Fed Court in NY Takes Hard Line on Effect of “Partial Cure” for Medicaid Ineligibilty

Judge Geraci of the U.S. District Court, Western District of New York, is the latest judge to address an important topic in Elder Law regarding eligibility for long-term care benefits under Medicaid.  The court defines the issue as follows:  “When an uncompensated transfer of assets has been made and a [Medicaid] penalty period imposed, how does a partial return of the transferred funds affect the beginning of the penalty period?”  

In its August 2014 decision in Aplin v. McCrossen, the court addresses summary judgment motions in two separate cases that were filed on behalf of 80-year-old Florence Aplin and 85-year old Sergio Ciardi, both residents of nursing homes.  In one case, for example, the Aplin case, the transfers totaled approximately $450,000; however, approximately $76,000 was later returned by the donees. The hope of the plaintiffs was that “return” of the money would permit them to shorten their penalty periods tied to the original transfers.  This approach, when planned in advance, is a post-Deficit Reduction Act technique sometimes known in Elder Law circles as a “partial cure” (as part of “reverse half-a-loaf” gifting).

Judge Geraci denied the relief sought by the plaintiffs.  He followed the hardline approach of “nonprecedential” rulings on New Jersey disputes about partial cures, ruling that “return” of money permits the state agency to recalculate the start of the penalty period. The court decided that NY administrative rules do not conflict with federal policy and not only permit but require the state agency to, in effect, restart the penalty period on the ground that the later date is when the “applicant becomes otherwise eligible for Medicaid.” This phrase is a key concept in federal Medicaid law.  The plaintiffs had argued that phrase applied only to an earlier date, from their original application. Judge Geraci concluded:

“I find no circumstances in this case which indicated that Defendants’ interpretation and application of the provisions of [New York administrative directives] contravene Congress’ articulated purpose in enacting the Medicaid Act — to provide medical care, services and supplies for the financially needy.  Essentially, the assessment of an applicant’s income and resources which results in a determination that such applicant has transferred resources for less than fair market value during the statutory look-back period and that an appropriate penalty period must be imposed, ensures that the applicant has not falsely impoverished himself or herself in order to qualify for medical assistance at public expenses which, by law, is undeserved.”

While it is apparent that the New York federal judge was not eager to give applicants any benefit tied to partial cures on transfers, the decision also appears to approve or at least ignore what some would describe as a “perverse effect” of the New York policy.  By imposing a new, later “start date” for the ineligibility period following the return, New York can actually impose a penalty that is longer than the original penalty period for the full transfer. 

Also at issue in the case was the effect of a series of statements on the federal government’s side, including the so-called “McGreal Letter” from CMS that was relied on by the plaintiffs in making the returns. (The court did not expressly address a May 2014 GAO study, where it was reported at page 28 that “[a]ccording to CMS, states can choose whether or not to consider a partial return of transferred assets on Medicaid planning.”)

Should there be uniformity among the states, not just on whether but how families can seek any relief from “resource” limits set by federal law?  (The GAO study linked above indicates a range of different state-specific options are in play.) The answer to that question may depend on one’s point of view.

For more background on the complex interaction between Medicaid applications, ineligibility periods triggered by uncompensated transfers, partial cure attempts and penalty start dates, see ElderLawGuy Jeff Marshall’s blog post from 2011.