I. Introduction
Anyone who works as a special needs planner knows about the first-party special needs trust (SNT) payback provision of the Medicaid Act.1 The SNT payback provision requires that, upon the death of an SNT beneficiary, the state Medicaid agency must recover from the SNT’s assets the cost of the medical assistance paid by Medicaid on behalf of the beneficiary.2 What remains uncertain is whether this provision is limited by the exceptions to recovery also set forth in the Medicaid Act.3 Two California appellate courts grappled with this issue and came up with opposite conclusions. The court in the most recent case, Herting v. Cal. Dept. of Health Care Servs.,4 held that the Medicaid estate recovery statutory exceptions did not apply. This contradicts the earlier holding in Shewry v. Arnold 5 that statutory exceptions did apply. As noted in a California legal publication:

Despite the Herting court’s claim to depart only narrowly from Arnold, these two decisions cannot logically coexist. Either all of the estate recovery exceptions — payments were made when decedent was under age 55, decedent is survived by a minor child, a spouse, or a disabled child — should apply when DHCS [the California Department of Health Care Services] seeks recovery from an SNT or none should apply.6

As the attorney who handled the Herting appeal, my belief is that the law set forth in the Arnold decision is more fundamentally sound and better reflects the intent of Congress when it passed the law concerning first-party SNTs. As far as this author knows, these two cases are the only cases nationally that address the issue of what limits apply to a state’s right of recovery from a first-party SNT. The analysis set forth in these cases should be applied in every state because it is the federal law that sets forth a state’s limits of recovery from the estates of all Medicaid recipients, including those with SNTs.

II. Arnold Held That Estate Recovery Exceptions Did Apply to the SNT Payback Provision Upon the Death of a First-Party SNT Beneficiary
In holding that the exceptions to recovery did apply, the Arnold court stated that the Medicaid Act must be read as a harmonious whole (i.e., the payback provision must not be read in isolation). The court found that the estate recovery provisions did apply to SNT beneficiaries the same way they did to all Medicaid recipients. The court found no intent by Congress to treat people with disabilities differently from any other Medicaid recipients.

In Arnold, the California Department of Health Care Services (DHCS), the agency that runs the state’s Medicaid program, sought reimbursement from an SNT beneficiary’s heir, the beneficiary’s adult child with a disability and sole recipient of the beneficiary’s estate.7 The petitioner argued that both federal and California estate recovery statutes expressly excluded from reimbursement assets distributed from an SNT to an adult disabled child.8 DHCS agreed that the estate recovery statutes typically precluded reimbursement; however, the agency argued that these statutes did not apply to SNT beneficiaries.

DHCS sought to distinguish Medicaid recipients without SNTs from those with SNTs by arguing that the Medicaid Act estate recovery provisions did not apply to SNTs because the SNT portion of the Act created a unique and independent right of recovery.9 The court rejected the Medicaid agency’s argument, holding that:

[DHCS] argues that subdivision (d) of title 42 United States Code section 1396p governs reimbursement from special needs trust assets. [DHCS] argues further that subdivision (d) includes no express provisions exempting from reimbursement distributions to adult disabled children of a beneficiary. Accordingly, [DHCS] asserts that the exemption for assets distributed to an adult disabled child in subdivision (b) is not applicable to special needs trust assets.

This argument is not persuasive. The provisions of subdivision (d) relate to eligibility for medical assistance. In determining an individual’s eligibility for state medical assistance, the assets of a special needs trust are to be disregarded if the state is entitled to be reimbursed from the trust. The nature of that right to reimbursement is not set forth in subdivision (d). Reimbursement provisions are found in subdivision (b), which expressly excludes assets distributed to an adult disabled child. These reimbursement provisions are generally applicable to all reimbursement for medical assistance payments.

[DHCS] has put forth no persuasive argument that reimbursement from special needs trusts should be treated differently [from] other reimbursements. We conclude such trusts should not be treated differently.10

This opinion was a surprise to many special needs planners because of the presumption that the payback provision was absolute and that no exceptions applied. Yet legal analysis of this issue shows that the Arnold court was correct. To better understand the analysis, a summary of it is provided next.

A. The Law Supports the Arnold Holding That Recovery Exceptions Did Apply to First-Party Special Needs Trusts
A legal analysis of this issue shows that the Medicaid Act’s estate recovery exceptions apply upon the death of an SNT beneficiary. The Arnold court’s legal analysis is supported by the basic canons of statutory interpretation, fully addresses the rights and limitations set forth in the Act’s estate recovery laws, is supported by the legislative history of the Act in creating SNTs, and does not discriminate against persons with disabilities and their families.

The Medicaid Act authorized SNTs in 1993 as part of comprehensive legislation called the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993).11 In addition to creating the SNT, OBRA 1993 made it mandatory for state Medicaid agencies to recover against the estates of Medicaid recipients upon their death. Prior to OBRA 1993, a state’s decision to exercise its recovery right was optional. The Medicaid Act was amended to establish all state Medicaid agencies’ rights and limitations to recover from Medicaid recipients’ estates.12

SNTs are designed to enhance the quality of life of persons with disabilities. They do this by allowing the use of funds to benefit persons with disabilities throughout their lifetimes without compromising their eligibility for Supplemental Security Income (SSI)13 and Medicaid. In exchange for this consideration, Congress required SNTs to meet certain conditions. One of these conditions is the payback provision. This refers to a state Medicaid agency’s right to seek reimbursement, upon the death of an SNT beneficiary, for the cost of medical assistance paid by Medicaid on behalf of the SNT beneficiary. Congress thus created a trust (the SNT) that allows individuals with disabilities to have funds available to enhance their quality of life over their lifetimes, while allowing them to maintain eligibility for SSI and Medicaid and still allowing state Medicaid agencies to recover against the assets held in their SNTs upon their death. A state Medicaid agency would not otherwise have this right because the funds would never become part of the Medicaid recipient’s estate. State Medicaid agencies have historically used the SNT payback provision to seize all assets held in trust upon the death of an SNT beneficiary. These agencies, however, improperly ignore the legal limitations set forth in the estate recovery regulations.

B. The Medicaid Act Sets Forth All Rights and Limitations of Recovery by State Medicaid Agencies, and Equitable Considerations Must Be Ignored
When discussing with state Medicaid agency officials and assistant state attorney generals a state Medicaid agency’s right to take assets from an SNT, the first arguments heard are as follows: 1) It is only fair that the state be reimbursed for the Medicaid assistance provided during the SNT beneficiary’s lifetime, and 2) the state should be paid back to enable the state’s Medicaid program to remain in existence. Although preserving state Medicaid programs is certainly a laudable goal, the facts do not support the position that such programs will cease to exist if states are not paid back. As one study found, California’s Medicaid estate recovery from all sources (not just from SNTs) only accounts for one-tenth of 1 percent of Medicaid’s annual budget.14 Estate recovery and SNT payback are doing little (if anything) to keep state Medicaid programs solvent.

The equitable argument special needs planners provide in response to a state Medicaid agency is that the harm caused to families by the agency’s interpretation of the SNT payback provision is substantial. The families who cared for their loved ones with special needs at home often saved the state hundreds of thousands of dollars.15 Family members who quit their jobs (and lost retirement savings) caring for their profoundly disabled loved ones at home really deserve the money. However, as entertaining as these discussions can be, they are of no consequence in determining who should receive the funds. The matter of who is entitled to the money from a first-party SNT is purely a legal question and not an equitable one. As stated by the Third Circuit Court of Appeals:

Medicaid is established through an exhaustive set of statutes that thoroughly detail what benefits are to be available and to whom they should be provided. See 42 U.S.C. § 1396 et seq. In this context, we do not create rules based on our own sense of the ultimate purpose of the law being interpreted, but rather seek to implement the purpose of Congress as expressed in the text of the statutes it passed.16

C. The Medicaid Act Expressly Sets Forth the Right of a State Medicaid Agency to Recover from a Medicaid Recipient’s Estate
The beginning point of the analysis is to acknowledge that without express statutory authority, a state does not have the right to take a U.S. citizen’s money upon his or her death. In determining whether such statutory authority exists, special needs planners look to the fundamental canons of statutory construction, which requires an analysis of the language of the statute itself.17 The U.S. Supreme Court often recites the “plain meaning rule” that if the language of the statute is clear, there is no need to look outside the statute to its legislative history in order to ascertain the statute’s meaning. The plain language of the Medicaid Act sets forth a state Medicaid agency’s right to recover from all Medicaid recipients’ estates. 42 U.S.C. §1396p(b) states:

(b) Adjustment or recovery of medical assistance correctly paid under a State plan

(1) No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except that the State shall seek adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan in the case of the following individuals: … [emphasis added.]

(B) In the case of an individual who was 55 years of age or older when the individual received such medical assistance, the State shall seek adjustment or recovery from the individual’s estate, but only for medical assistance consisting of … .

The plain language of the Medicaid Act states that a state Medicaid agency may recover from a Medicaid recipient’s estate the cost of the medical payments made to the recipient only after he or she turned 55. Congress did not provide an exception for assets held in an SNT. In plain language, the Act states that a state’s right to recover from the estates of all Medicaid recipients is limited by this provision. Congress further limited a state Medicaid agency’s right to recover from the estate of a Medicaid recipient (even if the recipient was 55 or older when he or she received assistance) if the recipient left a child with a disability or a minor child (under age 21).18 Congress delayed the right to recover if the Medicaid recipient left a surviving spouse. (The Medicaid agency can recover once the spouse dies.19) Congress also limited a state Medicaid agency’s right to recover if doing so would cause an undue hardship.20 Congress expanded a state Medicaid agency’s right to recover to include the estates of those who received assistance under age 55, but only if the state opted to include this in its Medicaid plan and the recipients had been permanently institutionalized.21 Even though the plain language of the recovery provisions appears simple enough, state Medicaid agencies want to ignore these specific and comprehensive provisions when seeking to recover from SNTs.

D. The California State Medicaid Agency Relied on a Single Phrase in the Medicaid Act to Claim a Separate Right of Recovery
DHCS argued that the estate recovery regulations described above did not apply upon the death of an SNT beneficiary. In support of this argument, the agency cited a single phrase (which appears in italics below) in the SNT portion of the Medicaid Act that states:

(d) Treatment of trust amounts

(1) For purposes of determining an individual’s eligibility for, or amount of, benefits under a State plan under this subchapter, subject to paragraph (4), the rules specified in paragraph (3) shall apply to a trust established by such individual.22 …

(4) This subsection shall not apply to any of the following trusts:

(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1382c (a)(3) of this title) 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.23

DHCS argued that the phrase gives the agency a unique recovery right separate from the Medicaid Act’s comprehensive recovery provisions. Yet this interpretation violates the basic canons of statutory construction.

A cardinal rule of statutory construction is that a statute be read as a harmonious whole, with its various parts interpreted within their broader statutory context in a manner that furthers statutory purposes. “Statutory construction … is a holistic endeavor. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme — because the same terminology is used elsewhere in a context that makes its meaning clear, or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.”24 This is well-settled law. In 1850, Chief Justice Taney described the process: “In expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy.”25

The only way the Medicaid Act can be interpreted as supporting DHCS’s position is by ignoring the thorough and specific recovery rules and believing that the general payback provision in the SNT portion of the Medicaid Act trumps those rules. As the U.S. Supreme Court stated, the general language of a statute will not be held to apply to a matter specifically dealt with in another part of the same enactment.26 Further, the Court stated that a general statute will not be held to have repealed by implication a more specific statute unless there is “clear intention otherwise.”27 Here, no such clear intention is expressed. The clear intention expressed is that the recovery rules provide the only authority for recovery from all Medicaid recipients and that the SNT payback provision only gives states the right to recover, not a different and broader right to recover. Further, even the phrase DHCS relied on ends with the statement “under this subchapter.” The subchapter referenced is the entire Medicaid Act. The payback provision even states that the provision is subject to the entire Medicaid Act and does not trump anything.

If DHCS’s proposed statutory interpretation were adopted, it would fundamentally alter congressional intent as set forth in the Medicaid Act. According to the agency’s interpretation, the phrase in the Medicaid Act’s SNT payback provision allows it to recover even if the SNT beneficiary with a disability met the following criteria:

1. Received medical assistance before age 55, was not permanently institutionalized, and died before age 55 — despite congressional intent set forth in 42 U.S.C. § 1396p(b)(1)(B);

2. Left a surviving spouse — despite congressional intent set forth in 42 U.S.C. § 1396p(b)(2)(A);

3. Left a surviving minor child — despite congressional intent set forth in 42 U.S.C. § 1396p(b)(1)(A);

4. Left a surviving child with a disability — despite congressional intent set forth in 42 U.S.C. § 1396p(b)(1)(A); and

5. Met the requirements for an undue hardship claim — despite congressional intent set forth in 42 U.S.C. § 1396p(b)(3).

There is no valid public policy reason to treat people with disabilities differently for purposes of Medicaid recovery. Do their minor children, spouses, and children with disabilities deserve no protection? Would Congress have intended to limit recovery from the estate of a person without a disability to the Medicaid he or she received only after age 55 but require something different from the estate of a person with a disability? Do people with disabilities never qualify for an undue hardship claim? There is no valid reason to presume so. Yet this is the interpretation that DHCS claims is correct.

Had Congress wished to create a new right of recovery separate from its comprehensive and already established estate recovery provisions, one would expect a clear and convincing statement that it was doing so. As noted by the U.S. Supreme Court: “Congress … does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions — it does not, one might say, hide elephants in mouseholes.”28 There is no clear and convincing statement that the general recovery right in the SNT payback provision creates a new right of recovery separate from the Medicaid Act’s well-defined recovery provisions. No separate federal regulations have been promulgated that further describe or illustrate this purported new and separate recovery right. In addition, as further described below, no legislative history supports such a recovery right. It simply does not exist.

DHCS also argued that if the estate recovery provisions were applied to an SNT, it would render the SNT payback provision mere surplusage. This argument is also incorrect. The phrase in the SNT portion of the Medicaid Act concerning recovery creates a significant additional legal right that would not exist without it — the right to apply the recovery provisions to assets held in an SNT. Without this provision, the assets held in an irrevocable trust such as an SNT would not be subject to recovery.

A state Medicaid agency is only allowed to recover against the estate of a Medicaid recipient.29 The term “estate” is defined more broadly than is commonly understood.

For purposes of this subsection, the term “estate”, with respect to a deceased individual —

(A) shall include all real and personal property and other assets included within the individual’s estate, as defined for purposes of State probate law; and

(B) may include, at the option of the State (and shall include, in the case of an individual to whom paragraph (1)(C)(i) applies), any other real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest), including such assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement.30

The right to recover from an estate does not necessarily include assets held in an irrevocable trust, such as an SNT. Including the phrase in the SNT payback provision means that every state is required to apply the estate recovery provisions against the assets held in an irrevocable trust if the state may otherwise not be able to recover against those assets. This rule applies even in states that do not elect to expand their definition of estate for recovery purposes. The following examples describe a state Medicaid agency’s right to recover from the estate of a SNT beneficiary:

• If the SNT beneficiary had a disability, had an SNT established for him or her at age 2, and died at age 54, the state Medicaid agency has no right to recover, because the beneficiary died before age 55. If, however, the beneficiary lived until 90, the state has a right to recover the cost of benefits provided after the beneficiary turned 55.31

• If the SNT beneficiary was permanently institutionalized from age 2 (and the state adopted this recovery as part of its Medicaid plan), the state Medicaid agency has a right to recover the cost of benefits provided after the beneficiary turned 2.32

• If the SNT beneficiary died at any age and left a surviving spouse, child with a disability (as in the Arnold case), or minor child, the state Medicaid agency has no right to recover.33

The inclusion of the SNT payback provision gives states a substantial right that would not otherwise exist. It is not mere surplusage.

E. OBRA 1993’s Legislative History on SNTs and Estate Recovery Does Not Support the Interpretation That the SNT Payback Provision Creates a Separate Right of Recovery
OBRA 1993 was intended to make it difficult for persons attempting to qualify for Medicaid to pay for nursing home care by using trusts in Medicaid planning. Even though the impetus for the legislation was to curb perceived Medicaid abuse, Congress (through the advocacy of several national charities) realized that without an exception for SNTs, persons with disabilities would be unintentionally penalized, because they would have little or no access to health insurance or assets for basic living expenses unless they first impoverished themselves.34 To prevent this result, Congress authorized persons with disabilities to place their assets into an SNT to preserve their eligibility for Medicaid, while allowing them to receive the funds necessary to enhance their quality of life. Later, legislation was passed that did the same for SSI eligibility, although the Social Security Administration is not allowed to recover SSI from a recipient’s estate.

The legislative history of OBRA 1993 shows that SNTs were included to prevent people with disabilities from becoming the unintended victims of the harsh new trust rules. Congress wanted to stop wealthy elders from using trusts to get around Medicaid financial limitations and use Medicaid to obtain expensive, skilled long-term care nursing home care. OBRA 1993 trust provisions were directed to that end.35 However, “[SNTs] found their way into the law as a result of the Waxman Amendment, principally to ameliorate the harshness of the Administration proposal.”36 Trusts enabling people with disabilities to have assets and maintain Medicaid eligibility were allowed before 1993, but there was generally no requirement for state Medicaid agencies to have a recovery right.37 The purpose of the SNT payback provision is to allow the continued use of these trusts, notwithstanding OBRA 1993’s sweeping scope of legislation harmful to persons with disabilities, while subjecting the SNT to the Medicaid Act’s recovery provisions. Given how the SNT fits into the overall Medicaid Act, there is no reason to impose recovery rules on the estate of an SNT beneficiary that are different, harsher, and more expansive than those imposed on the estate of any other Medicaid recipient.

Nothing in OBRA 1993’s legislative history even hints that recovery from the estate of an SNT beneficiary should be treated differently from recovery from the estate of any other Medicaid recipient, nor does the Act itself have a clear, convincing statement of such an intent, as required under the canons of statutory interpretation. A change of such magnitude usually warrants at least a sentence of discussion; this silence is significant. The legislative history of OBRA 1993 that deals with the (d)(4)(A) trust provision states the following:

Part II — Eligibility

Transfers of Assets; Treatment of Certain Trusts (Section 13611) …

Sets forth rules under which funds and other assets of an individual placed in trust by or on behalf of an individual (or the individual’s spouse) are treated, for purposes of Medicaid eligibility, as resources available to the individual, and under which payments from the trust are to be considered assets disposed of by the individual. Specifies that, for purposes of applying transfer of assets prohibitions, the look-back period with respect to trusts [is] 60 months. Provides exceptions for trusts containing the assets of a disabled individual under 65, specified income trusts in certain States, and “pooled” trusts for disabled individuals. Requires States to establish procedures for waiving the application of these rules in cases of undue hardship … 38

When Congress created penalties in OBRA 1993 for using trusts in Medicaid planning (and carving out the SNT exception for people with disabilities), it also expanded Medicaid’s recovery rules. After OBRA 1993, states were for the first time mandated to have a Medicaid estate recovery program.39 The legislative history describing the estate recovery provisions of OBRA 1993 illustrates congressional intent.

Medicaid Estate Recoveries (Section 13612).

– Requires States to recover the costs of nursing facility and other long-term care services furnished to Medicaid beneficiaries from the estate of such beneficiaries. Further requires States to establish hardship procedures for waiver of recovery in cases where undue hardship … would result. At the option of the State, the estate against such recovery is sought may include any real or personal property or other assets in which the beneficiary had any legal title or interest at the time of death, including the home.40

This history demonstrates that SNTs were designed to permit people with disabilities to secure Medicaid eligibility and to use assets in trusts to provide for their special needs throughout life but had to accept recovery from their estates as the price to be paid for using these trusts. There is no support for the interpretation that Congress was creating a new right of recovery applicable to the estates of SNT beneficiaries that differs from the right of recovery applicable to the estates of other Medicaid recipients.

III. The Herting Court Came to a Different Conclusion
The court in the most recent case to review the law on whether the recovery exceptions apply to first-party SNTs came to a different conclusion. This author believes that the appellate court let the facts in this case cloud its legal reasoning, thus making it important to understand the facts of the Herting decision.

A. Herting Facts
In Herting, the beneficiary Alexandria Pomianowski suffered catastrophic injuries from an automobile accident in 2009 when she was 19 years old. Ms. Pomianowski required total care for all aspects of daily living, including bathing, feeding, dressing, toileting, and mobility. She also was dependent on a ventilator. In 2010, a court approved a settlement and ordered that the funds be deposited in a (d)(4)(A) SNT titled the “Alexandria A. Pomianowski Special Needs Trust.” When it was created, the SNT was funded with a little more than $1.4 million. Ms. Pomianowski’s parents took care of her at home and used the funds in the SNT to allow her to remain in the community. Absent their diligent care, Ms. Pomianowski would have been in a skilled nursing facility. Ms. Pomianowski’s mother, Deborah Herting, served as trustee of the court-supervised SNT. Ms. Pomianowski unexpectedly died on January 19, 2013, when the SNT still had slightly more than $1.29 million in it. The remainder beneficiaries were Ms. Pomianowski’s “heirs at law,” her parents. The trustee, Ms. Herting, notified the state Medicaid agency, DHCS, of Ms. Pomianowski’s death, and DHCS filed a claim for $412,812 under the Medi-Cal41 program.

Ms. Herting filed a petition for instructions with the court seeking to deny the DHCS claim on the grounds that a state Medicaid agency is entitled to recover from a Medicaid recipient’s estate under limited circumstances only. DHCS argued that the language of the federal statute that requires a (d)(4)(A) SNT instrument trumps this part of the Medicaid Act. The trial court held that DHCS was entitled to recovery, and the court of appeals affirmed.

B. The Herting Court Held That Estate Recovery Provisions Did Not Apply to SNTs
The crux of the Herting court’s opinion is that the SNT was subject to full recovery without any exceptions because the estate recovery provisions did not apply to the assets held in an SNT.42 In response to the argument that the estate recovery provisions did not apply in this case, the court stated:

But all of these provisions apply to recovery from the aid recipient’s estate, whereas the Department’s claim was made pursuant to the statutes governing special needs trusts and the terms of the trust at issue. We agree with the Department that this distinction controls the outcome of the parties’ dispute. Alexandria’s trust was not estate property but an instrument created for the specific and exclusive purpose of ensuring that she qualify for Medi-Cal benefits and have enough resources to supplement those benefits and enhance her compromised quality of life.43

The Herting court’s reasons for ignoring the estate recovery provisions do not reflect the requirements of proper statutory construction and misstate the meaning of the term “estate” when dealing with estate recovery rights under the Medicaid Act. The Herting court simply ignored the Medicaid Act’s requirements that no recovery take place except as set forth in the estate recovery provisions of the Act. Instead, it interpreted the single phrase in the SNT portion of the statute as controlling the more specific and comprehensive estate recovery provisions. The court claimed that it was justified in doing so because the assets in the SNT were not part of the beneficiary’s estate upon the beneficiary’s death. Initially, the court made the dubious statement that an SNT is not an “estate planning device” and therefore should not be treated as one. However, the bigger issue is the court’s error in defining the term “estate.” The court limited the term’s definition to the traditional definition of a probate estate. However, in the Medicaid Act, the definition of “estate” for estate recovery purposes is much broader than the Herting court stated.44 The failure to properly define the term is fatal to the court’s reasoning. As explained previously, the purpose of the payback provision in the SNT portion of the Medicaid Act is to ensure that SNT assets are subject to the estate recovery provisions. It is not meant to create a wholly separate recovery right devoid of the exceptions for minor children, surviving spouses, and children with disabilities. Nor is it to preclude the right to claim an undue hardship as the Herting court’s analysis suggests.

Because the Herting court’s decision is opposite the Arnold court’s decision, the Herting court attempted to distinguish its decision from the Arnold court’s decision. This attempt made little sense. In stating why the estate recovery exceptions applied to the SNT in Arnold, the Herting court noted that the SNT assets in Arnold had already been distributed to the child with a disability prior to the state Medicaid agency filing a claim against the SNT, thus requiring the agency to initiate recovery proceedings against the child with a disability, not the trustee. In the Herting court’s opinion, this changed the nature of the proceeding and the remainder beneficiary was therefore allowed to use the exceptions to recovery. Presumably, in Herting, if the trustee had distributed the assets to the remainder beneficiaries and the state Medicaid agency had to file a claim against them, the estate recovery provisions would have applied and the state Medicaid agency would not have been allowed to recover from the beneficiaries. This is an absurd result. It is hard to imagine why a claim against a remainder beneficiary of an SNT would trigger the estate recovery provisions, yet if the assets remained in the SNT, the estate recovery provisions would not be triggered.

The Herting court also refused to apply a California statute that clearly stated that assets held in an SNT were subject to the estate recovery provisions.45 The Arnold court relied heavily on California Probate Code § 3605(b), which states: “Notwithstanding any provision in the [SNT], at the death of the [SNT] beneficiary … the trust property is subject to claims of [DHCS] to the extent authorized by law as if the trust property is owned by the beneficiary or is part of the beneficiary’s estate.” The Herting court, in refusing to apply the state statute, stated that the statute was enacted a year before OBRA 1993. It never explained why it refused to follow the plain language of a state statute that the state legislature had not changed since 1993. Yet this was the court’s legal position.

This author believes that the Herting court was swayed not by the law that should have been applied but by the facts of this case (i.e., that the parents were set to inherit a large sum of money rather than pay back the state after it had used Medicaid to pay for assistance for their child with a disability). It appears the Herting court did not have much sympathy for the Medicaid Act’s under-age-55 exception to recovery. This exception certainly lacks the obvious appeal of the other exceptions for a surviving spouse, minor child, or child with a disability. However, Congress set these exceptions, and it was not up to the Herting court to decide which exceptions should be applied.

IV. Conclusion
The estate recovery provisions of the Medicaid Act govern a state Medicaid agency’s right to recover from a Medicaid recipient’s estate the cost of medical assistance paid on the recipient’s behalf. The agency’s right to recover is limited to the cost of assistance provided only after the recipient turned 55 (unless the recipient lived in a skilled nursing facility) and further exempts recovery if the recipient left a surviving minor child, child with a disability, or spouse. Further, procedures exist that allow for undue hardship claims. No exception appears in the estate recovery regulations allowing Medicaid recipients who are also SNT beneficiaries to be treated differently. Yet state Medicaid agencies continue to seek full recovery from these individuals despite the legal prohibitions against it.

Citations
1 Medicaid was established through an exhaustive set of statutes that thoroughly detail what benefits are to be paid and to whom. See 42 U.S.C. § 1396 et seq.

2 42 U.S.C. § 1396p(d)(4).

3 42 U.S.C. § 1396p(b).

4 235 Cal. App. 4th 607 (2015).

5 125 Cal. App. 4th 186 (2004).

6 236 CEB Est. Plan. Rptr. 185 (June 2015).

7 Shewry v. Arnold, 125 Cal. App. 4th 186, 192 (2004).

8 Id. at 196.

9 Id. at 196–197.

10 Id.

11 See 42 U.S.C. § 1396p(d)(4).

12 See 42 U.S.C. § 1396p(a), (b).

13 Initially authorized only to preserve Medicaid, SSI was protected after passage of the Foster Care Independence Act of 1999 (FCIA) (42 U.S.C. § 1382b(e)(5).

14 The amount recovered by DHCS was $59 million, the total Medi-Cal spent was $56 billion. The recovery as % of spending is 0.1%. The number of cases closed was 3,996. The average recovery amount was $15,000. The cost of the recovery unit was $5.5 million. The study covers all Medicaid spending for 2012 and 2013. Cal. Sen. Comm. on Health, Sen. 1124 Analysis, (2014); figures are rounded. The recovery amount includes state general fund and federal portions. California has expanded its Medicaid recovery right; therefore, these figures arise from a state that aggressively pursues recovery. See www.chcf.org/resources/download.aspx?id=%7B330C7415-B906-4A90-AF12-453C78FB31D9%7D Cal. Sen. Comm. on Health, Sen. 1124 Analysis (last visited on Feb. 10, 2016).

15 On average, Medicaid pays the same amount for one person in an institution as it does for three people who are cared for in the community. Gretchen Engquist et al., Medicaid-Funded Long-Term Care: Toward More Home- and Community-Based Options (Ctr. for Health Care Strategies May 2010).

16 James v. Richman, 547 F.3d 214, 219 (3d Cir. 2008).

17 Rice v. Rehner, 463 U.S. 713, 732 (1983).

18 See 42 U.S.C. § 1396p(b)(2).

19 See id.

20 See 42 U.S.C. § 1396p(b)(3).

21 See 42 U.S.C. § 1396p(a)(1)(B), (b)(1)(A).

22 42 U.S.C. § 1396p(d)(1).

23 42 U.S.C. § 1396p(d)(4)(A) (emphasis added). Similar provisions exist under (d)(4)(C) of statute.

24 United Sav. Ass’n v. Timbers of Inwood Forest Assocs., 484 U.S. 365, 371 (1988) (citations omitted).

25 25 U.S. v. Boisdoré’s Heirs, 49 U.S. 113, 122 (1850).

26 Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 228 (1957).

27 Morton v. Mancari, 417 U.S. 535, 550–551 (1974).

28 Whitman v. Am. Trucking Ass’n, 531 U.S. 457, 468 (2001).

29 42 U.S.C. § 1396p(b).

30 42 U.S.C. § 1396p(b)(4).

31 See 42 U.S.C. § 1396p(b)(1)(B).

32 See 42 U.S.C. § 1396p(b)(1)(A), (B).

33 See 42 U.S.C. § 1396p(b)(2)(A).

34 See Ira Stewart Wiesner, OBRA ’93 and Medicaid: Asset Transfers, Trust Availability, and Estate Recovery Statutory Analysis in Context, 19 Nova L. Rev. 679, 681 (1995).

35 See 42 U.S.C. § 1396p(d)(3).

36 Wiesner, supra note 35.

37 See Trust Co. of Okla. v. St. ex rel. Dept. of Human Servs., 825 P.2d 1295 (1991). The Oklahoma Supreme Court followed the view of the majority of states that trusts holding a personal injury settlement for a person with a disability are not available for determining Medicaid eligibility.

38 H.R. Conf. Rpt. 103-213 at 834 (August 4, 1993) (emphasis added).

39 42 U.S.C. § 1396p(b)(1).

40 See H.R. Conf. Rpt. 103-213 at 834–835.

41 Medi-Cal is California’s version of Medicaid.

42 Herting, 235 Cal. App. 4th 607.

43 Id.

44 See 42 U.S.C. § 1396p(b)(4). The term “estate” for purposes of estate recovery includes “any other real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest), including such assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement.”

45 Cal. Prob. Code § 3605(b).