Ohio Appellate Court Upholds Spousal Annuity in Medicaid Case

The Ohio Court of Appeals, relying on a Sixth Circuit decision that interpreted Ohio law in Hughes v. McCarthy (2013), has now determined that a wife’s purchase of an annuity with funds in excess of her community spouse resource allowance after her husband’s admission to a nursing home, was not an improper transfer.  The court’s ruling permits her husband to qualify for Medicaid coverage for his long-term care without any penalty period. 

A key to the court’s October 22 ruling in Koenig v. Dungey, 2014 WL 5361644, was recognition that use of $121k of “joint funds” to purchase a five-year, actuarially sound spousal annuity was permitted by the language of federal laws, when the “transfer occurred after institutionalization but preeligibility.”

In part, the attempts by some states to block use of annuities to convert at least a portion of marital assets into exempt spousal income, depends on states that have adopted tighter language than the federal law.  Along that line, Pennsylvania attorney Kemp Scales shared with me potentially relevant language from the U.S. Supreme Court, when construing the purported effect of one state’s attempt to capture proceeds of a tort recovery in order to reimburse the state for its expenditures under Medicaid. In Wos v. E.M.A., 133 S.Ct. 1391, 1400 (2013), the Court rejected application of a state lien, noting the conflict with federal law:

“A [particular state] statute that singles out Medicaid beneficiaries in this manner cannot avoid compliance with the federal anti-lien provision merely by relying upon a connection to an area of traditional state regulation.”

In September, a federal district court judge in the case of Wagner v. McCarthy, pending in the Southern district of Ohio, granted preliminary injunctive relief favoring community spouses and prohibited state officials from imposing penalties “due to the transfer of community resources to purchase an actuarily sound anuity for the sole benefit of thier respective community spouse.” In granting the injunction, the judge observed “there is little doubt that Plaintiffs will succeed on the merits,” citing Hughes v. McCarthy.      

In August, a somewhat more complicated Medicaid planning case, involving one spouse’s transfer and sale of the couple’s home, was argued before the Ohio Supreme Court and in an earlier Elder Law Prof Blog post we linked to the court’s recording of the argument.  A decision on that case, Estate of Atkinson, is still pending.