United States Court of Appeals For the First Circuit
No. 18-1223
MAINE POOLED DISABILITY TRUST;
Plaintiff, Appellant,
YVONNE R. RICHARDSON, by her Conservator Barbara Carlin,
Plaintiff,
v.
RICKER HAMILTON, in his official capacity as Commissioner of Maine Department of Health and Human Services,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE
[Hon. John A. Woodcock, Jr., U.S. District Judge]
Before
Thompson, Kayatta, and Barron, Circuit Judges.
Ron M. Landsman, with whom Landsman Law Group, Rene H. Reixach, Jr., Woods, Oviatt, Gilman, LLP, Richard L. O'Meara, and Murray, Plumb & Murray were on brief, for appellant. Thaddeus A. Heuer, with whom Dean Richlin, Jeremy W. Meisinger, and Foley Hoag, LLP were on brief, for National Academy of Elder Law Attorneys and Guardian Community Trust, amicus curiae. David Scott Hamilton and Dennis M. Sandoval, APLC on brief for Special Needs Alliance, amicus curiae. Christopher C. Taub, Assistant Attorney General of Maine, with whom Janet T. Mills, Attorney General of Maine, and Susan P. Herman, Deputy Attorney General of Maine, were on brief, for appellee. Joseph H. Hunt, Assistant Attorney General, Halsey B. Frank, U.S. Attorney, Alisa B. Klein, Attorney, Civil Division, Appellate Staff, Casen B. Ross, Attorney, Civil Division, Appellate Staff, Robert P. Charrow, General Counsel, U.S. Department of Health and Human Services, Janice L. Hoffman, Associate General Counsel, U.S. Department of Health and Human Services, Susan Maxson Lyons, Deputy Associate General Counsel for Litigation, U.S. Department of Health and Human Services, David L Hoskins, Attorney, U.S. Department of Health and Human Services, W. Charles Bailey, Jr., Attorney, U.S. Department of Health and Human Services, on brief for the United States of America, amicus curiae.
June 20, 2019 KAYATTA, Circuit Judge. This case concerns transfers of
assets by individuals age sixty-five or older into what are called
"pooled special needs trusts." The issue posed is whether such
transfers are among those transfers that the Medicaid statute
counts against eligibility for long-term care benefits. The
district court held that they are. For the following reasons, we
agree.
I.
The pertinent facts are straightforward and materially
undisputed.
Yvonne R. Richardson is an elderly resident of
St. Joseph's Manor nursing facility in Portland, Maine. At the
time of the complaint, Richardson was eighty-seven years old and
receiving Medicaid benefits to help pay for the cost of her long-
term care. See generally 42 U.S.C. § 1396p(c)(1)(C)(i)(I)
(listing covered long-term care benefits, including nursing
facility services). In January 2017, Richardson's conservator,
Barbara Carlin, deposited $38,500 of the proceeds from the sale of
Richardson's former home into an account with Maine Pooled
Disability Trust ("MPDT"), a pooled special needs trust
established pursuant to 42 U.S.C. § 1396p(d)(4)(C).
Pooled special needs trusts allow disabled individuals
with relatively small amounts of money to pool their resources for
investment and management purposes. Lewis v. Alexander, 685 F.3d
- 3 - 325, 333 (3d Cir. 2012). They are designed to "provide for
expenses that assistance programs such as Medicaid do not cover."
Id. (quoting Sullivan v. County of Suffolk, 174 F.3d 282, 284 (2d
Cir. 1999)). Richardson hoped to use her MPDT funds to pay for
"modest expenditures" not covered by Medicaid "that would greatly
improve her quality of life," such as large-print word-search and
crossword puzzle books, new clothing, sweets, manicures,
magazines, and a radio. She also intended to hire a private
caregiver who could take her on excursions outside the nursing
facility.
Following Richardson's deposit of funds into her MPDT
account, the Maine Department of Health and Human Services
("MDHHS") issued a notice threatening to suspend Medicaid coverage
for her care at St. Joseph's Manor for "3.53 months" because
"[a]ssets were transferred" and she "did not get something of equal
value" in exchange. See 42 U.S.C. § 1396p(c)(1)(A) (penalizing an
institutionalized individual's "dispos[al] of assets for less than
fair market value"). In response, Richardson requested an
administrative hearing. She and MPDT also filed this lawsuit in
federal court challenging MDHHS's decision to suspend her Medicaid
coverage. The hearing officer subsequently stayed state
administrative proceedings pending resolution of the lawsuit.
Richardson will continue to receive Medicaid benefits until the
administrative review of MDHHS's decision is complete.
- 4 - Richardson and MPDT's complaint included two counts, but
only the second is at issue here.1 That count asserts a claim
under 42 U.S.C. § 1983, seeking a declaration and injunction
predicated on the assertion that Richardson's transfer of assets
into a pooled special needs trust is not a transfer that affects
Medicaid eligibility. The district court dismissed the complaint
under Federal Rule of Civil Procedure 12(b)(6). Richardson, 2018
WL 1077275, at *18.
In so doing, the district court ruled that Richardson
had standing to challenge the decision to suspend her Medicaid
coverage, but her claim was not yet ripe because "[a]ny penalty
(and related adverse impact on [Richardson's] benefits) ha[d] been
stayed pending her administrative appeal," such that her claims
"lack[ed] sufficient finality and definiteness" for judicial
review. Id. at *4–5. The district court determined that MPDT had
associational standing and that MPDT's contention that MDHHS's
ruling was currently causing MPDT to lose both enrollees and funds
rendered its claim ripe for adjudication. Finally, the district
1 The district court dismissed Count I, which alleged that Richardson and "others similarly situated" in fact "receive fair market value from the expenditures the [MPDT] can make on their behalf" and therefore should incur no transfer penalty, because it was premised on two provisions of the Medicaid statute that the court found to be unenforceable under 42 U.S.C. § 1983. Richardson ex rel. Carlin v. Hamilton, No. 2:17-CV-00134-JAW, 2018 WL 1077275, at *1, 13 (D. Me. Feb. 27, 2018). On appeal, MPDT does not contest that ruling.
- 5 - court ruled that MDHHS correctly applied the governing statute in
considering transfers to pooled special needs trusts in
determining eligibility.
MPDT alone filed a timely notice of appeal. No party
disputes that MPDT has standing or that its claim is ripe. Nor do
we see any reason to question either standing or ripeness sua
sponte. As the district court observed, because "(1) one of MPDT's
members, [Richardson], has standing to [sue]; (2) the interests at
stake . . . are germane to MPDT's purpose; and (3) the relief
requested does not require the participation of other MPDT
beneficiaries in this litigation," id. at *9, MPDT has standing to
bring its claims on behalf of its beneficiaries. See Council of
Ins. Agents & Brokers v. Juarbe-Jiménez, 443 F.3d 103, 108 (1st
Cir. 2006). And as to ripeness, no one cites any reason to doubt
that, as the district court found, MDHHS's ruling currently harms
MPDT. We therefore proceed to the merits of the order granting
MDHHS's motion to dismiss Count II, which we review "de novo,
applying the same criteria as the district court." Germanowski v.
Harris, 854 F.3d 68, 71 (1st Cir. 2017) (quoting Carrero-Ojeda v.
Autoridad de Energía Eléctrica, 755 F.3d 711, 717 (1st Cir. 2014)).
II.
Medicaid is a "health insurance program for low-income
individuals . . . funded by both the federal government and state
governments." Massachusetts v. Sebelius, 638 F.3d 24, 26 (1st
- 6 - Cir. 2011) (citing 42 U.S.C. § 1396 et seq.). Medicaid is supposed
to be a "payer of last resort," id. (quoting Ark. Dep't of Health
& Human Servs. v. Ahlborn, 547 U.S. 268, 291 (2006)), and Medicaid
eligibility criteria generally take an applicant's income and
wealth into account, see Lewis, 685 F.3d at 332.
Under Medicaid's prior asset-counting rules, inventive
"lawyers and financial planners . . . devised various ways to
'shield' wealthier [applicants'] assets," including by placing
assets in trusts. Johnson v. Guhl, 357 F.3d 403, 405 (3d Cir.
2004). So, Congress amended the Medicaid scheme, aiming, as a
general matter, to treat trusts as assets available to
beneficiaries, thus counting against Medicaid eligibility. Lewis,
685 F.3d at 333; see also Omnibus Budget Reconciliation Act of
1993, Pub. L. No. 103–66, 107 Stat. 312 (1993) ("OBRA").
Although state participation in Medicaid is voluntary,
participating states must adopt plans that meet certain
requirements that federal statutes and regulations impose. See
Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378, 1382
(2015). Failure to comply may jeopardize federal funds. See 42
U.S.C. § 1396a(a). Among these requirements, states must "comply
with the provisions of section 1396p . . . with respect
to . . . transfers of assets . . . and [the] treatment of certain
trusts." 42 U.S.C. § 1396a(a)(18). This case turns on the
- 7 - relationship between two particular provisions of section 1396p:
The Trust Provision and the Transfer Provision.
A.
The Trust Provision, section 1396p(d), sets forth
several general rules addressing the treatment of assets held in
trust (the trust corpus) and the treatment of payments out of
trusts. Assets in revocable trusts are considered resources
available to the applicant for purposes of determining his or her
entitlement to benefits. Id. § 1396p(d)(1), (3)(A)(i). Payments
from such trusts are considered either income of the applicant or
assets disposed of by the applicant under the Transfer Provision.
Id. § 1396p(d)(3)(A)(ii), (iii). Assets in irrevocable trusts are
also considered available resources to the extent that payments
could be made from such trusts for the applicant's benefit. Id.
§ 1396p(d)(3)(B)(i). And payments from these trusts are likewise
considered either income or transferred assets. Id.
§ 1396p(d)(3)(B)(i)(I), (II). Further, portions of irrevocable
trusts from which no payment could be made to the applicant are
considered transferred assets, and the value of the trust for
purposes of the Transfer Provision is determined by including the
amount of any payments made from such portion of the trust. Id.
§ 1396p(d)(3)(B)(ii).
These rules governing the treatment of trust corpuses
and payments out of trusts do not apply universally. The 1993 OBRA
- 8 - amendments exempted three types of trusts for disabled individuals
-- special needs trusts, Medicaid income trusts, and pooled special
needs trusts -- from the eligibility rules set out in the Trust
Provision. See id. § 1396p(d)(4)(A), (B), (C). This case
concerns pooled special needs trusts.
A pooled special needs trust "contain[s] the assets of
an individual who is disabled (as defined in [42 U.S.C.
§ 1382c(a)(3)])." Id. § 1396p(d)(4)(C). To qualify, such trusts
must meet the following conditions:
(i) The trust is established and managed by a nonprofit association.
(ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.
(iii) Accounts in the trust are established solely for the benefit of individuals who are disabled . . . by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.
(iv) To the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this subchapter.
Id. No one disputes on this appeal that MPDT satisfies these
conditions.
- 9 - B.
The Transfer Provision, section 1396p(c), also sets
forth a broad general rule: If an applicant or that person's
spouse "disposes of assets for less than fair market value on or
after the look-back date," the applicant is ineligible for
services, including long-term nursing care, for a period of time
based on the value of the assets disposed. Id. § 1396p(c)(1)(A).
For an institutionalized individual, the look-back date is a date
up to sixty months before the first date as of which the individual
is both institutionalized and has applied for benefits. Id.
§ 1396p(c)(1)(B)(i)–(ii). Essentially, this means that if a
person disposes of assets for less than fair market value while
receiving benefits or shortly before applying for benefits, the
disposition will postpone eligibility. In short, you can't make
yourself eligible for Medicaid faster by disposing of your assets
unless you act before the look-back date. Here, there is no
dispute that Richardson's transfer of assets occurred after the
look-back date.
The Transfer Provision also contains a list of
exceptions to its general rule governing the disposition of assets.
Especially relevant here are the two exceptions provided by
subsections 1396p(c)(2)(B)(iii) and (iv). First, subsection (iii)
applies to assets transferred to trusts, including pooled special
needs trusts, established for an applicant's disabled child.
- 10 - Second, subsection (iv) applies to assets "transferred to a trust
(including a trust described in subsection (d)(4) of this section)
established solely for the benefit of an individual under 65 years
of age who is disabled." Id. § 1396p(c)(2)(B)(iv) (emphasis
added). While we assume that MPDT is a trust "described in
subsection (d)(4)," and that Richardson's MPDT account was
established for her own benefit, she was not younger than sixty-
five when her conservator deposited the funds in the trust.
III.
We consider first the breadth of the general rule set
forth by the Transfer Provision: That general rule applies, as
relevant here, when a putative beneficiary "disposes of assets for
less than fair market value." Id. § 1396p(c)(1)(A). The statute
does not define "dispose," so we assume the word carries its
ordinary meaning. Merriam Webster defines "dispose," in relevant
part, as "to transfer to the control of another." Merriam
Webster's Collegiate Dictionary (10th ed. 1993). The Sixth Edition
of Black's Law Dictionary defines "dispose of" as "to alienate or
direct the ownership of property . . . to pass into the control of
someone else; to alienate, relinquish, or get rid of." Dispose
of, Black's Law Dictionary (6th ed. 1990). The statute's text
equates "dispose" with "transfer." Likewise, the Ninth Edition of
Black's defines "transfer" as "[a]ny mode of disposing of or
parting with an asset or interest in an asset." Transfer, Black's
- 11 - Law Dictionary (9th ed. 2009). Trust law, in turn, regards a
transfer or conveyance of property as necessary to create a valid
trust. 76 Am. Jur. 2d Trusts § 47 (2018).
In short, all principal resources strongly indicate that
when a person places her property into a trust (and most certainly
an irrevocable trust), thereby surrendering control of the
property to the trustee, she has disposed of the property. In the
absence of some reasonably specific instruction to the contrary,
it follows that the Transfer Provision's general rule covers the
conveyance of property to a trust, including a pooled special needs
trust like MPDT. That the Transfer Provision includes exceptions
for transfers to pooled special needs trusts in two circumstances
reinforces this conclusion. See 42 U.S.C. § 1396p(c)(2)(B)(iii)–
(iv). The presence of specifically enumerated exceptions also
indicates that Congress likely intended to make no other exceptions
apart from those specified. See Sony BMG Music Entertainment v.
Tenenbuam, 660 F.3d 487, 499 (1st Cir. 2011) (citing Tenn. Valley
Auth. v. Hill, 437 U.S 152, 188 (1978)).
MPDT characterizes the foregoing textual analysis as
unduly myopic. MPDT correctly observes that we must rest our
analysis on the statute as a whole, giving due weight to the
context in which the text at issue appears. When we do this, MPDT
contends, we should conclude that the Transfer and Trust Provisions
are "cognate subsections" with their "own area[s] of operation"
- 12 - that do not overlap except as "explicitly specified." Under this
view, the Trust Provision "broadly and comprehensively regulates
the impact on Medicaid eligibility of trusts created or funded by
the individuals seeking Medicaid benefits." And since nothing in
the Trust Provision states that a transfer of assets into a pooled
special needs trust will affect eligibility, MPDT reasons, that is
the end of the matter.
To underpin this view of how the two provisions interact,
MPDT and its supporting amici point to the treatment of irrevocable
trusts in subsection 1396p(d)(3)(B). Subsection 1396p(d)(3)(B)(i)
specifies that the portion of the trust corpus from which payments
could be made to the individual will be deemed available to the
individual, and payments from an irrevocable trust for any purpose
other than to or for the benefit of the individual "shall be
considered a transfer of assets by the individual subject to [the
Transfer Provision]." Subsection 1396p(d)(3)(B)(ii) further
provides that any portion of an irrevocable trust from which no
payment could be made to the individual "shall be considered, as
of the date of establishment of the trust . . . to be assets
disposed of by the individual for purposes of [the Transfer
Provision]." MPDT and amici argue that these commands to treat
certain parts of the corpus of or payments from an irrevocable
trust as subject to the transfer penalty give rise to a negative
- 13 - inference that establishing an irrevocable trust not penalized
under these subsections incurs no transfer penalty.
It appears that the Centers for Medicare and Medicaid
Services ("CMS"), the arm of the Department of Health and Human
Services ("HHS") that interprets the Medicaid statute, might have
shared the view that the specific commands of the Trust Provision
can take priority over the more general commands of the Transfer
Provision. We say "might" because CMS seemed to invoke this view
only when necessary to avoid a potential double penalty (e.g.,
penalizing the same transfer of assets twice). State Medicaid
Manual, Health Care Financing Administration Pub. 45–3,
Transmittal 64, § 3259.6(G) (Nov. 1994) ("To avoid such a double
penalty, application of one provision must take precedence over
application of the other provision." (emphasis added))
[hereinafter "Transmittal 64"]. In any event, even assuming this
view to be correct, MPDT and amici run into trouble in the very
next subsection. Subsection 1396p(d)(4) states that the entire
Trust Provision (including those portions of
subsection 1396p(d)(3) upon which MPDT relies to draw a negative
inference precluding application of the Transfer Provision in some
instances) does not apply to pooled special needs trusts. As the
Second Circuit has observed, "[S]ubparagraph (d)(4) exempts
qualifying trusts from the rules in (d)(3) but is silent about the
- 14 - nature or scope of the rules the agency should apply in their
stead." Sai Kwan Wong v. Doar, 571 F.3d 247, 260 (2d Cir. 2009).
MPDT would nevertheless have us conclude that the
exemption of pooled special needs trusts from the commands of the
Trust Provision leaves such trusts, for present purposes, exempt
as well from the Transfer Provision's general rule. But, like the
Second Circuit, we are "not inclined to infer from statutory
silence a congressional intent to have no rules whatsoever apply
to income placed in qualifying (d)(4) trusts." Id. Furthermore,
as we have already explained, the Transfer Provision broadly
applies to any disposition of assets to a trust (at least when not
overridden by the specific treatment of the Trust Provision).
Moreover, were MPDT correct that a transfer of assets to a pooled
special needs trust is not a disposition subject to the Transfer
Provision, that Provision's express exceptions for certain such
trusts in subsections 1396p(c)(2)(B)(iii) and (iv) would be
entirely irrelevant. Lawless v. Steward Health Care Sys., LLC,
894 F.3d 9, 23 (1st Cir. 2018) ("[C]ourts should try to avoid
interpretations that render statutory language mere surplusage.").
In an effort to parry the notion that its reading renders
subsections 1396p(c)(2)(B)(iii) and (iv) superfluous, MPDT argues
that the Transfer Provision only applies to transfers of assets to
third-party trusts -- not to so-called "self-settled" trusts
created for the benefit of the individual who created them. MPDT
- 15 - contends that the four exceptions to the general transfer rule
laid out in subsections 1396p(c)(2)(B)(i) through (iv) all involve
trust transactions for the benefit of someone other than the
applicant. Those subsections exempt assets transferred: (i) to
the individual's spouse or to another for the benefit of the
spouse, (ii) from the individual's spouse to another for the
benefit of the spouse, (iii) to the individual's child or to a
trust for the individual's child, and (iv) to a trust, including
a trust of the kind described in 42 U.S.C. § 1396p(d)(4),
established for the benefit of a disabled individual under age
sixty-five. If the exemptions only deal with transfers to or for
the benefit of third parties, the argument goes, the relative
comprehensiveness of the Trust Provision becomes more apparent --
and we may overlook the Transfer Provision's apparently clear
application to the transfer at issue here.
This argument requires a more creative reading of the
text of subsection 1396p(c)(2)(B)(iv) than we are willing to
undertake. MPDT would have us hold that "for the benefit of an
individual under 65 years of age who is disabled" means for the
benefit of such an individual other than the applicant. But, as
the Eighth Circuit explained in rejecting this same contention,
"the plain language of this paragraph does not address, let alone
restrict, the creator of the trust." Ctr. for Special Needs Tr.
Admin. v. Olson, 676 F.3d 688, 702 (8th Cir. 2012). If Congress
- 16 - intended subsection 1396p(c)(2)(B)(iv) to apply only to trusts
benefiting disabled individuals other than the applicant, we would
expect a clearer indication of that intent than the use of the
article "an" rather than "the" before the word "individual." As
the subsection stands, the phrase "an individual" includes the
applicant herself. Moreover, "[b]y referencing
'subsection (d)(4),' paragraph 1396p(c)(2)(b)(iv) necessarily
includes trusts created by the beneficiary, because
subsection (d)(4)(C) includes trusts created by the beneficiary."
Id. Finally, even if we were to read the Transfer Provision's
exceptions as limited to trusts established for other persons, we
would have simply limited the scope of the exceptions without
limiting the scope of that Provision's general rule.
MPDT also puts forward a redundancy argument. To advance
this claim, MPDT points again to subsection 1396p(d)(3)(B)(ii) of
the Trust Provision. MPDT reasons that this subsection would be
unnecessary if the Transfer Provision already, by its own force,
classified the transfer of assets to a trust, unless excepted, as
grounds for an eligibility penalty. But this claimed redundancy
says nothing about the impact of the Transfer Provision on exempt
trusts, like MPDT, as subsection 1396p(d)(3)(B)(ii) does not apply
to funds placed in these trusts. See 42 U.S.C. § 1396p(d)(4).
Moreover, as we have already explained, MPDT's alternative reading
would itself treat as surplusage subsections 1396p(c)(2)(B)(iii)
- 17 - and (iv), which expressly exempt from the Transfer Provision
certain transfers into pooled special needs trusts, but not others.
Given a choice between two potential redundancies, we are inclined
to opt for the one that does not require us to ignore the most
natural reading of the text of the Transfer Provision's general
rule.
Properly returning its focus to that general rule, MPDT
and amici also claim that no transfer or disposal of assets
occurred at all in this case because the funds were "given to the
trustee of a self-settled trust." Citing
subsection 1396p(d)(3)(B)(i), MPDT maintains that such assets
remain "available" to beneficiaries, albeit not in the case of
pooled special needs trusts. MPDT cites no authority for its
assertion that assets transferred to self-settled pooled special
needs trusts "still belong to the applicant," such that "they have
not been transferred." Rather, as MDHHS avers, the conveyance at
issue here constituted an "irrevocable transfer" of legal title to
a trustee with "sole and uncontrolled discretion" to make
distributions for the benefit of the beneficiary. As we have
already explained, the customary meaning of the statutory word
"disposes" in the general transfer rule fairly encompasses such a
conveyance. Indeed, MPDT points to no definition of the term that
would not encompass such a conveyance. We therefore cannot agree
with MPDT that the entire Transfer Provision is inapplicable when
- 18 - a putative beneficiary transfers her assets to a self-settled
pooled special needs trust.
Taking an alternative track, MPDT seems to suggest that
our reading of the statute actually leaves CMS no room to allow
the Trust Provision's specific mandates to, in some situations,
override the Transfer Provision's general rule. And because,
without this latitude, reasons MPDT, double penalties (for
ineligibility and availability or for two transfers) would
necessarily occur, our reading must be incorrect. But, as we noted
earlier, Transmittal 64 seems to state that the Trust Provision
should be "given precedence" when a transfer of assets into a
nonexempt trust would be otherwise penalized twice.
Transmittal 64, § 3259.6(G). MPDT never explains why CMS would
not still have this leeway under our reading or even how frequently
(and unavoidably) such double penalties might occur. Furthermore,
as we have already observed, the entirety of the Trust Provision
does not apply to pooled special needs trusts. So, any carve-out
from the transfer rules that the Trust Provision might create would
have no application to the trust at issue in this case.
In light of the complexity of the foregoing discussion,
we summarize our reading of the statute: Subsection 1396p(c)(1)(A)
of the Transfer Provision plainly and broadly treats as an
eligibility-delaying transfer any disposition of beneficiary
assets to a trust for less than fair market value;
- 19 - subsection 1396p(c)(2)(B)(iv) of the Transfer Provision creates an
exception from that general rule for certain transfers to pooled
special needs trusts established for the benefit of the
beneficiary, but only when the beneficiary is under sixty-five
years of age; and subsection 1396p(d)(3)(B) of the Trust Provision
may also implicitly except from that general rule certain transfers
to irrevocable trusts, but that subsection does not apply to pooled
special needs trusts, which are exempted from the whole of the
Trust Provision under subsection 1396p(d)(4)(C). So, when a
beneficiary who is age sixty-five or older gives up her assets for
less than fair market value to a pooled special needs trust, there
has been a transfer that triggers a temporary period of
ineligibility.
Our reading is consistent with the holdings and dicta of
other courts that have considered the issue. See Olson, 676 F.3d
at 702 ("By the omission of an age limit in the 'C' paragraph of
subsection (d), Congress's intent was to permit disabled persons
over age 65 to participate in 'C' pooled trusts."); Cox v. Iowa
Dep't of Human Servs., 920 N.W.2d 545, 553 (Iowa 2018)
(distinguishing "between an individual's participation in a pooled
special needs trust and the individual's temporary
disqualification from Medicaid long-term care benefits based on
that participation"); In re Pooled Advocate Trust, 813 N.W.2d 130,
142 (S.D. 2012) (noting that the Medicaid statute
- 20 - "differentiate[s] between participation in a pooled trust and
subsequent penalty periods and delays in eligibility for transfers
to the trust" (citing Olson, 676 F.3d at 702)).
So too, agency interpretations of the Trust and Transfer
Provisions bolster our understanding of the statutory language.
The U.S. Supreme Court has recognized that "even relatively
informal" CMS guidance "'warrant[s] respectful consideration' due
to the complexity of the [Medicaid] statute and the considerable
expertise of the administering agency." Cmty. Health Ctr. v.
Wilson-Coker, 311 F.3d 132, 138 (2d Cir. 2002) (quoting Wis. Dep't
of Health & Family Servs. v. Blumer, 534 U.S. 473, 497 (2002)).
Here, the district court, the parties, and amici focus on three
separate agency interpretations of the relevant provisions: State
Agency Regional Bulletin No. 2008-05 (the "Bulletin"),
sections 3257 through 3259 of the State Medicaid Manual
("Transmittal 64"),2 and the Social Security Administration's
Program Operations Manual ("SSA Manual").
As we have already explained, Transmittal 64 can indeed
be read as stating that the specific commands of the Trust
Provision take precedence over the Transfer Provision's general
rule, at least when necessary to avoid a potential double penalty.
2Updates to the State Medicaid Manual are known as "transmittals." CMS issued Transmittal 64 shortly after OBRA was passed in 1993.
- 21 - But Transmittal 64 also makes clear that, while certain trusts are
exempt from both the Trust and Transfer Provisions, "a special
needs trust established for a disabled individual who is age 66
could be subject to a transfer penalty." Transmittal 64
§ 3259.7(B). MDHHS also correctly notes that there is no prospect
of a double penalty in this case. That is, while a transfer of
assets to a pooled special needs trust may be subject to a penalty
period under the transfer rule, funds in pooled special needs
trusts are not considered available -- and therefore are not
"penalized" for eligibility purposes -- under the Trust Provision.
So, although Transmittal 64 states that "the trust provisions are
given precedence in dealing with assets placed in trusts" to avoid
such a double penalty, this guidance is irrelevant here because
assets placed in pooled special needs trusts are never subject to
a double penalty. Id. § 3259.6(G).
The CMS Boston Regional Office's 2008 Bulletin
explicitly supports our reading of the Medicaid statute, stating,
in no uncertain terms: "A pooled trust established by an
individual age 65 or older is not exempt from the transfer of
assets provisions." Ctrs. for Medicare & Medicaid Servs., State
Agency Reg'l Bull. No. 2008-05, Medicaid Eligibility --
Application of Transfer of Assets Penalty for Pooled Trust (2008).
It further provides:
- 22 - Although a pooled trust may be established for beneficiaries of any age, funds placed in a pooled trust established for an individual age 65 or older may be subject to penalty as a transfer of assets for less than fair market value. When a person places funds in a trust, the person gives up ownership of those funds. Since the individual generally does not receive anything of comparable value in return, placing funds in a trust is usually a transfer for less than fair market value. The statute does provide an exception to imposing a transfer penalty for funds that are placed in a trust established for a disabled individual. However, only trusts established for a disabled individual age 64 or younger are exempt from application of the transfer of assets penalty provisions . . . .
Id.
The Social Security Administration reaches the same
conclusion in its Program Operations Manual, "the publicly
available operating instructions for processing Social Security
Claims." In re Pooled Advocate Trust, 813 N.W.2d at 145 (quoting
Wash. State Dep't of Soc. & Health Servs. v. Guardianship Estate
of Keffeler, 537 U.S. 371, 385 (2003)). The SSA Manual
acknowledges that, while "[t]here is no age restriction under [the
Trust Provision's] exception," it also states that "a transfer of
resources to a trust for an individual age 65 or over may result
in a transfer penalty." Soc. Sec. Admin., Program Operations
Manual System, Exceptions to Counting Trusts Established on or
after 1/1/00, SI 01120.203(B)(2)(a); see also Social Sec. Admin,
Program Operations Manual System, Exceptions - Transfers to a
- 23 - Trust, SI 01150.121(A)(3) ("The period of ineligibility does not
apply to an individual who transfers a resource to a trust
established for the sole benefit of an individual including himself
or herself who is under age 65 and is blind or disabled.").
Amici argue that the Bulletin's interpretation must be
legally incorrect because it would "nullif[y]" the exemption of
pooled special needs trusts from section 1396p(d). But, as MDHHS
counters, "application of the Transfer Provision to the funding of
pooled special needs trusts does not prevent the Trust Provision
from conferring real and tangible benefits." Rather, assets in
pooled special needs trusts are never counted as available
resources or income under the Trust Provision, and transfers into
such trusts by applicants before they reach the age of sixty-five
are not subject to a penalty period at all. See In re Pooled
Advocate Trust, 813 N.W.2d at 143 (noting the need to
"differentiate between being denied Medicaid long-term care
assistance and being subject to a delay in eligibility for Medicaid
long-term care assistance via a penalty period" and explaining
that "[t]he applicant may . . . qualify for medical-only coverage
during the penalty period[,] . . . and after the penalty period
expires, the applicant may thereafter be eligible for long-term
care assistance."). Although the impact of a penalty period on
eligibility for long-term care benefits is certainly not
- 24 - negligible, neither are the potential benefits that remain from
participation in timely-created pooled special needs trusts.
It is true that CMS recognized in Transmittal 64 that
applying the Transfer Provision to so-called Miller trusts would
render them ineffective, so CMS allows certain Miller trusts to
avoid a transfer penalty. See Transmittal 64 § 3259.7(B)(2). MPDT
contends that such an allowance conflicts with CMS's view that the
Transfer Provision applies to some exempt (d)(4) trusts, like MPDT,
signaling that this interpretation must be incorrect. But
Transmittal 64 provides only that a transfer penalty is not
triggered when "resources placed in [a] trust are used to benefit
the individual, and the trust purchases items or services for the
individual at a fair market value." Id. Of course, if the
disposition of assets is indeed for fair market value, the Transfer
Provision -- by its plain terms -- does not apply.3
To the extent that MPDT further asserts that the plain-
text interpretation of the Trust and Transfer Provisions runs
against the congressional purpose motivating their enactment, it
discounts Congress's clear intent to ensure that individuals
"exhaust their own resources before turning to the public for
assistance." Lewis, 685 F.3d at 332–33; see also Sai Kwan Wong,
3 As noted above, and as Judge Barron's concurring opinion explains in detail, MPDT does not argue on this appeal that Richardson received fair market value in the form of the expenditures MPDT would make on her behalf.
- 25 - 571 F.3d at 261 (noting "Congress's general instruction that
individuals must contribute their available income to the cost of
their institutional care"). As the United States asserts,
"Congress sought to ensure that state resources would be available
for the low-income individuals who are most in need."
IV.
In the end, we need not and do not decide that MPDT's
interpretation of the statute lacks reason. Rather, we hold that
the district court's judgment granting MDHHS's motion to dismiss
rests on a more reasonable interpretation of the statute. That
judgment is therefore affirmed.
- Concurring Opinion Follows -
- 26 - BARRON, Circuit Judge, concurring. I join in full our
opinion affirming the District Court's dismissal of Maine Pooled
Disability Trust's ("MPDT") claim that "no statute imposes a
transfer of assets penalty for transfers to an exempt pooled
special needs trust such as the MPDT." I think it important to
emphasize, though, one point that our opinion notes: MPDT failed
to make any developed argument to us that the Maine Department of
Health and Human Services ("MDHHS") violated its statutory right
to operate a pooled special needs trust pursuant to 42 U.S.C.
§ 1396p(d)(4)(C) by not recognizing the settlement of such a trust
as a transfer of assets for "fair market value." 42 U.S.C.
§ 1396p(c)(1)(A).
In consequence of that failure, we have no occasion to
address that distinct legal contention. See United States v.
Zannino, 895 F.2d 1, 17 (1st Cir. 1990). But, in future cases,
settlors of pooled special needs trusts, and perhaps the trusts
themselves, may well seek to argue in support of their § 1983 suits
against states seeking to impose the transfer penalty that no such
penalty may be imposed, because the settlor receives "fair market
value" for the funds used to create the trust from the expenditures
that the trust makes for the settlor's benefit. And, in the event
that argument is pressed in such future cases,4 they may well bring
4For reasons not relevant here, the District Court determined below that it had no jurisdiction to hear the settlor's § 1983
- 27 - to the fore an issue that we bypass here, but that may bear on how
these technical statutory provisions should be construed: whether
the Centers for Medicare & Medicaid Services ("CMS") is of the
view that the settlement of a pooled special needs trust may
constitute a transfer of assets for "fair market value" within the
meaning of 42 U.S.C. § 1396p(c)(1)(A)?
I thus write separately to explain why that issue may
matter, in hopes of clearing away some possible confusion down the
line. For, whether CMS considers the settlor of a pooled special
needs trust to have received "fair market value" from the
expenditures that the trust makes on the settlor's behalf may very
claim. See Richardson ex rel. Carlin v. Hamilton, No. 2:17-CV- 00134-JAW, 2018 WL 1077275, at *5 (D. Me. Feb. 27, 2018). The District Court also concluded that the trust itself -- MPDT -- was not positioned to argue, under § 1983, that it had an enforceable right that had been violated by MDHHS, insofar as MPDT sought to premise that enforceable right on 42 U.S.C. § 1396p(c) (the "Transfer Provision"). See id. at *12-13. MPDT does not challenge that ruling and thus makes no contention that, even if the transfer rule does apply, no transfer penalty may be imposed because its "fair market value" condition has been met. See 42 U.S.C. § 1396p(c)(1)(A). There is precedent to suggest, however, that settlors of such trusts -- and perhaps the trusts themselves -- may sue states under § 1983 for subjecting deposits into such trusts to the transfer penalty in circumstances where, although the rule applies, the terms of the rule have been complied with such that no penalty should be imposed. See, e.g., Dultz v. Velez, 726 F. Supp. 2d 480, 490 (D.N.J. 2010) ("conclu[ding] that § 1396p(c)(1) creates an individually enforceable right"); Aplin v. McCrossen, No. 12-CV-6312FPG, 2014 WL 4245985, at *20 (W.D.N.Y. Aug. 26, 2014) ("[C]ompliance with the federal transfer of assets statute is mandatory on the States and is enforceable under 42 U.S.C. § 1983."); cf. Johnson v. Guhl, 91 F. Supp. 2d 754, 770 (D.N.J. 2000) (holding that "§ 1396p(c)(2)(D) provides for a cause of action under § 1983").
- 28 - well affect the persuasiveness of a contention by a future settlor
of such a trust -- or by the trust itself -- that no transfer
penalty should be imposed. After all, this body of law is quite
technical, and the case for according deference to a persuasive
interpretation of it by CMS would seem to me to be quite strong.
See United States v. Mead Corp., 533 U.S. 218, 235 (2001) ("There
is room . . . to raise a Skidmore claim . . . where the regulatory
scheme is highly detailed, and [the agency] can bring the benefit
of specialized experience to bear on the subtle questions in th[e]
case." (citing Skidmore v. Swift & Co., 323 U.S. 134 (1944)).
CMS's state Medicaid eligibility manual, Transmittal 64,
provides that no transfer penalty should be imposed on the
settlement of an exempt trust if "resources placed in the trust
are used to benefit the individual, and the trust purchases items
and services for the individual at fair market value." State
Medicaid Manual, Health Care Financing Administration Pub. 45–3,
Transmittal 64, § 3259.7(B)(2) (Nov. 1994) [hereinafter
"Transmittal 64"]. MPDT -- like MDHHS -- appears to be of the
view that CMS created this "fair market value" workaround only for
so-called Miller trusts, see 42 U.S.C. § 1396p(d)(4)(B), and not
for pooled special needs trusts. I say that because MPDT advances
an argument in service of its contention that the transfer rule
- 29 - does not apply to exempt trusts that necessarily proceeds on that
assumption.
But, contrary to MPDT's apparent view, the text of
Transmittal 64 seems most naturally read to treat the rules
concerning the "fair market value" workaround as applying to all
exempt trusts, pooled special needs trusts among them. The
subsection of Transmittal 64 that sets forth the eligibility rules
for pooled special needs trusts states, in no uncertain terms,
that "[r]esources placed in an exempt trust for a disabled
individual are [not] subject to imposition of a [transfer]
penalty . . . [if] the resources placed in the trust are used to
benefit the individual, and the trust purchases items and services
for the individual at fair market value." Transmittal 64
§ 3259.7(B)(2) (emphasis added).
That subsection does direct us to "[s]ee subsection
C" -- which is, in turn, titled "Miller-Type or Qualifying Income
Trusts (QIT)" -- "for the rules concerning application of the
transfer of assets provisions to assets placed in an exempt trust."
Id. (emphasis added). But, the subsection goes on to state that
"[t]hese rules apply to . . . resources placed in the exempt
trusts discussed in this section," which include pooled special
needs trusts. Id. (emphasis added).
Some states -- including Maine -- appear to share MPDT's
view that CMS does not treat the deposit of funds into a pooled
- 30 - special needs trust as a transfer for fair market value, even if
the trust makes purchases on the settlor's behalf. The states
appear to base that understanding on a subsequent bulletin that
CMS issued in 2008 on the treatment of pooled special needs trusts
(the "2008 Bulletin"), which does not mention this "fair market
value" workaround for that type of trust. See Ctrs. for Medicare
& Medicaid Servs., State Agency Reg'l Bull. No. 2008-05, Medicaid
Eligibility -- Application of Transfer of Assets Penalty for Pooled
Trust (May 12, 2008).
But, while the 2008 Bulletin does instruct state
agencies that, pursuant to 42 U.S.C. § 1396p(c)(2)(B)(iv), "only
[pooled] trusts established for a disabled individual age 64 or
younger are exempt from application of the transfer of assets
penalty provisions," 2008 Bulletin at 1 (emphasis added), that
statement is not necessarily at odds with the view that I glean
from Transmittal 64. Even if the Transfer Provision does apply to
pooled special needs trusts, a transfer penalty may only be imposed
under that provision where the settlor "disposes of assets for
less than fair market value." 42 U.S.C. § 1396p(c)(1)(A) (emphasis
added).5 Thus, the fact that the 2008 Bulletin states that "funds
5 The 2008 Bulletin does state that "[w]hen a person places funds in a trust, the person gives up ownership of those funds. Since the individual generally does not receive anything of comparable value in return, placing funds in a trust is usually a transfer for less than fair market value." 2008 Bulletin at 1 (emphasis added). But, read in context, that appears to be a
- 31 - placed in a pooled trust established for an individual age 65 or
older may be subject to penalty as a transfer of assets for less
than fair market value" actually suggests -- contrary to the views
of some states -- that CMS may still recognize, as it appeared to
in Transmittal 64, that such a disposal of assets may escape a
transfer penalty if it is for "fair market value." 2008 Bulletin
at 1 (emphasis added).
Notably, the United States's amicus brief on behalf of
CMS is silent on this very point. That fact only serves to
underscore for me the possibility that CMS is still of the view
that it seemingly espoused in Transmittal 64: that the settlor of
a pooled special needs trust can be deemed to receive fair market
value for settling the trust from the purchases that the trust can
make on her behalf. Consistent with that suspicion, the United
States's amicus brief even emphasizes that "for purposes of this
appeal, it is undisputed that [the settlor] did not receive fair
market value in disposing of [her] assets [to MPDT]."
Insofar as CMS does hold such a view, there remains the
question of how the "fair market value" workaround would work.
Transmittal 64 provides that "an individual is considered to have
received fair market value for funds placed in a[n] [exempt] trust"
general statement about trusts, and not a statement specific to pooled special needs trusts.
- 32 - from certain payments "out of the trust." Transmittal 64
§ 3259.7(C)(3). The payments include those made "out of the trust
for medical care provided to the individual," which "purchased
care at fair market value" and "any other payments made from the
trust which are for the benefit of the individual and which reflect
fair payments for any items or services which were purchased."
Id. The items or services purchased are, in turn, described as
including trust fees, "food or clothing for the individual, or
mortgage payments for the individual's home." Id.
Given that the workaround is based on purchases that the
trust makes after funds have been placed in the trust, it runs
into a potential statutory problem. The transfer rule imposes an
eligibility penalty only if an applicant "disposes of assets for
less than fair market value" within the look-back period. 42
U.S.C. § 1396p(c)(1)(A). The statute does not define "dispose[]"
or "fair market value." But, as our opinion explains, and as
Transmittal 64 itself reflects, the ordinary meaning of
"dispose[]" encompasses a deposit of funds into a trust -- even an
exempt trust -- because "[a]n individual placing an asset in a
trust generally gives up ownership of the asset to the trust."
Transmittal 64 § 3259.6(G).
Read in light of the entire statutory phrase, then, the
relevant inquiry for determining whether a disposal of assets is
"for less than fair market value" would seem to be whether "the
- 33 - individual . . . receive[s] fair compensation in return" for the
assets at the time of their disposal. Id. And, consistent with
that understanding, Transmittal 64 itself defines "fair market
value" as "an estimate of the value of an asset, if sold at the
prevailing price at the time it was actually transferred." Id.
§ 3258.1(A)(1) (emphasis added).6 Hence, the potential problem
with the workaround: At the actual time of the transfer into the
trust, the settlor usually receives nothing tangible -- at least,
nothing that could be said to constitute "fair market
value" -- immediately in return, even if the trust is set up in a
manner that obligates the trust to make future purchases of
services or goods (at fair market value) for the settlor's benefit.
Transmittal 64 appears to recognize the potential
statutory problem that arises from the mismatch between the timing
of the settlor's deposit and the trust's expenditures, and it thus
appears to propose a solution to the seeming problem. It provides
that "[a]n individual cannot be considered to have received fair
market value for funds placed in a trust until payments for some
item or service are actually made." Transmittal 64 § 3259.7(C)(3)
6 Consistent with Transmittal 64's definition, MDHHS's policy manual defines "fair market value" as "compensation received for the asset . . . in a tangible form with intrinsic value that is equivalent to or greater than the value of the transferred asset" and provides that "[f]air market value must be received by the individual and not delivered at a future date." Maine Dep't of Health and Human Services, 10-144 Chapter 332, MaineCare Eligibility Manual, § 1.5 (Apr. 17, 2019) (emphasis added).
- 34 - (emphasis added). "Thus," according to Transmittal 64, "funds
cannot be allowed to accumulate indefinitely in a[n] [exempt] trust
and still avoid transfer of assets penalties." Id.
Transmittal 64 in this way seems to contemplate that a
retroactive adjustment of the transfer penalty would need to be
made after "payments [out of the trust] for some item or service
are actually made." Id. Transmittal 64 says little about how
such a retroactive adjustment could be made. But, Transmittal 64
does note that the Transfer Provision separately provides that no
transfer penalty should be imposed when "all assets transferred
for less than fair market value have been returned to the
individual." See 42 U.S.C. § 1396p(c)(2)(C)(iii); Transmittal 64
§ 3258.10(C)(3). And, with respect to that separate statutory
exception, Transmittal 64 explains that "[w]hen a penalty has been
assessed and payment of services denied, a return of assets
requires a retroactive adjustment, including erasure of the
penalty, back to the beginning of the penalty period." Transmittal
64 § 3258.10(C)(3). Transmittal 64 further provides, in
explaining how that retroactive adjustment may be made, that
"[w]hen only part of an asset or its equivalent value is returned,
a penalty period can be modified but not eliminated. For example,
- 35 - if only half the value of the asset is returned, the penalty period
can be reduced by one-half." Id.
There is a case to be made, then, that CMS is of the
view that the Medicaid statute permits this retroactive "fair
market value" workaround for pooled special needs trusts that I
have just described. And thus, a settlor of a pooled special needs
trust, or such a trust itself, may be well positioned to assert in
a future case both that no transfer penalty may be imposed on
deposits into such a trust even if the transfer rule does -- as we
now hold -- apply and that CMS itself holds that same view.
Having CMS as an ally in such a suit obviously could be
quite helpful. After all, the statute itself does not define
"dispose[]" or "fair market value." CMS's expertise in
interpreting those key statutory terms in such a highly technical
regulatory regime thus would seem to "warrant[] respectful
consideration." Wis. Dep't of Health & Family Servs. v. Blumer,
534 U.S. 473, 497 (2002) (noting CMS's "significant
expertise . . . in the context of a complex and highly technical
regulatory program" (internal quotation marks and citations
omitted)); see also Mead, 533 U.S. at 235.
We are not confronted here, however, with any such
contention by MPDT. It argues that no transfer penalty should
have been imposed on the settlor only because it asserts that the
- 36 - transfer rule itself does not apply. I thus fully agree that the
decision below must be affirmed, as we face only a case in which
CMS contends that the transfer rule does apply and in which the
pooled special needs trust at issue has made no argument that it
has been established in such a way that its settlor should be
deemed to comply with that rule's "fair market value" condition.
- 37 -