Man: This is SJC-13179;
executive office of health and human services
of the Commonwealth of Massachusetts.
We have Linda Marie Mondor and SJC-13199,
Laurie A. Germany,
the executive office of health and human services
of the Commonwealth.
-: Okay, thank you.
Attorney, Boodoo.
-: Thank you, Chief Justice, Budd.
And may I please the court.
In each of the three cases before you today,
married couples use their joint spousal assets
to purchase annuities as part of a strategy
for spending down one of the spouses
into eligibility for MassHealth long-term care benefits.
In each case, the spouse, not in a nursing home,
the so-called community spouse was the named annuitant,
the person receiving the monthly payments,
and the Commonwealth was the first remainder beneficiary.
And in each case, the community spouse passed away
with payments on the annuity still left to be made,
triggering the Commonwealth's remainder rights.
The issue here is the meaning of those remainder rights.
And that question turns on whether the relevant provisions
of the Deficit Reduction Act apply to annuities like these.
The Commonwealth's position
is that those requirements do apply.
And that position is consistent
with the position of the federal government,
consistent with the position
of other state Medicaid agencies across the country,
and consistent with the text
and purpose of the underlying federal law.
-: Can I ask--
Go ahead.
-: I was just gonna ask
whether there's a reason that the government is just now
trying to recover these monies,
given that the act was passed quite a while ago.
-: Chief Justice, Budd, I'm glad you asked that question
and I want to be very, very clear about this.
There has been no change in policy on this
or enforcement since the 2008 amendment
to MassHealth regulations.
I know the family beneficiaries are making this argument.
I have followed the sites and their briefs,
as I'm sure the court will.
They are not relying on anything except the 2007 email
that predates MassHealth amendments to its own regulations.
I want to point to two cases as well on this.
The first is the superior court decision in Breslov,
where the judge rejected the same argument
that there has been some inconsistency
in MassHealth's position on this.
The second case is the administrative decision in Jackson,
which is in our addendum to our opening brief at page 94,
where there was a finding of fact,
in that case that the eligibility worker
contacted their manager who confirmed similarly
that there has been no change in MassHealth policy on this.
-: Can I ask a couple of questions
just to get myself up to speed.
The community spouse buys an annuity
and doesn't name anyone, just buys the annuity.
He doesn't name any beneficiaries whatsoever.
The annuity is for...
It's sort of a consistent with expected lifespan.
No one's named.
Why isn't that for the sole benefit?
Why is that not for the sole benefit of that person?
-: Well, this is an issue that
the concurring decision in the Hagadorn case,
the recent Hagadorn case from Wisconsin talks about.
That kind of hypothetical annuity,
where there is no beneficiary,
I think that's what we're on.
-: I understand you're compelling the selection better,
but if say they don't do anything,
they just buy an annuity, don't name anybody.
Why is that not for the sole benefit of that person?
I just don't understand that.
-: And this in some ways gets to what the sole benefit
exception was all about in the first place.
So starting in 1988, Congress said,
"We're gonna count all assets of both couples jointly
"for eligibility purposes."
And at the same time that Congress does that,
it creates the sole benefit exception.
It says we're gonna accept inter-spousal transfers
from penalty again,
because we're looking at all the assets together anyways.
The inter-spousal transfers don't make a difference
to eligibility, they're Medicaid neutral.
A transfer or a purchase of an annuity
that isn't Medicaid neutral,
that is designed to eat in Medicaid--
-: Again in my hypothetical
'cause I'm gonna ask opposing counsel,
I get it when they say, I'm buying an annuity.
If this goes on, it goes to my daughter.
I get that there's not a sole benefit there,
but I don't see why if they buy a standard annuity
and they don't name anybody,
it just seems like that's a classic sole benefit situation
that fits exactly within the statutory language.
So I'm confused.
I understand you're forcing them to name you
or the Medicaid's forcing them, but if they don't
it seems to meet the sole benefit language,
then I get confused.
But go ahead.
-: I think our position on that kind of hypothetical
is twofold, your honor.
One, consistent with the concurring opinion
in the Hagadorn case, that kind of annuity,
which is designed to hasten Medicaid eligibility
would be so contrary to the purpose,
the most basic purpose of the sole benefit exception
that even if there were a textual argument
for it being a sole benefit transfer,
it wouldn't be sustainable.
And two, even if it were,
assuming that it were a sole benefit transfer,
our position remains that C1F,
the beneficiary naming requirements,
Trump, the sole benefit exception in this circumstance.
I want to point to the ninth circuit.
-: Can I just ask you as a matter of financial affairs
to the extent you know,
is there such an annuity?
Whoever's doing the payout,
they don't get to keep the money if the person dies, right?
It goes to the person's estate.
So the hypothetical posited seems to
omit the reality that if the person dies
and outlives the payout,
there is definitely somebody going to get the rest.
It could be the business that is paying out the annuity,
which seems like fact,
but it also could be the heirs of the annuitant.
-: Justice, Wendlandt,
I will say I have seen a lot of Medicaid planning annuities
over the past two years,
more than anyone would ever want to look at.
I have never seen a single annuity in this world
that doesn't name beneficiaries.
I cannot say--
-: I like that you're basing on your personal experience,
for example, judicial retirements.
You get a pay out if your spouse gets to keep it,
that's smaller than if you just keep it yourself.
I'm hesitant.
I don't know enough about annuities
to know whether this is factually correct or not,
but is it so obvious that you can't.
You just don't take a risk.
I just don't know the answer to that.
There are two kinds of annuities.
One where you get the name of somebody,
and another where you're just gambling a little bit.
-: I'll confess.
I don't know the legal answer to this question.
Is it possible to have an annuity
that names no beneficiaries whatsoever?
I do not know.
All I can say is that I have never seen one
in this context about.
-: You are about to go to the ninth circuit case
to the Hutchins case.
Before you do that, I have a simple question.
I don't know if it's a simple answer,
but the Hughes versus McGrath,
the sixth circuit case came out around 2013,
and we've heard radio silence from Congress,
and say our case came out as to what happens with
"sole beneficiaries and annuities."
-: And that in our view is unsurprising.
We wouldn't expect Congress to make a change after he used,
where Congress already made a change
to deal with this precise issue in 2006.
There would be no reason for Congress to make
a second amendment to do what it already did.
The act in its original form in 2005
required that the designation be made
to the extent of the benefits paid for the annuitant.
And then in 2006, Congress changed that language.
It amended it to require that the designation be made
to the extent of the benefits paid
for the institutionalized individual
rather than the annuitant.
And that change really goes
to the very heart of these cases.
On its face, it draws a distinction between the annuitant,
the person named on the contract
and the institutionalized individual,
the person applying for Medicaid.
And it contemplates that those two people
don't have to be the same,
and bear in mind that there are only twice.
-: Mr. Boodoo,
why didn't they use the word institutionalized spouse
'cause that that would be clear, wouldn't it?
Why wouldn't they...
Go ahead.
-: I'm sorry to interrupt.
I think to the contrary, that would be far less clear.
All of the asset transfer rules under C1 including C1F
apply to transfers made by unmarried applicants,
married applicants, and the spouses of married applicants.
If C1F sub one had been amended
just to refer to institutionalized spouses,
then on the face of it, it would have suggested
that the provision doesn't reach unmarried applicants,
which would have been frankly,
a logical and inconsistent with the whole statutory scheme.
Ultimately Hutcherson in the ninth circuit,
and later the superior court decision in Breslov
look at this amendment and both find it clear
that the very point of this amendment
was Congress saying that the beneficiary naming requirements
have to reach annuities like these.
And that conclusion really gets us
almost all the way there in these cases,
because if we agree that the 2006 amendment
was intended to do just this,
then ordinary canons of construction
require us to interpret the whole statute in harmony
with the 2006 amendment.
The most harmonious interpretation in our view
is the one that was adopted by the superior court
in the Breslov case,
which holds that community spouse annuities
are not sold benefit transfers in the first place.
As a plain text matter,
these community spouse annuities in these three cases
cannot be called sole benefit transfers
because the community spouses are not the sole beneficiaries
where contingent beneficiaries are also named.
That is the view of the CMS opinion letter from June, 2005.
That's discussed in our brief.
It's the view that New York adopted
in the Addington verse Dowling case.
-: Does that mean that the sole benefit
has no meaning in annuities whatsoever?
If we adopt your view,
every annuity is covered, right?
That whole sole benefit has no application
in the annuity context.
Is that your view?
-: Yes.
The order in which Congress proceeded here,
the specificity of the annuity related provisions,
the plain meaning of the 2006 amendment,
not to mention the federal guidance on this
and the practice throughout the states,
all confirm that there was never supposed to be
any interaction between the sole benefit exception
from 1988 and these Deficit Reduction Act provisions
from 2005 and 2006.
-: They're gonna get up and say the opposite.
They're gonna say that the sole benefit provision
takes you completely out of that transfer period,
that if you do something
for the sole benefit of the spouse,
that it's not an improper transfer,
and we don't need to worry about any of this.
So you want to address that up front.
I understand your point about specifics,
but if you look at the way the statute includes this,
it does it in the context of improper transfers.
And it excludes something that's a sole benefit
from the improper transfer altogether.
So, given that they're gonna say that,
it's not quite so simple that
the more specific controls the general, is it?
-: If we make the assumption as the family beneficiaries do,
that these annuities are sole benefit transfers.
And we obviously disagree with that.
But if we assume that,
then what we get at that point
is a conflict between their position
and the 2006 amendment to the Deficit Reduction Act.
-: The six circuit's correct that
the way of resolving the conflict is saying,
this is meant to deal with sort of cute annuities,
ones that aren't market-based annuities.
You're getting these kinds of balloon payments
or you're naming your daughter or your son.
That's what it's about.
Not legitimate annuities that are really trying
to figure out how long you're gonna live
and how much you get.
Think of that.
-: When we look at the sixth circuit decision in Hughes,
what we see is that the sixth circuit didn't acknowledge
or grapple with the fact
that there had been a substantive change
to the Deficit Reduction Act in 2006 on this very issue.
Now I'm sure the family beneficiaries
will argue that the Hutcherson case
doesn't grapple with the sole benefit exception.
And that's true too.
There is no circuit case that is a plug
and play solution here.
-: The ninth circuit and the sixth circuit clearly,
do we have any other circuits now?
This thing you'd think would be like litigated to the hill
and be in the U.S. Supreme court at this point.
But if there's nothing else out there
at the circuit court level.
-: There has been nothing else at the circuit court level.
No.
I see that my tongue--
-: Can I ask you one more question?
The statute also says transfers to another
for the sole benefit of the spouse.
What would that entail then in your estimation,
just transfers to a trust.
What does that include in annuity?
-: No, we don't think it would include an annuity
and the most common sense interpretation
of to another would be a trust
or even a form of custodial bank account.
But a form of transfer that is, again,
a pure inter spousal transfer
that does not actually change the eligibility calculation.
But a transfer that is designed to hasten eligibility
really does not and should not fall
within the sole benefit exception in the first place.
-: Can I follow up on that 'cause I trust.
I have two rich spouses
and they're prepared to put the money
into a trust for the community spouse.
Shifting all the money into a trust
for the community spouse.
Is that legal?
I'm confused by that.
If it's an irrevocable trust, can they do that?
I'm just trying to understand,
can they get something that's worse
than what's going on here which is,
transferring a market-based amount of money
and annuity as opposed to some kind of clever trust.
-: As long as no contingent beneficiaries are named,
I don't know that it would be worse.
The basic bargain that Congress has enacted here is that,
income to the community spouse is protected.
When married couples convert assets to income
to the community spouse
as a way to spend down into Medicaid,
generally speaking, Congress has said, that's okay.
The problem becomes that the Deficit Reduction Act
was designed to--
-: I have just a technical question.
This trust idea can, again, I've got Mr and Mrs Bezos,
and they transfer all the money to a trust.
Is that possible?
Is there a way that the Medicaid prevents that
from happening?
You're in cahoots with your spouse,
you're prepared to have the community spouse
get all the money in some trust.
Is that legal?
It seems wrong to me.
I just wanna make sure I understand that point.
-: I think it would depend on precisely
how the trust is set up, your honor.
And certainly our position would be that
if there are contingent beneficiaries named on that trust,
then it would fall-
-: I get it, that's easy.
I'm doing my hypothetical which is,
they just put all the money in trust.
I don't know how that works 'cause if that's okay,
why is this annuity not okay.
So you don't know the answer on this trust.
-: I don't know quite the answer to that.
-: But if you broaden it out,
why shouldn't we assume that
this is not necessarily a loophole,
but it's a way to protect our assets
so that the community spouse isn't left with nothing.
Why shouldn't we assume that that's the point of this?
-: The basic bargain of the Deficit Reduction Act
was to protect community spouses.
Under our position, Chief Justice, Budd,
a community spouse will earn every penny of income
from the annuity for as long as they live.
And if they live out their actuarial lifespan,
then all of the money will go back to them as income.
But the Deficit Reduction Act, and not just this provision,
but other provisions of the Deficit Reduction Act as well.
The requirements that other forms of transactions,
loans, promissory notes, mortgages, be actuarily sound.
They were all designed to limit strategies
that both spend down individuals into Medicaid
in ways that are designed to pass the wealth on to heirs.
So the competition in these cases, so to speak
is most certainly not between the state
and the community spouses.
The community spouses will get every cent of income
for as long as they live.
The competition, so to speak
is between the state and the heirs.
This may be the first and last time I ever cite
George W. Bush in oral argument,
but his signing statement got it right.
The Deficit Reduction Act was about
limiting spend down loopholes
that allow individuals to qualify for Medicaid
while passing wealth to heirs.
CMS has said the same thing,
that these provisions were intended
to discourage the use of annuities
to shelter funds for heirs, while qualifying for Medicaid.
That's volume two of the Mandar appendix at page 168 to 169.
If there are no--
-: Just one more question.
Given the fact that there's the split,
why should MassHealth get the benefit
of this difficulty, this ambiguity in the language?
-: Are you referring, Chief Justice Budd
to the contractual language or the statutory language?
-: I'm thinking about the contractual language.
The annuity where you're allowed
to the part where it says
to the extent that benefits have been paid language.
And I know you talked about that a little bit.
It's ambiguous because it doesn't talk about who we're...
-: In our view, Chief Justice Budd,
we don't see any ambiguity in the statutory language
like Hutcherson, like Breslov.
We see the 2006 amendment has making is clear,
every case as far as I know,
to have ever considered the meaning
of institutionalized individual here,
Breslov, Hutcherson, Hagadorn
have held that the institutionalized individual
is the person in a nursing home,
the person for whose Medicaid benefit
the annuity is purchased.
And the contractual language here, the Commonwealth,
again, we see language like that
elsewhere like in the Hutcherson case,
this language incorporates the statutory scheme.
So we don't see any ambiguity,
either in the contract or in the statutory scheme itself.
-: Any other questions?
Thank you very much.
Next, we have Attorney, Neeley.
-: Morning, your honors.
May I please the court.
My name is Lisa Neeley and I represent the accolade,
Laurie Germany in this matter.
These cases are about so much more than an analysis
of the extremely complex Medicaid statute,
which we've just talked about,
but they're really about MassHealth failings
and seeking to perfect reimbursement claims
from spousal annuity contracts
and properly following or implementing
these regulations in the first place.
Along with this has come tremendous administrative confusion
along with judicial chaos
as cited by the number of cases in the Commonwealth briefs
with varying beneficiary designations
across the superior court.
I would just like to go back to a comment
that one of the justices made
early in Attorney Boodoo's presentation
about how come this is just happening now,
how come this has not been consistently applied.
And I did receive that same question at the superior court
when I was arguing the Dermody matter.
And I think if you look at the record
and some of the materials in the record,
you will see that the Commonwealth
has interpreted this provision in different ways.
Going back to my case at the superior court proceedings,
when the Commonwealth took the position
that an annuity purchase like this for the community spouse,
if it was actuarily sound, it met the sole benefit standard.
The Commonwealth made that concession.
They agreed with that.
And they actually said during those proceedings
that there was no case they could find
to support their proposition,
that a sole benefit transfer
that was actuarily sound like an annuity
didn't somehow meet the statute,
that there was nothing to support that.
With respect to the meaning of the term sole benefit,
the Commonwealth has claimed in these proceedings
now that it's undefined,
that there's no definition that it means
you can't have contingent beneficiaries.
But the CMS guidance,
which the Commonwealth has cited
to portions of that in their pleadings,
while omitting other portions of it
clearly defines a sole benefit transfer as being
"fairly restrictive definition"
in that it requires that any funds transferred
be spent for the benefit of the spouse
within a timeframe actuarily commensurate
with the spouse's life expectancy.
And that's in the CMS guidance.
There's no reference to this not meeting the definition.
If it's a contingent beneficiary in federal courts,
including the Hughes case,
another federal court in the Merz V Houston case.
-: If you expressly name a beneficiary,
do you think that's gonna violate the sole benefit?
It's clearly not for the sole benefit.
-: It is for the sole benefit
during this individual's lifetime.
And that is what the CMS guidance,
the HHS, and these federal courts look at.
And that's how it has been interpreted.
-: When we read through these regulations carefully,
these impenetrable regulations,
are we really gonna find that it says sole benefit
means for the sole benefit of during their lifetime?
Or are we gonna find it's much more ambiguous than that?
-: I don't think it's ambiguous at all
because they CMS--
-: I know you don't think it is ambiguous,
but is the language ambiguous?
-: I don't think the language is ambiguous.
Once you read the Medicaid transmittal
of a state Medicaid manual,
and you look at the federal court cases that I've cited
and the health and human services
also supports the definition.
And I did not cite this in my pleadings,
but the Social Security palms,
that is a term of art in Social Security law sole benefit.
And they also specify that as for the sole lifetime benefit
of the beneficiary.
And you see this coming up quite a bit
in the special needs trust context.
I know we're not talking about special needs trusts,
but in the special needs trust context
of what Social Security does is they look at,
are these funds being used for the sole benefit of the--
-: Even if we have one that's not actuarily stamped,
your view, that's fine too?
If you've breached some kind of huge balloon payment
and their name beneficiary is the kid.
That's fine too in your view?
'Cause it's the sole benefit while he's alive,
but there's a giant payout
when he's clearly gonna be dead
or she's clearly gonna be dead.
-: I think that the sole benefit definition
is an actuarily sound lifetime payout
with no balloon payment.
So how this is typically done,
as you look at the Social Security tables,
and then the example in my client's father's case,
it was I believe a five-year term annuity
and it paid out in equal payments.
And that was an actuarily sound lifetime payout
because the intent was, he was the only beneficiary
to receive these funds during his life
and he just prematurely.
-: We're asked to decide sort of a more difficult problem.
Yours was actuarily sound.
They're all actuarily sound here, all three of them, right?
We don't have any shenanigans going on here.
So the equities are complicated.
We're stuck with juror statutory interpretation.
It's not like the Medicaid
or the attorney general being unreasonable here,
basically saying you're entitled to the money
during your life.
But if we paid out for the spouse,
we get it rather than the heir.
There's not really a public policy problem either side,
but we we've got to make sense of the statutory language
because it's confused.
-: To your point council, that the statutory language,
we're not going by the plain ordinary meaning
of sole beneficiary.
The agency has defined social sole beneficiary
as actuarily sound.
Is that your position?
-: That is correct,
that it has a meaning within the Medicaid context.
And that is revealed by looking for example,
through the state Medicaid manual,
and that you're not applying
the dictionary definition of sole.
-: I have sort of another practical question,
what is to prevent the community spouse
from putting all their assets into an annuity
so long as the payouts are actuarily sound.
Is that even sort of mathematically possible?
Because I am concerned about persons hiding assets
by converting them into income using an annuity
by putting all of their assets into the annuity
so long as it's actuarily sound.
-: If you look at the example in my client's case,
Mr. Hamill, he had roughly a couple hundred thousand dollars
from the sale proceeds from his home
and he put that into an annuity,
which was actuarily sound
so that it could generate income for him
to pay for his assisted living expenses
because his wife was in a nursing home.
So if they paid privately for both items,
their resources would have been depleted very rapidly.
So under that analysis, his annuity was actuarily sound.
It fits within the definition
of what the sole benefit rule was designed to capture,
which is to protect a community spouse
from becoming impoverished because their spouse
is in a nursing home and they also need income
and resources to live on.
So I think in that example,
those were primarily the majority of his assets.
-: Do you think that would prevents say,
a wealthier community spouse from putting assets
into an annuity, converting it into income
so long as it's actuarily sound.
At the end of the day, they die
and then the heirs get it
under your interpretation of the statute,
which is exactly what the whole system
was designed not to do.
-: I think that there is a give and take within the statute
where reimbursement clauses are balanced
against the actuarily sound standard.
So you have the actuarily sound,
and this is also contemplated in the Medicaid manual,
where they talk about,
with the sole benefit transfer rule,
there's a possibility that a spouse could take assets.
Congress has not put a limitation on it
and transfer those assets out of their control or curfew.
But as long as those assets come back to them
in an actuarily sound manner, whether by a trust,
which was blessed in the Hagardon case for Michigan
or one of these annuities,
that is the protection that Congress has put in place
and that's in the state Medicaid manual as well.
So I think an example where they would be something
that would need to be curved
or what was designed to curve that type of behavior
is if you had an annuity that wasn't actuarily sound,
that was almost always designed to pass wealth along.
In these cases, it's presumed that the individual
is gonna outlive the annuity term.
If you did like a 20 year term certain annuity,
and then tried to qualify for Medicaid,
that would not qualify under the sole benefit rule,
because then it's outside the term.
Then it would implicate for example,
that the beneficiary designation,
and that's the example that I've used in my pleadings.
And that's how I reconcile the statute.
That is how the Hughes court looks at it.
And I think that's how it's supposed to be harmonized.
-: Explain your example.
Is the reason your example doesn't work that 20 years
is not the lifespan of the community spouse?
-: I think in my example in my pleadings,
I said the individual was 85 years old.
His life expectancy under the Social Security tables
at that point would be maybe five or six years.
-: What if I get an annuity at age 85,
I put all my assets into it, and it's a five-year annuity.
Can I do that?
-: You can do that because it's actuarily sound.
It's within your life expectancy.
So an 85 year old, like say for example, Mr. Hamill,
they may need money for their own care,
which is very, very common.
You see now many spouses--
-: But I think Justice Wendlandt
is asking you a harder question which is,
say someone is very wealthy.
They have $20 million.
Can they get themselves an annuity that pays them
and they're 80 years old,
and they have a life expectancy of five years.
Can they buy an annuity that will pay out
all of that money in five years?
Can that be fine?
-: In my opinion, a very wealthy individual like that
would never want to go on Medicaid.
(indistinct)
You could have top of the line care.
-: I'm just saying again, we're dealing with the evil spouse.
The evil spouse wants their spouse in a nursing home
and they want to walk off with the $20 million.
Can they do that as long as they do it
in an actuarily sound way?
I'm just trying to understand that.
I'm not sure it's a nice thing to do,
but say you do that.
-: Again, there's no limitation placed Congress.
I've been asked this question before
and there is no limitation.
Would a person with $20 million ever see-
-: That suggests that Mr. Boodoo may be right then.
If you can do that,
our focus on actuarily sound may be misleading
because it's just how much money you have.
I'm concerned about that.
-: Well, I think again, that's balanced with again,
I think the actuarily sound protects against that
because the point is to get income back
to the community spouse.
If Congress wants to put some sort of cap on it,
they can do that.
They have not done that.
-: That's only if we accept your interpretation,
but if we accept Mr. Boodoo's interpretation,
that does not happen.
-: What does not happen?
-: That the heirs inherit a lot of money.
You can use this annuity
in a way to avoid paying back what the government has paid
for the institutionalized spouse
and guarantee that your heirs instead get the payments?
-: Well, I think because if it's an actuarily sound standard,
the point is that you're not doing it
as a wealth preservation strategy.
-: Because you're hedging your bets, right?
If I need to use it all during my lifetime,
and I use it all up, great.
If I die earlier than the actuarial tables say I'm going to,
I get to send it to my spouse
or to my beneficiaries, my heirs.
When the government has paid a ton of money
to take care of my institutionalized spouse.
This is a method of sheltering assets, right?
Attorney Neeley: I don't think
it's a wealth preservation strategy.
I don't think it's a method.
I think it is a method to preserve assets like that.
-: If that's the case then,
why shouldn't the rest of the money
pay for the money expended for the institutionalized spouse?
-: Because under my interpretation of the statute
under the sole benefit rule,
there's no reimbursement requirement.
That is not the standard under that rule.
It is under the sole benefit exception.
If you transfer assets for your sole benefit
or to another, for your sole benefit,
and you're a community spouse,
as long as the payout is actuarily sound,
that shows that the intent is to benefit you
during your life not as a wealth preservation.
-: If I could just ask one more question about that,
because it just seems to me that Mr. Boodoo's possession
is more in with the point of the Deficit Reduction Act.
Because that's what we're trying to do,
make sure that the money goes to where
it's been expended by the government.
And so I'm just trying to figure out how your position.
I understand your position,
how does that work with the Deficit Reduction Act?
-: I think that it works to curb long annuity terms
that are almost always guaranteed
to pass wealth onto the next generation.
And that's what was discussed in the Hughes case.
Like if you can't have a 20 something year annuity
and still qualify for Medicaid benefits.
There's also the way I read the statute
and I've discussed in my pleadings of C1F
with reference to the institutionalized individual,
it doesn't stay to the purchaser of the annuity is.
How I perceive that is it's unclear
with respect to who it applies to.
So I think that the goals of Congress have always been
to protect a community spouse
and implement reimbursement provisions,
where they see necessary.
And most of the time with those reimbursement provisions,
you see them applicable to individuals
trying to shelter their own assets
without a community spouse.
So I talked about pool disability trusts,
like if you're over 65 and you want to transfer assets
to a pool trust for yourself,
you can do that and get on Medicaid,
but the state has to get paid back.
If you're disabled and you put assets
into a special needs trust for yourself,
there's a reimbursement provision.
So it's very clear.
With respect to community spouses,
you can transfer your home to your community spouse,
and there's no reimbursement provision to the state
when the community spouse passes away
with respect to their estate.
So I think Congress is clear in that
it allows the community spouse to retain
unencumbered assets.
And I think the sole benefit rule is part of that.
And I don't think that was left undisturbed
by the Deficit Reduction Act.
That's how I view the statute and read it and harmonize it
having it all wrapped together
with the Hughes case as well.
-: Justice, Lowy, did you have anything?
-: No question, Chief.
-: Thank you very much.
And we'll have Mr. Barreira.
-: Hi, thank you, your honor.
I want to follow up on the conversation you were just having
about the $20 million that the spouse has.
From the time that this law was put in place,
a spouse did not have to cooperate.
And that's routinely done in other states such as New York.
And secondly, in the DRA,
they open the idea of using a sole benefit promissory note
without a payback to the state.
If we're reading the intention of Congress
as wanting to have a payback, why did they open that up?
Because that's what the $20 million person could do instead.
-: Can you explain 'cause your brief,
I thought was very interesting
on this sort of clever stuff.
So explain what you're just talking about this,
the promissory note using the example of the $20 million.
-: So let's say my life expectancy is five years.
I could enter into a five-year promissory note
with the payback that mirrors the annuity
without a payback to the state.
-: Who do you enter into such thing with?
-: You could do that with anybody.
That's the ironic thing.
You could do that with an 18-year-old grandchild.
It doesn't specify in the statute who you cannot do it with.
-: So I can enter into a promissory note
with Justice Cipher and say,
she's gonna pay me back the $20 million
over five years when I'm 80.
Is that right?
I can do that.
-: Yes.
-: Now the trust example you mentioned in your brief,
again, I've got $20 million
and I'm not worried about my spouse.
So what kind of trusts can I set up?
-: I am not all that familiar with those trusts.
They're not really done in this state.
They're done routinely in Michigan.
You could essentially do a sole benefit annuity payout
within the trust with no required payback to the state.
-: Well, you may be right.
This is not a public policy case.
This is a statutory interpretation case,
but it seems based on your responses,
that Deficit Reduction Act isn't the right title
for the statute and that we're talking about Medicaid
really being able to apply to upper middle class folks.
This seems different than the initial intent.
-: I don't think the intent was to make everything
in the act draconian.
They opened up safe harbors all over the place
within the act.
-: When they look at your property,
I can't remember, it's like $130,000, the number.
So if you have a promissory note
to get paid 20 million bucks,
that's not included in that 130,000 cap?
-: There would be a sole benefit transfer
and the spouse would be able to receive those payments
and treat them as income.
-: Even if you're within the five years
with a five-year look back,
if you've got an attorney who understands this well enough,
you're going to be able as the community spouse
to protect assets, which is hard to reconcile
with the whole point of Medicaid.
-: There has been a movement across the country
to expand Medicaid.
In fact, California just voted last month,
the legislature to reduce all asset tests for their program.
I think maybe we're assuming that there's an attempt
to reign things in when there really wasn't.
-: Back to Justice Wendlandt's question,
can you enter into an annuity
that doesn't name a beneficiary?
Is that possible?
-: Yes.
And actually, this fits right into
what I wanted to say next.
The difference between the two federal court cases
is the Hughes case came later
and asked five questions directly to CMS.
I've got it in front of me.
You don't have it in the record, I don't think.
And I suggest that you have your clerks obtain it.
An annuity is for the sole benefit of the community spouse.
If the annuity provides for payment
of the entire value of the annuity
plus interest to the community spouse
within that person's expected lifetime.
The entity selling the annuity is another
within the meaning of the statute.
CMS has come right out and said,
this is a sole benefit annuity.
A spouse can buy a sole benefit annuity.
-: So again, Jeff Bezos can buy a sole benefit annuity
that pays out his billions to himself
over a five-year period, and that's excluded?
-: Yes.
Honestly, your honor,
the wealthy are not looking to get
the type of minimal care provided by Medicaid.
They can get many assisted living facilities,
which are private pay,
provide the type of care that goes
all the way to nursing home level.
They can get home care.
They don't want to be parked in a wheelchair
in a hallway near the nurse's station.
That's what a lot of people wind up at.
-: No one wants themselves to be there.
The question is, again, my evil spouse hypothetical.
-: So I do want to take a moment
to go through the statute itself.
I believe this is an unauthorized taking
by the state agency.
The agencies relying on its enabling statute
for everything it's doing.
The federal law that passed said
that the agency can take the entire annuity
irrespective of what the Medicaid benefits would be.
It comes right out and says that the agency
and put it into the statute.
They did not treat it as a mandatory
federal law for a decade.
That's why the cases came up in 2017.
They treated it as an optional Medicaid provision.
Why isn't this a matter for the state legislature?
This is a taking.
They could arguably take the entire thing.
You could take your Jeff Bezos example here,
and they could arguably
under the way they make you make the beneficiary,
the Commonwealth.
All of Jeff Bezos's wealth
could wind up going to the Commonwealth.
Now that cannot be authorized by the general language
in the enabling statute for the executive office.
-: I'm confused by that.
That can't be right.
It's only the amount that pays for the spouse,
the institutionalized spouse.
-: That's not what it says.
It says at least.
If the federal law says at least,
the state reg says, at least.
You have to be the beneficiary for at least.
The MassHealth agency is requiring
that you make the beneficiary simply be
Commonwealth of Massachusetts,
which is the situation in the two cases
that I'm involved here.
So arguably, the state agency can grab the entire amount.
That is a due process issue because...
-: I thought it says, at least the amount.
It's connected to the amount to pay for the,
I don't know.
-: It says you have to be the beneficiary
for at least that amount.
It doesn't say that you can only collect for that amount,
it says for at least that amount.
That is a huge overreach.
-: That was in the hypothetical
where the state did a money grab
of the type that you're anticipating
that there might be a regulatory taking.
But I don't think your position is that
paying back MassHealth for the money.
It expended for the institutionalized spouse
is unreasonable under the takings clause.
That can't possibly be your position.
-: My position is that the way they're treating this,
is they're not putting any limitations.
They're not tracking the federal law.
-: It might implicate a regulatory taking,
but to the extent they can find themselves
to reimbursement for the institutionalized spouse expenses,
your position can not possibly be
that that's a regulatory taking.
-: They're making you do it there.
When people try to put on the restriction,
they reject the annuity beneficiary.
That's what's happening.
I also want to quickly go through the actual statute.
-: Since you brought up constitutional argument,
I guess my question to you is,
suppose MassHealth just limited itself to reimbursements
for the institutionalized spouse.
That would be fine under the constitutional analysis, right?
-: It might be,
but where did they get the authority
to enter into this taking of assets from citizens?
The enabling statute says, follow federal--
-: If you might be arguing that it's ultra vires
or something to that extent, but not the takings clause.
-: What I'm saying.
-: Can you just take two minutes
to talk about the state statute.
I just wanna give you a chance to do that and then we'll--
-: Which statute do you--
-: Whatever one you were gonna talk about.
-: The state statute gives the agency
the authority to do things.
It doesn't come out and say,
you can take assets from citizens.
The last time the state legislature spoke,
it wiped out the idea of going after anything
other than the probate estate of the decedent.
They spoke loudly and clearly that they didn't want
the assets of citizens to be ceased.
Now the federal law changed afterwards.
They never went back to the state legislature.
The email that we refer to in our briefs
was written three years after expanded a state recovery
had been rejected loudly by the state legislature.
And in that email, they say, "We're gonna go after it.
"We can go after that."
But they never went back to the state legislature
for authority to go after anything.
So where do they get the authority?
The federal government is giving them the authority.
How does the federal government
give a state agency the authority to go after
the assets of state citizens?
-: Are you talking about the remainder proceeds?
-: Yeah.
-: Don't they automatically go to the beneficiary?
-: I'm not clear what you're asking.
-: Are you saying that the state has an authorized go in
and physically taking the remainder after?
-: Well, the state legislature completely rejected that idea
as to anything beyond your probating.
That's three years before that email was written.
And then they went and said in that email,
and by the way, that email was written
with the advice of three lawyers,
'cause I've made a foyer request
that's come back all blacked out.
They knew what the federal law was at that point
and they went ahead and just brought federal law in.
That was completely contrary to what the state legislature
had just voted three years earlier.
-: Thanks.
Does anybody have any other questions?
-: Can I ask for just one clarification?
So your point is that the federal law changed
and the state legislature
didn't make a commensurate expansion?
-: Right.