In an important decision for spouses who apply for Medicaid long-term care benefits, the Third Circuit Court of Appeals has ruled that Medicaid short-term annuities are not resources for Medicaid eligibility purposes even though the terms of the annuities were less than the annuitants’ life expectancies. Zahner v. Secretary Pennsylvania Dept. of Human Services (3rd Cir., Nos. 14-1328, 14-1406, Sept. 2, 2015). In three separate cases, Pennsylvania denied Medicaid applications on the grounds that annuity purchases were unlawful transfers. Donna Claypoole’s husband transferred money to their children and purchased a five-year annuity and a 14-month annuity before applying for Medicaid on Mrs. Claypoole’s behalf. Medicaid applicant Connie Sanner also transferred money and purchased a 12-month annuity. (Original plaintiff Anabel Zahner is deceased and no longer a party.). The three applicants filed a case in federal court, arguing that the annuities met the requirements of federal Medicaid law and should not have been considered transfers. All parties asked for summary judgment. The U.S. district court granted the plaintiffs summary judgment with regard to the five-year annuities, but denied summary judgment with regard to the shorter annuities, holding that the term of the annuity had to “bear a reasonable relatedness to the beneficiary’s life-expectancy.” The court also held that a Pennsylvania statute that purported to make all annuities assignable was preempted by the federal Medicaid law. The U.S. Court of Appeals for the Third Circuit, affirmed the district court decision that federal law preempts Pennsylvania’s law making all annuities assignable, but reversed the decision that the short-term annuities are resources. The court writes that “any attempt to fashion a rule that would create some minimum ratio between duration of an annuity and life expectancy would constitute an improper judicial amendment of the applicable statutes and regulations.” The court further held that an annuitant’s motive in purchasing an annuity is not determinative of whether it is a resource.
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