Case Law Update – Federal Appeals Court Rules Short Term Annuities Are Not Resources Preventing Medicaid Eligibility

On September 2, 2015, in the case of Zahner vs. Secretary, Pennsylvania Department of Human Services, a federal appeals court ruled that annuities with certain characteristics, including nonassignability clauses, are not assets to be counted as resources” for purposes of Medicaid eligibility.

The Commonwealth of Pennsylvania (DHS) argued that the financial instruments purchased by the plaintiffs were not annuities because they were not purchased as investment products, but rather as a way to pay nursing home costs during periods of Medicaid ineligibility resulting from plaintiffs’ gifts to family.  The Court noted that Congress, in crafting the four-part test for annuities, decided that all annuities which met the four-part test were excluded as countable resources under Medicaid even if purchased to pay nursing home costs:

[W]e do not believe that the annuitant’s motive is determinative….Although we are sympathetic to the concerns the dissent and DHS outline, Congress must resolve them. Absent legislative change, it is clear that “Congress has not revised the Medicaid statute to foreclose this option.” “It is not the role of the court to compensate for an apparent legislative oversight by effectively rewriting a law to comport with one of the perceived or presumed purposes motivating its enactment.”

The ruling affirms the role of planning in achieving the most favorable result for the Medicaid applicant. “Financial planning is inherent in the Medicaid scheme,” the court wrote. The court also noted that using “an elder law attorney to develop a Medicaid eligibility plan … helps ensure that the annuities purchased are Medicaid-compliant, and thus helps reduce the risk of litigation.”

The ruling settled a question about whether some short-term annuities purchased by Medicaid applicants comply with federal law.  The court ruled that as long as the annuities comply with Medicaid’s “safe harbor” provisions, they will not preclude eligibility for benefits.  Annuities may violate Medicaid law’s requirement of being “actuarially sound” if they exceed the annuitant’s reasonable life expectancy, but not if they are shorter than life expectancy, according to the court. The ruling came from the U.S. Court of Appeals for the Third Circuit, which includes both New Jersey and Pennsylvania in its jurisdiction.

You can read the full opinion at the below link:

Zahner Opinion

About Jerry

Jerold E. Rothkoff, a practicing New Jersey and Pennsylvania attorney, is the Principal of the Rothkoff Law Group, an elder care law firm. Jerry dedicates his practice to serving clients in the areas of life care planning, long-term care planning, Medicaid & VA benefits, and advocacy for the elderly and disabled. He is past President of the NJ Chapter of the National Academy of Elder Law Attorneys, former chair of the elder law section of the NJ State Bar Association, and past President of the Life Care Planning Law Firm Association. Jerry continues to be an outspoken advocate for the rights of the elderly and disabled. He writes for and gives presentations regularly to attorneys and other professionals about legal issues related to seniors and those with disabilities. Jerry’s community activities include the Twilight Wish Foundation, the Delaware Valley Stroke Council, the Alzheimer’s Association, as well as numerous other advocacy groups. When not in the office, Jerry spends time with his wife, Erica, and their five children, eighteen-year old identical twin girls, Liza and Julia, fifteen-year old fraternal twin boys, Evan and Gregory, and six-year old Aitan.

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