A common MassHealth planning technique for spouses of nursing home residents to protect assets is to purchase a qualifying annuity to shelter their assets above the spousal asset limit of approximately $130,000. (Read our legal guide Using Annuities for MassHealth Planning for Nursing Home Residents.) In order for such purchases not to be treated as disqualifying transfers, they must be "actuarially sound" and must name the Commonwealth as the remainder beneficiary "for at least the total amount of medical assistance, paid on behalf of the institutionalized individual."
Who's the Institutionalized Individual?
An issue of long dispute between MassHealth and those applying for benefits has been the meaning of "institutionalized individual" in this statute, whether it means the spouse in the nursing home or the "community" spouse, should he ever require MassHealth coverage of nursing home care himself. The recent case of Dermody v. The Executive Office of Health and Human Services (Mass. Super. Ct., No. 1781CV02342, Jan. 16, 2020) decides that the repayment obligation only applies to the community spouse's potential MassHealth coverage.
The facts of the case explain the crux of the issue. On July 7, 2015, Robert Hamel purchased an annuity from Nationwide Insurance for $172,000. It stated that if any payments were still due after his death, they would be paid to the Commonwealth of Massachusetts to the "Extent Benefits Paid." It listed Robert's daughter, Laurie A. Dermody, as the beneficiary after the Commonwealth. On July 23, 2015, Robert's wife, Joan, who was a resident at a nursing home, applied for and received MassHealth coverage.
Robert died on December 23, 2016. Nationwide then paid MassHealth the remaining annuity balance of $118,517.50. Laurie subsequently sued both Nationwide and MassHealth for payment of this amount.
The Sole Benefit Rule
MassHealth muddied the water in this case by arguing not only that reference to "institutionalized individual" in the statute refers to nursing home spouse, Joan, but that otherwise the annuity would violate the "sole benefit rule," and its purchase would have been a disqualifying transfer. The "sole benefit rule" permits transfers between spouses or to another—a person or entity—"for the sole benefit" of the spouse. The state argues that if the annuity balance can be paid to the daughter, Laurie, rather than to Joan or to MassHealth, then its purchase was not for the sole benefit of Robert's spouse.
Laurie argues that the sole benefit rule is irrelevant to whether the purchase of the annuity is a transfer of assets, since it meets the requirement that it be "actuarially sound"—that is that the $172,000 annuity purchase would have been paid back entirely during Robert's life if he had lived to his full life expectancy.
In finding in Laurie's favor, the Court references a federal case that finds the opposite—that if an annuity satisfies the "sole benefit" rule, then it does not have to be actuarially sound. Hughes v. McCarthy, 734 F.3d 473 (6th Cir. 2013), cert. denied, 572 U.S. 1034 (2014). It finds "that an annuity that is actuarially sound . . . need not satisfy the [sole benefit rule]."
The Contractual Claim
It goes on to say that even if this were not the case, Nationwide is bound to pay Laurie under the terms of the annuity contract. "Robert was the sole annuitant of the contract, and Joan is not reference anywhere in the contract. Accordingly, nothing in the plain terms of contract suggests the "benefits paid" language refers to anyone other than Robert."
While in most cases, nursing home residents die before their presumably more healthy spouses living in the community, this case should put to rest the question of what happens to annuities payments after the earlier death of the community spouse. Much credit goes to Attorney Lisa Neely of the firm Mirick O'Connell who took on "city hall" in this case.