Massachusetts SJC Hearing Recap: Should MassHealth Be Named Primary Beneficiary?

Yesterday, the Massachusetts Supreme Judicial Court (SJC) heard oral arguments regarding the case of EOHHS of the Commonwealth of Massachusetts v. Linda Marie Mondor, et al. The arguments centered around whether the commonwealth must be named primary remainder beneficiary on MassHealth community spouse annuities, or if the annuity is for the sole benefit of the community spouse, thus allowing the annuitant to name their own beneficiaries.

Recent Cases Involving Community Spouse Annuity Beneficiaries in Massachusetts

This issue has been prevalent in Massachusetts for the last few years and has resulted in conflicting decisions.

Dermody v. EOHHS
In January 2020, the superior court ruled that as long as the annuity is purchased for the sole benefit of the community spouse, MassHealth does not have to be named the primary beneficiary. Furthermore, the ambiguous language in the beneficiary designation of the contract favored the position of the family beneficiary.

American National Insurance Co. v. Breslouf
Then, in June 2021, a trial court held that MassHealth must be named the primary beneficiary on community spouse annuities, which had a major impact on Massachusetts practitioners who had been operating under the Dermody decision for several months.

EOHHS vs. Linda Marie Mondor and Others
Most recently, an appellate court was presented with arguments from the commonwealth as well as a group of beneficiaries of community spouse annuities. This case was then escalated to the Supreme Judicial Court of Massachusetts, which brings us to the hearing this past week.

Massachusetts Beneficiary Hearing on Feb. 2, 2022

Oral Arguments from the Appellant, representing EOHHS

During the hearing, the appellant, EOHHS, argued that annuities are used as spend-down tools for Medicaid planning. Of the cases being argued in this hearing, no changes to relevant policies have occurred since 2008.

â¬…ï¸ Appellant argument: Community spouse annuities are governed by 42 U.S.C. § 1396p(c)(1)(F) and require the Commonwealth to be named as primary beneficiary. This is irrespective of “sole benefit” transfers under 42 U.S.C. § 1396p(c)(2)(B). #MassBeneficiary

“” Krause Financial Services (@MedicaidAnnuity) February 2, 2022

For reference, 42 U.S.C. § 1396p(c)(1)(F) states that the purchase of an annuity is treated as a divestment of assets for less than fair market value unless the state is named as remainder beneficiary for at least the total amount of benefits paid on behalf of the institutionalized individual.

Justice David Lowy inquired as to why there was no legislative action following Hughes v. McCarthy, a related case out of Ohio. In the Hughes case, the Sixth Circuit court ruled that annuities purchased by the community spouse need not designate the state Medicaid agency as beneficiary as long as the contract is actuarially sound. EOHHS argues there was no need for action given the clarity of 42 U.S.C. § 1396p(c)(1)(F).

➡️ Appellee argument: If annuities complied with the “sole benefit” rule described in 42 U.S.C. § 1396p(c)(2)(B), then the Commonwealth is not required to be named as beneficiary. This applies when the annuity is actuarially sound. #MassBeneficiary#MassBeneficiary

“” Krause Financial Services (@MedicaidAnnuity) February 2, 2022

The DRA originally stipulated annuities used in Medicaid planning must name the state Medicaid agency as primary beneficiary to the extent of benefits paid on behalf of the annuitant. However, the 2006 amendment clarified this requirement to be to the extent of benefits paid on behalf of the institutionalized individual. The appellant argued this distinction clarifies Congress’s intent to recover on all annuities used in Medicaid planning.

Going further, EOHHS alleged the appellees’ interpretation of the “sole benefit” rule undercuts the legislative intent of the beneficiary rule and leaves the door open for married couples to circumvent the estate recovery provisions meant to prevent abuse of the Medicaid program. In response, the SJC notes this area of the law is underdeveloped, but Justice Dalila Wendlandt questioned what the “sole benefit” rule applies to if it is not meant for annuities.

Chief Justice Kimberly Budd then pivoted the conversation to legislative history surrounding spousal impoverishment. The key question is, should an annuity be used to protect a community spouse’s assets in Medicaid planning?

Oral Arguments from the Appellee, representing Linda Mondor, et al.

At the beginning of their arguments, the appellee recalled a question posed earlier in the hearing by the SJC as to why this matter is just being argued now. The appellee suggested that EOHHS has applied different interpretations of the rules across different related cases.

➡️ Appellee argument: If annuities complied with the “sole benefit” rule described in 42 U.S.C. § 1396p(c)(2)(B), then the Commonwealth is not required to be named as beneficiary. This applies when the annuity is actuarially sound. #MassBeneficiary#MassBeneficiary

“” Krause Financial Services (@MedicaidAnnuity) February 2, 2022

For reference, 42 U.S.C. § 1396p(c)(2)(B) states that an applicant can still qualify for Medicaid if they made an otherwise ineligible transfer for the sole benefit of the individual’s spouse. The appellee argued this “sole benefit” rule applies when the annuity is actuarially sound, meaning it is structured with a term equal to or shorter than the owner’s Medicaid life expectancy. In the case of a community spouse annuity, the appellee argued the income stream from the annuity provides support to the spouse and prevents pauperization during their lifetime.

Justice Wendlandt questioned if the same stipulations apply to wealthy couples trying to shield assets. The appellee responded that as long as the annuity satisfies the “sole benefit” rule under 42 U.S.C. § 1396p(c)(2)(B), it is acceptable. The SJC expressed concern regarding the possibility of wealthier individuals taking advantage of the system in order to pursue Medicaid benefits. The appellee responded that Congress has not established a cap on how much can be funded into an annuity.

Chief Justice Budd signals some persuasion regarding the intent of the DRA as argued by EOHHS. Appellee responds stating that Congress intended to avoid impoverishment of the community spouse. The “sole benefit” rule is part of that. #MassBeneficiary#MassBeneficiary

“” Krause Financial Services (@MedicaidAnnuity) February 2, 2022

Going further, the appellee brought up the carveout for promissory notes as part of the DRA. A community spouse could theoretically use a promissory note to achieve the same goal without any state payback provisions. Why is this allowed with promissory notes but not annuities? Justice Lowy stated and confirms this is not a public policy case and, rather, a case of Medicaid statute interpretation.

The appellee turned back to the Hughes case to support their argument regarding the “sole benefit” rule, and the SJC continued to express concern over potential abuse of the system by wealthy couples. The appellee argued that the ultra-wealthy are not seeking Medicaid and instead seeking care at a more prestigious facility they can afford. The appellee also addressed the state statute regarding estate recovery, which protects an individual’s assets beyond the probate estate.

See our full live breakdown of the hearing on Twitter.

Coming Soon: A Decision on MassHealth Community Spouse Annuity Beneficiaries

Stay tuned for updates and a final decision from the Massachusetts SJC regarding community spouse annuities and whether MassHealth must be named remainder beneficiary. In the meantime, we encourage you to reach out to our team if you have any questions or concerns about this case.