In June, a Suffolk County Superior Court issued a declaratory judgment that MassHealth (the Office of Medicaid of the Executive Office of Health and Human Services) has been in violation of federal Medicaid regulations by issuing “standardized” eligibility denial notices in long-term care coverage cases for excess countable assets held in a trust.
For providers, this is an important decision because it invalidates the problematic manner in which MassHealth has been denying coverage in trust cases over the past several years. The judgment was entered in the consolidated cases of Maas v. Sudders (No. 18-129-D) and Hirvi v. Sudders (No. 18-845-D).
MassHealth’s longstanding practice has been to issue a denial notice that simply states that the applicant has too much in “countable assets” in order to qualify for Medicaid coverage. However, no reasons or explanations are given for why the assets are being deemed “countable,” especially when they are owned by an irrevocable trust that —based on applicable law — would seem to render them non-countable. (The general rule is that a person cannot qualify for Medicaid long-term care coverage if she has more than $2,000 in countable assets.)
The court found that this standardized practice of omitting the specific reasons for the countability determination is illegal. It ruled that MassHealth was not complying with federal Medicaid regulations (and, in particular, 42 C.F.R. Sec. 431.210(b)), which require MassHealth to “provide a clear statement of the specific reasons supporting the intended action.”
State Medicaid programs, such as the one administered by MassHealth, must comply with this federal Medicaid regulation.
In Massachusetts, the issue of whether assets in an irrevocable trust (and, more particularly, irrevocable income only trusts) are countable for Medicaid long-term care coverage purposes has been litigated extensively during the past ten (10) years. Within the past couple of years, most of the legal issues that have been in dispute have been resolved, principally in decisions rendered by the Massachusetts Supreme Judicial Court (SJC) in the Daley and Nadeau cases and the Massachusetts Appeals Court in the Heyn case.
The essential outcome of these decisions has been to validate the use of certain types of irrevocable trusts for long-term care planning purposes. The courts have found that a properly drafted irrevocable trust will validly render its assets non-countable for purposes of qualifying for Medicaid long-term care coverage after the 5-year look-back period. This means that the trust may continue to own the assets and administer them in accord with the trust terms, but the assets cannot be counted for Medicaid purposes and cannot be used to pay for long-term care costs.
However, notwithstanding these SJC and Appeals Court decisions, it continues to be that frequently, during the Medicaid application process, MassHealth deems irrevocable trust assets as countable, even though from all appearances, the trust is properly drafted and should be deemed non-countable. (Such was the case with the Hirvi plaintiffs — their irrevocable trust had the same provisions as the trust that was evaluated and approved by the SJC in the Daley case.) As the Maas/Hirvi ruling stated, “MassHealth has taken many inconsistent and sometimes contradictory positions on treatment of trusts.”
Because the trust assets are deemed countable, the applicant’s application for Medicaid coverage is denied. To redress the denial, the elder is forced to appeal by requesting an administrative “fair hearing” before a MassHealth hearing officer.
The further fundamental problem is that in the denial and at all times prior to the hearing, the applicant is not informed why the trust is allegedly defective in MassHealth’s eyes. As noted, the standardized MassHealth notice simply states that the applicant is over asset, but, as the Court found, it is “without explanation why [MassHealth] counted the trust.” MassHealth then refuses to reveal the explanation until the parties are actually presenting during the hearing.
MassHealth’s violation of the law has resulted in many practical problems, including the adverse impact it has been having on long-term care providers and, of course, their residents. The lack of disclosure of the specific reasons for the countability determination spawns any amount of confusion, especially when the trust appears to be properly drafted in accord with the Daley, Nadeau and Heyn decisions. The elder applicant is left to grope around in the dark, trying to guess what legal presentation it should make to the hearing officer. The elder simply cannot adequately prepare her case.
As Judge Wilkins ruled, the effect of this MassHealth approach is to deny the scope of due process that the Federal regulation is intended to accomplish:
[T]he regulations prevent [MassHealth] from using its superior knowledge to the detriment of the citizen. Having reviewed the application at the staff level, [MassHealth] undoubtedly knows the clear and specific reasons why it denied the application. There is no reason why it should withhold this information, except for unfair tactical advantage.
Whether intentional or not, this tactic also operates as leverage in forcing a vulnerable applicant to negotiate a quick resolution even if [MassHealth] is in the wrong. The regulation prevents the government from disadvantaging its citizens in these ways. It also serves the interest of transparency. The regulation dictates that [MassHealth], as a government agency supported by public funds and serving the Commonwealth’s citizens, must not proceed in secret or with indecipherable code, but owes a fair explanation of its decisions to the applicants whose lives it affects, often at a time when the applicant is in a very vulnerable position.
The further damaging consequence is that the request for coverage, which is probably months into the process already by the time that the hearing has been scheduled, is continued for several more weeks or months (or even years if litigation is filed and appeals ensue).
During all of this time, the long-term care provider is not being paid (except from the resident’s fixed income, if there is any), and it is prohibited by law from discharging the elder for non-payment. The elder and her family, on the other hand, (along with the provider) all remain in a state of limbo. The elder has no ability to pay because she has no assets; and even if the trustee wanted to make payment from the trust to the provider, it is prohibited from doing so by the terms of the trust. As the judge observed, “[T]he financial, resource and psychic burden placed upon the applicant — and any family members or others who may be devoting their own limited time and resources to help the applicant — during the delay are also problematic and irreparable.”
It is not difficult to imagine how many times elders have been disincentivized to enter into the morass of the appeals process altogether and forfeit coverage that should have been granted.
The hoped for impact of the Maas/Hirvi ruling is to remedy not only the violation of the law but its practical, harmful consequences, not the least of which is the extensive delay between the time that a Medicaid application is filed and the time that a final determination of coverage is made. It is of course during this time that the nursing home’s account receivable is growing.
As the decision also pointed out, one of the primary purposes of the regulation is to “respond to, and to a degree counteract, the applicant’s difficulty in navigating the labyrinth of” the Medicaid application process. If these impacts are realized, the application process should become more streamlined and speedier, less expensive and more fair and transparent. The coverage determinations should become more reliable and consistent, as contrasted to the arbitrariness and uncertainty that has characterized trust cases over the past decade.
It is important to remember that the Maas/Hirvi declaratory judgment applies to MassHealth denials based only on excess “trust assets,” and not necessarily to a wider universe of denial notices. Thus, the decision is especially relevant to those who have undertaken estate planning and long-term-care planning with irrevocable trusts.
Still, the court advised the parties that MassHealth’s obligation to provide a clear statement of specific reasons is not limited to trust cases. It did not specify the exact approach that MassHealth must take to comply with its order. That is the next step.
Don J.J. Cordell is a partner at Casner & Edwards. His law practice primarily focuses on estate and related tax planning and business law with particular emphasis on the representation of closely held and family businesses. He also specializes in administering trusts and estates, long-term-care planning and other elder law matters, estate planning for disabled persons, guardianship and conservatorship matters and representation of clients in probate controversies.