Moderator: This is SJC-13179,
Executive Office of Health and Human Services
of the Commonwealth of Massachusetts
v. Linda Marie Mondor
and SJC-13199, Laurie A. Dermody
v. Executive Office of Health and Human Services
of the Commonwealth.
-: Okay, thank you.
Attorney Boodoo.
-: Thank you, Chief Justice Budd.
And may it 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? -: I'm sorry
-: 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 wanna be very, very clear about this.
There has been no change in policy on this, or enforcement,
since the 2008 amendment to MassHealth's 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's amendments
to its own regulations.
I wanna point to two cases as well on this.
The first is the Superior Court decision in Breslouf,
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?
So the
community spouse buys an annuity
and doesn't name anyone, just buys the annuity.
Doesn't name any beneficiaries whatsoever.
The annuity is for, you know,
it's sort of 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 Hagedorn case,
the recent Hagedorn case from Wisconsin talks about.
And that kind of hypothetical annuity
where there's no beneficiary,
I think that's what Your Honor is getting at.
-: I mean, I understand you're compelling
the selection better.
But 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.
-: Right, and this in some ways
gets to what the sole benefit exception
was all about in the first place, right?
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 except 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-
-: Again, in my hypothetical,
'cause I'm gonna ask, you know, opposing counsel.
I get it when they...
Say I'm buying an annuity and if I outlive,
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 mean, I understand you're forcing them to name you,
or Medicaid's forcing that.
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 Hagedorn 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.
And I wanna 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?
I mean, that is, 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,
you know, omit the reality that if the person dies
and outlives the payout, there is definitely somebody
going to get the rest, right.
It could be the business that is paying out the annuity,
which seems like theft.
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 wanna look at.
I have never seen a single annuity in this world
that doesn't name beneficiaries.
I cannot say-
-: I mean, I like that you're basing your
on your personal experience.
But for example, judicial retirements, you know,
you get a payout, if your spouse gets to keep it,
that's smaller than if you just keep it yourself.
So 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 know,
you just don't take a risk?
I just don't know the answer to that,
that there are two kinds of annuities:
one where you get to name 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.
-: You were about to go to the Ninth Circuit case,
to the Hutchins case.
And 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
since that case came out as to what happens
with quote unquote, "sole beneficiaries and annuities."
-: And that, in our view, is unsurprising.
We wouldn't expect Congress to make a change
after Hughes 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 two possible-
-: Mr. Boodoo, why didn't they use the word
institutionalized spouse then?
'Cause that would be clearer, wouldn't it?
Why would 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.
So if C1F sub 1 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, illogical and inconsistent
with the whole statutory scheme.
Ultimately, Hutcherson in the Ninth Circuit,
and later the Superior Court decision in Breslouf,
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 Breslouf case,
which holds that community spouse annuities
are not sole 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 versus 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.
And 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,
so we don't need to worry about any of this.
So you wanna 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, right.
And it excludes something that's a sole benefit
from the improper transfer altogether, right?
Jesse: Right.
-: So, given that they're gonna say that,
it's not quite so simple that
the more specific controls the general, is it?
-: Well, 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.
-: Well, not if the Sixth Circuit is correct that
the way of resolving the conflict is saying:
Okay, this is meant to deal with sort of cute annuities,
you know, ones that aren't market-based annuities,
that, you know, are clearly,
you know, 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.
And they're gonna say that so.
-: 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.
-: Can I ask...
I mean, 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 hilt
and be in the U.S. Supreme Court at this point.
But there's nothing else out there
at the circuit court level?
-: There has been nothing else at the circuit court level.
No, no.
I see that my time...
-: Counselor, can I ask you one more question?
Jesse: Of course.
-: So 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?
Or would that include an 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?
A trust.
So 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 do something worse than what's going on here,
which is transferring a market,
you know, transferring a market-based amount of money
into annuity as opposed to some kind of clever trust.
-: Well, as long as no contingent beneficiaries are named,
I don't know that it would be worse.
I mean, the basic bargain that Congress has enacted here
is that income to the community spouse is protected.
So 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.
Again, I've got Mr. and Mrs. Bezos,
and they transfer all the money to a trust.
Is that possible?
Or is there a way that Medicaid
prevents that from happening?
You know, you're in cahoots with your spouse.
You're prepared to, you know, 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.
-: Yeah.
And
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.
'Cause I take it if they, 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 question.
-: I don't know quite the answer to that.
-: And if you broaden it out, why shouldn't we assume
that this is not necessarily a loophole,
but it's a way to protect assets
so that the community spouse isn't left with nothing?
Why shouldn't we assume that that's the point of this?
-: And 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.
And 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 quote,
"discourage the use of annuities
"to shelter funds for heirs, while qualifying for Medicaid."
That's Volume 2 of the Mondor appendix at page 168 to 169.
If there are no-
-: Just one more question.
Given the fact that there's the split,
why shouldn't MassHealth get the benefit
of this difficulty, this ambiguity in the language?
-: Well, we don't see any.
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 know, 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.
But it seems just, it's ambiguous
because it doesn't talk about who we're talking.
You know?
-: In our view, Chief Justice Budd,
we don't see any ambiguity in the statutory language.
Like Hutcherson, like Breslouf,
we see the 2006 amendment as making this clear.
Every case, as far as I know, to have ever considered
the meaning of institutionalized individual here:
Breslouf, Hutcherson, Hagedorn,
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?
Okay, thank you very much.
Next, we have Attorney Neeley.
-: Good morning, Your Honors.
May it please the court.
My name is Lisa Neeley.
And I represent the Appellee Laurie Dermody 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's failings
in seeking the perfactory reimbursement claims
from spousal annuity contracts
and in 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's 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 quote "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 Mertz v. Houstoun case.
-: But if you expressly name a beneficiary,
isn't that 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 looked 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 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 the CMS-
-: I know you don't think it's ambiguous.
But is the language ambiguous?
-: I do not think the language is ambiguous
once you read the Medicaid transmittal
or the "State Medicaid Manual"
and you look at the federal court cases that I've cited.
And that Health and Human Services
also supports the definition in addition to,
and I did not cite this in my pleadings,
but the Social Security POMS.
That is a term of art in Social Security law: sole benefit.
And they also specify that it's
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,
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 sound,
your view of that's fine too?
If you create some kind of huge balloon payment, you know,
and their named beneficiary is the kid.
That's fine too in your view?
'Cause it's a 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
is you look at the Social Security Tables.
And in 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-
-: I mean, we're asked to decide
sort of a more difficult problem.
I mean, 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 pure statutory interpretation.
It's not like Medicaid or the Attorney General
is being unreasonable here.
It's 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 heirs.
I mean, there's not really a public policy problem
on either side here.
But we gotta make sense of the statutory language
and it's confusing.
-: Is your point, Counsel, that the statutory language,
that we're not going by the plain ordinary meaning
of sole beneficiary.
But that the agency has defined
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'm 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.
-: I mean, I think if you look at the example
in my client's case, Mr. Hamill.
I mean, 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, you know,
those were primarily, you know, the majority of his assets.
-: What would prevent say a wealthier community spouse
from putting assets into an annuity,
converting it into income so long as it's actuarily sound?
And then, you know, 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?
Wow.
-: 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, you know,
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 purview.
But as long as those assets come back to them
in an actuarily sound manner, whether by a trust,
which was blessed in the Hagedorn 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 there would be
something that would need to be curbed
or what was designed to curb that type of behavior
is if you had an annuity that wasn't actuarily sound
that was almost always designed to pass wealth along.
I mean, 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.
And really, then it would implicate, for example,
the beneficiary designation.
And that's the example that I've used in my pleadings.
And that's how I reconcile the statute.
And that is how the Hughes court looks at it.
And I think that's how it's supposed to be harmonized.
-: Explain your example.
I mean, so is the reason your example doesn't work
that 20 years is not the lifespan of the community spouse?
-: Right, I think in my example in my pleadings,
I said the individual was 85-years old.
I mean, his life expectancy under the Social Security Tables
at that point would be, you know, maybe five or six years.
-: So 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's really very wealthy.
They have $20 million.
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 and that be fine?
-: In my opinion, a very wealthy individual like that
would never want to go on Medicaid.
(participants speaking at the same time)
You could have care at home.
I mean, you could have top of the line care.
You could set up-
-: No, but I'm just saying again,
we're dealing with, you know, the bad, the evil spouse.
The evil spouse wants their spouse in a nursing home.
And they wanna 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 could you do that?
-: I mean, again, there's no limitation placed by Congress.
I've been asked this question before
and there is no limitation.
Would a person with $20 million ever-
-: But then, 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 actuarial soundness
protects against that.
Because the goal, 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.
-: But 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,
that 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.
-: Aren't you though?
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 don't, if I die earlier than the actuarial tables
say I'm going to, I get to send it to my spouse,
or I mean to my beneficiaries, my heirs,
when the government has paid, you know,
a ton of money to take care of my institutionalized spouse.
I mean, this is a method of sheltering assets, right?
-: 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-
-: If that's the case,
then why shouldn't the rest of the money
go to 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.
-: Wait, wait.
If I could just ask one more question about that.
Because it just seems to me that Mr. Boodoo's position
is more in line with the point
of the Deficit Reduction Act, right?
I mean, 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,
and I understand your position,
but 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 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,
the C1F with reference to the institutionalized individual,
it doesn't state who the purchaser of the annuity is.
So 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 pooled disability trusts,
like if you're over 65 and you wanna transfer assets
to a pooled 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,
you know, 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
with, you know, having it all read together
and with the Hughes case as well.
-: Justice Lowy, did you have anything?
-: You asked my question, Chief.
-: Okay, I'm sorry.
All right.
Thank you very much.
And we'll have Mr. Barreira.
-: Hi, thank you. Thank you, Your Honor.
I wanna 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.
So 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 what that...
'Cause your brief, I thought, was very interesting
on the sort of clever stuff.
So explain what you were just talking about,
the promissory note, using the example of the $20 million.
-: $20 million.
So let's say my life expectancy is five years.
I could enter into a five-year promissory note
with a 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 Cypher
and say that I'm gonna get my $20 million,
she's gonna pay me back the $20 million
over five years when I'm 80.
Is that right?
I can do that?
-: Yes.
-: Okay, 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 trust 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.
But 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 the Deficit Reduction Act
isn't the right title for the statute.
And that we're talking about Medicaid
really being able to be applied to,
you know, upper middle class folks.
And it seems different than the initial intent.
-: Well, I don't think the intent
was to make everything in the act draconian.
I mean, 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 in number.
So if you have a promissory note
to get paid 20 million bucks,
that's not included in that $130,000 cap?
-: Right, there would be a sole benefit transfer
and the spouse would be able to receive those payments
and treat them as income.
-: It seems like if you're within,
even if you're within the five years
of the 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.
-: Well, there's 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.
So I think maybe we're assuming that there's
an attempt to rein 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, yes.
And actually, I think 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.
And 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's 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."
So CMS has come right out and said:
This is a sole benefit annuity.
Spouse can buy a sole benefit annuity.
-: So again, Jeff Bezos can buy a sole benefit annuity
you know, that pays out his billions to himself
over a five-year period and that's excluded?
-: Yes.
(participants speaking at the same time)
Honestly, Your Honor,
the wealthy are not looking to get the type of minimal care
provided by Medicaid.
You know, they can get assisted living.
Many assisted living facilities, which are private pay,
provide the type of care that goes all the way
to nursing home level.
You know, they can get home care.
They don't want to be parked in a wheelchair
in a hallway near the nurses station.
And that's where a lot of people wind up at.
I'd like to-
-: No one wants themself to be there.
The question is, again, my evil spouse hypothetical.
-: So I do wanna take a moment
to go through the statute itself.
I believe this is an unauthorized taking
by the state agency.
The agency's 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.
I mean, it comes right out and says that the agency
then took that 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 state law,
optional Medicaid provision.
Why isn't this a matter for the state legislature?
I mean, 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' 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."
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 in here.
So arguably, the state agency can grab the entire amount.
That is a due process issue because...
-: Where in the...
I thought it says "at least the amount?"
-: Right.
-: It's connected to the amount of pay for the...
I mean, 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 (indistinct).
-: I suppose in a 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.
-: Which might implicate a regulatory taking.
But to the extent they confine 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.
When people try to put on the restriction,
they reject the annuity beneficiary.
That's what's happening.
I also wanna 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-
-: 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're gonna (voice trails off).
-: Which statute do you?
-: Whatever one you were gonna talk about. (laughs)
-: Okay.
The state statute gives the agency the authority
to do things, but 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 seized.
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 estate 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 did they get the authority?
I mean, 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 been authorized
to go in and physically taking the remainder after?
-: Well, the state legislature completely rejected that idea
as to your (indistinct).
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 FOIA request
that's come back all blacked out.
So 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.
-: Okay, 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?