Pennsylvania Statute Goes Too Far in Limiting Pooled Trusts (E.D. Pa.)

Posted by: Jerold E. Rothkoff Posted Date: Monday, September 5, 2011 10:20

In a class action, plaintiffs challenged a Pennsylvania statute (62 Pa. Stat. Ann. § 1414) as being inconsistent with federal law. The issue was whether Section 1414 established improper eligibility criteria for beneficiaries of pooled special needs trusts. The issue briefed prior to decision was whether state Medicaid eligibility methodology must be “no more restrictive” than federal Supplemental Social Security (“SSI”) methodology in the context of 42U.S.C. § 1396p(d)(4) trusts. Initially the state argued the plaintiffs lacked standing; the district court found otherwise, concluding that both constitutional and prudential standing requirements were satisfied. Specifically, in finding standing, the Court found two injuries: first, Section 1414’s expenditure requirements would undermine congressional intent by limiting the purposes for which trust assets can be used; second, Section 1414 was deficient because it required a showing that the trust was created to meet a beneficiary’s special needs, while federal law only requires that a beneficiary be disabled. Each of these injuries creates standing because they subject plaintiffs to the potential loss of benefits and subject trustees to potential claims for breach of fiduciary duty. In ruling on motions for summary judgment, the Court considered whether Section 1414 violated the “no-more-restrictive rule” within the Medicaid act. The state responded to this contention, arguing Section 1414 is not more restrictive than federal law because it only regulates trust behavior, not eligibility, and because while (d)(4) requires that trusts be excluded from resource calculations, it does not require states to exclude the assets inside the trusts. Each of the State’s arguments was found to be without merit. After rejecting the state’s arguments, the Court expressly concluded “that the no-more-restrictive rule is applicable to the pooled trusts at issue and that parts of Section 1414 conflict with both Section 1396p(d)(4) and the no-more-restrictive rule.” Section 1414(c) violates the no-more-restrictive rule by making the eligibility of one beneficiary contingent on the behavior of other beneficiaries or the behavior of the trustee. Section 1414(b) violates the no-more-restrictive rule by imposing additional eligibility criteria not found in federal law by including the special need requirement, by including an age limitation, by including expenditure restrictions and by including a 50 percent payback provision. Class certification was granted and the various Motions for Summary Judgment were granted in part and denied in part. The state was enjoined from enforcing the provisions of Section 1414 in conflict with federal law.

Lewis v. Alexander, 2011 U.S. Dist. LEXIS 95109 (August 23, 2011)

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