decided: January 30, 1980; As Amended February 29, 1980.
Appeal from the United States District Court for the Southern District of Indiana. No. IP 78-773-C -- James E. Noland, Judge .
Before Cummings and Pell, Circuit Judges, and Grant, Senior District Judge.*fn*
This case involves a husband and wife who are no longer residing together due to a medical disability which requires the long-term institutionalization of one of the spouses. The court below ruled that, in computing the Medicaid benefits payable to the institutionalized spouse, the State of Indiana may consider the resources of the noninstitutionalized spouse as available to the institutionalized spouse provided the state conducts individualized fact findings regarding the financial needs of the noninstitutionalized spouse before determining what is potentially available. The gravamen of this appeal is that the district court's judgment continues to permit the State of Indiana to enforce the spousal responsibility of a noninstitutionalized spouse through the indirect method of denying the institutionalized spouse his or her full Medicaid benefits, thereby raising the specter of eviction if spousal contribution is not forthcoming. Appellants suggest the proper procedure to enforce spousal responsibility is for the state to provide full benefits to the institutionalized spouse and to then initiate direct action against the unwilling noninstitutionalized spouse under a state spousal support statute.
This class action, brought under 42 U.S.C. § 1983,*fn1 was filed on behalf of James Brown, an incompetent Medicaid recipient, by his guardian, together with his noninstitutionalized spouse. Elizabeth Brown, seeking declaratory and injunctive relief against regulations adopted as part of the Indiana State Medicaid Plan, I.C. 12-1-7-14.9; 42 U.S.C. § 1396 et seq. As a Medicaid recipient, Mr. Brown's expenses at his nursing home were partially paid by the Indiana Department of Public Welfare and the patient himself. Additionally, however, the defendant welfare officials had certain policies and regulations which required that Mrs. Brown pay a certain amount each month over to the nursing home. Her assigned amount was determined in accordance with a state-wide, uniformly applied mathematical formula that did not take into account her own individual financial needs. She was obliged to pay the money each month and, if she did not, the nursing home would be faced with a non-payment situation. Under the Indiana plan, Medicaid funds would not be used to pay any part of the amount assigned to Mrs. Brown. Apparently she was either unable or unwilling to pay her assigned amount to the nursing home. Defendants nevertheless deemed part of Mrs. Brown's income and resources to be "available", within the meaning of 42 U.S.C. § 1396a(a)(17)(B),*fn2 to the Medicaid recipient, Mr. Brown.
The Browns filed this class action to challenge the deeming regulations of defendants. The district court conducted a trial on December 20, 1978, and issued a Memorandum Opinion on February 16, 1979. The court certified the class and declared the challenged regulatory scheme*fn3 to be contrary to 42 U.S.C. § 1396a(a)(17) and thus invalid under the Supremacy Clause. The court stated: "By this ruling the court does not suggest that the state may not seek contributions from a noninstitutionalized spouse. . . . It is the arbitrariness and irrebuttable presumptiveness of the established limits as applied to any given case that renders the challenged state regulations invalid". p. 6 of Mem.Op. The court held that to comply with § 1396a(a)(17) of the Social Security Act, the Indiana welfare regulations must provide for a factual determination in each case that gives "due consideration to the individual obligations and particular needs of each spouse and family",*fn4 citing Herweg v. Ray, 443 F. Supp. 1315, 1319 (S.D.Iowa 1978), appeal pending. After ruling on the merits, the court denied the plaintiffs' request for attorney fees pursuant to 42 U.S.C. § 1988.*fn5
Plaintiffs contend on appeal that (1) the lower court's ruling on the merits, although an improvement in the law, has erroneously stopped short of the required abolition of all Medicaid deeming, and that (2) plaintiffs have erroneously been denied attorney fees.
The section of the Social Security Act which is in issue, 42 U.S.C. § 1396a(a) (17), provides in part:
(a) A state plan for medical assistance must
(17) include reasonable standards . . . for determining eligibility for and the extent of medical assistance under the plan which (A) are consistent with the objectives of this subchapter, (B) provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient . . ., (C) provide for reasonable evaluation of any such income or resources, and (D) do not take into account the financial responsibility of any individual for any applicant or recipient of assistance under the plan unless such applicant or recipient is such individual's spouse or such individual's child . . .. (Emphasis supplied.)
The crux of the problem is the apparent conflict between subparts (B) and (D) of Section 1396a(a)(17). Subpart (B) provides that only income and resources available to the Medicaid recipient shall be considered while subpart (D) suggests that income and resources of spouses can be considered.
At this juncture we should set out (1) plaintiffs' definition of "deeming" and (2) this court's perception of the levels of inquiry that confront courts faced with situations similar to the case at bar.
(1) Plaintiffs argue that deeming occurs either (a) where a participating state refuses to individualize the spousal responsibility, or (b) where a participating state punishes the institutionalized Medicaid recipient by depriving that person of his or her benefits because the spouse refuses to pay the assigned share of the costs of institutionalization.
(2) The first level of inquiry would be to determine the amount of income and resources belonging to the noninstitutionalized spouse that is potentially available for the support of the institutionalized spouse. This determination must include consideration of factors such as living expenses that do not proportionately decline due to the absence of the institutionalized spouse. The need for an individualized factual determination, rather than an arbitrary irrebuttable presumption, was correctly expressed in the court below. In suggesting a scheme considered acceptable, the court stated: "The contemplated scheme would allow the state to require proof of the particular needs and individual obligations of each spouse and family, and would then deduct these verified sums from the existing resources and income to determine the amount, if any, that is reasonably available for support of the institutionalized spouse." Mem. Op. p. 7. The district court's approach to this first level of inquiry is most equitable and is affirmed without change. However, we must agree with plaintiffs' contention that the lower court's ruling fell short of the abolition of an irrebuttable presumption contained in what we perceive as the second level of inquiry, i. e., whether the income and resources of the noninstitutionalized spouse that have been determined to be potentially available are actually received by the institution on behalf of the disabled spouse. The resulting question then arises: How shall the State of Indiana enforce upon an unwilling spouse the responsibility to contribute?
This second level of inquiry has neither been addressed by this court nor by any other circuit,*fn6 but several district courts have confronted the deeming issue. In Burns v. Vowell, 424 F. Supp. 1135 (S.D.Tex.1976), a spouse required 24-hour care in a nursing home. Plaintiff spouses challenged state regulations that included an irrebuttable presumption that income over a certain level was available to the institutionalized spouse without considering the actual needs or actual contribution of the ineligible spouse. The Burns court defined deeming as "a bureaucratic decision to deem a portion of the income of the non-institutionalized spouse available to the institutionalized spouse". 424 F. Supp. 1135, 1139. In granting a preliminary injunction,*fn7 the court ruled that subparts (B) and (D) of Section 1396a(a)(17) prohibited deeming, and addressed the level one inquiry by stating:
Thus, while the income of a noninstitutionalized spouse can be considered, it must be done through the application of reasonable standards and not on the basis of an irrebuttable presumption that the money is available for the care and support of the institutionalized spouse. . . . . Thus where nursing home care is made available to eligible recipients, their spouses cannot "be held accountable beyond their means'.
424 F. Supp. 1135, 1141. The Burns court commented on the level two inquiry by stating: "The Texas relative responsibility law applies in this case but only insofar as it allows the state "to demand reasonable payment from a spouse or parent who is able.' "*fn8 Id. It is noteworthy that in that court's preliminary injunction, the state welfare agency was ordered to pay, pendente lite, the full amount of the cost of the nursing care of the institutionalized spouse.
In Franssen v. Juras, 406 F. Supp. 1375 (D.Or.1975), a three-judge district court faced a similar challenge by a class of plaintiffs wherein one spouse was an institutionalized Medicaid recipient and the other a noninstitutionalized spouse subject to state regulations that presumed the availability of income above a certain standard allowance. The Franssen court held that the state regulations were invalid as inconsistent with § 1396a(a)(17), and addressed the level two inquiry by noting that subpart (D) of § 1396a(a)(17) is:
intended to authorize a state mechanism for enforcing financial responsibility of relatives, not to permit presumptions forbidden elsewhere in the statute. Oregon until recently had such a mechanism, but it never applied to Medical Assistance and the Plaintiffs here had incomes well below the level that would have activated a demand for contribution. Nothing in our decision in this case, we should note, prevents the State from re-enacting a relative responsibility law and making it applicable to Medicaid, nor from making and enforcing regulations reasonably evaluating the income and resources actually available. We require only that such efforts to impose responsibility conform to federal law.
(Emphasis added.) 406 F. Supp. 1375, 1379.
In Manfredi v. Maher, 435 F. Supp. 1106 (D.Conn.1977), the court similarly*fn9 declared that state welfare regulations that automatically attributed income from the noninstitutionalized spouse were invalid as inconsistent with § 1396a(a)(17). The Manfredi court noted that Connecticut, as Indiana, is one of fifteen states which has elected to assess Medicaid eligibility on the basis of a historical standard, by referring to the state's medical plan which was in effect on January 1, 1972. 42 U.S.C. § 1396a(f). This has relevance in that certain 1977 regulations of the Department of Health, Education and Welfare are inapplicable to states that have exercised the § 1396a(f) option. These 1977 regulations, which apply to only 35 states, have limited any level two presumption of contribution, under the facts of Manfredi, to the first six months after the spouses cease to live together:
Where both spouses apply as aged, blind or disabled or where both spouses are SSI eligible, and cease to live together, income and resources are considered mutually available without proof of contribution for the first six months after the month they cease to live together in a common household. After that, only actually contributed income and resources may be considered in determining the eligibility or amount of ...