Ohio under fire for blocking Medicaid for seniors whose spouses bought annuities
October 7, 2014 by Encarnacion Pyle
A war is being waged in Ohio over whether elderly couples with one person in a nursing home can buy an annuity to keep the other from going broke — and still apply for public assistance.
Elder-law attorneys say the state isn’t following federal laws regarding Medicaid-compliant annuities, and that’s hurting middle-class seniors who worked hard and saved for a rainy day.
Several courts seem to agree, with one judge recently putting the state on notice that it could lose millions of dollars in federal funding if it doesn’t change its ways.
“It is not our will to have Ohio disenrolled from the federal Medicaid program,” said William Browning, a Worthington lawyer representing several seniors in lawsuits against the state. “We just want them to follow the law.”
A federal judge in Cincinnati has granted a preliminary injunction requested by Browning and five other lawyers on behalf of three Hamilton County couples who were penalized by the state for purchasing annuities that they say meet strict federal regulations.
In her Sept. 26 ruling, U.S. District Judge Susan Dlott gave the state until today to file proof that it is complying with federal law.
If that doesn’t happen, Dlott said in court documents, she plans to hold a contempt hearing.
“In this case, there is little doubt the plaintiffs will succeed on the merits,” she said.
Dlott said she would consider issuing an order that federal officials withhold funding from Ohio’s Medicaid program.
She did not grant a request by the plaintiffs’ attorneys for the injunction to apply to anyone other than the plaintiffs.
State officials declined to comment. A trial date hasn’t been scheduled.
But in previous cases, the state has contended that plaintiffs bought the insurance-company-issued annuities so they would be eligible for Medicaid without using most of their own money to pay for nursing-home care.
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Medicaid is the nation’s main health-insurance program for low-income individuals and families, including seniors and people with disabilities. The federal government reimburses states for a percentage of the cost.
States want to protect their Medicaid dollars, especially as the nursing-home population swells and the elderly seek ways to limit their own costs by qualifying for Medicaid, said Bob Smith, a national public-policy advocate on health issues.
During economic downturns, unemployment soars, state revenue shrinks and the number of Medicaid-eligible Americans increases, placing additional financial strain on state budgets, according to a study by Pew Charitable Trusts.
In 2013, Ohio spent $19 billion in state and federal funds on Medicaid, according to state officials.
Until Congress shored up the rules in 2005, many people with considerable wealth abused annuities to shield their true value so they could leave money to their children and other heirs, Smith said. But on the other side, a mistake in determining Medicaid eligibility by states can mean legal bills and financial problems for seniors already dealing with the emotional strain of having a spouse in a nursing home, said Ralph Conrad, a Fairfield lawyer who is representing one of the Hamilton County couples.
Conrad said his 60-year-old client, Roy Reeves, had to move to an independent-living center, where he receives help from his family and others, after his wife, Ellen, 84, moved into a nursing home. Reeves was injured during the Vietnam War and has a plate in his head, he said. Until his wife developed dementia, she had been his caregiver.
“I understand when you go on Medicaid assistance, it is very expensive for the state,” he said. “I even understand that if you are the state, you want it to hurt a little bit for someone to be eligible for assistance.”
But it would cost the state even more if Mr. Reeves had to go to a nursing home, too, Conrad said.
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In order to qualify for Medicaid in Ohio, the person going into a nursing home is allowed to keep only $1,500 of “countable assets.” (Many other states allow $2,000.) Any income becomes payable to the nursing home.
Meanwhile, the healthy spouse can keep half of the couple’s total assets, up to $117,240.
Houses and cars are exempt. There is no limit on the healthy spouse’s income, and it is not counted in determining the other spouse’s eligibility for Medicaid.
For example, if a couple has $100,000 in assets when the husband moves into a nursing home, Medicaid allows him to keep $1,500 while the wife keeps $50,000.
By purchasing an annuity with the excess $48,500, the husband can transform his assets into a monthly income stream for his wife for a certain number of years, and that income isn’t counted.
“This is an issue that affects your average American older couple who worked, paid taxes and are just trying to get by,” said Miriam Sheline, an attorney at Pro Seniors Inc., which provides free legal and long-term-care help to older adults.
One of the plaintiffs in the Hamilton County case, Martha Wagner, who has Alzheimer’s, was admitted to a Cincinnati nursing home last October. Her husband, Joe Wagner, 83, worked as a maintenance man at Emery Industries for 40 years before retiring.
Before his wife applied for Medicaid, Mr. Wagner used about $37,000 from his two IRA accounts to buy a Medicaid-compliant annuity, said their lawyer, Rebecca Goodman. It generates $446 a month for Mr. Wagner, for a total of seven years. As required by law, it names Ohio as the beneficiary should he die before the money runs out.
With his pension and Social Security benefits, he lives off $2,674 a month.
In April, the state denied his wife’s nursing-home payments, and the couple received a $56,000 bill.
Goodman said she now hesitates to recommend that a client consider buying an annuity, even though she felt confident they were bulletproof just months ago.
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Last fall, the U.S. 6th Circuit Court of Appeals in Cincinnati found against the state in one of the nation’s highest-level rulings in favor of Medicaid-compliant annuities.
In that case, Ohio asked the U.S. Supreme Court to review the decision, but the high court declined to do so in March.
The plaintiff in that case, Harry Hughes, 81, of Canton, said he knew he was fighting for what was right.
He said he used money from his IRA account to pay for his wife Carole’s nursing-home care for nearly four years before he bought an annuity in 2009. He did it, he said, so he would have money to live for the next 10 years.
“I only get about $1,700 a month off the annuity, which isn’t a lot of money,” he said. “It’s like the government wants average Joes like myself to be in the poor house.”