily includes an exception for funding one’s own trust. 

The court recognized MPDT’s redundancy argument – that applying the anti-transfer rule to all trusts makes the trust transfer prohibition in (d) redundant – and dismissed it, first because that redundancy “says nothing about the impact of the Transfer Provision on exempt trusts” since the trust transfer provision does not apply, and second, because given the choice between that redundancy and the one that occurs if funding one’s own trust is not subject to the transfer rules, making the transfer exemption redundant, it accepts the latter. “[W]e are inclined to opt for the one that does not require us to ignore the most natural reading of the text of the Transfer Provision’s general rule.” (Slip op. at 17-18.)

The court supported its analysis with a review of the other decisions – the Eighth Circuit and two state supreme courts – and the agency explanations that comport with its decision, without suggestion that it was relying on them.

The court ended with the observation that “we do not decide that MPDT’s interpretation of the statute lacks reason. Rather, we hold that the district court’s judgment granting [Maine’s] motion to dismiss rests on a more reasonable interpretation of the statute.” (Slip op. at 26.)

In a concurring opinion, one judge emphasized that the case did not present, and the court did not reach, the question of whether funding the trust might nonetheless result in receipt of fair market value. But in referring to CMS materials that recognize the partial receipt of fair market value, it appears to accept the CMS view that value can be received only when the funds are actually spent, which it seems to think would give rise to retroactive coverage.