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DOKOS v. MILLER

United States District Court, Northern District of Illinois, E.D


June 17, 1981

ANGELINE DOKOS, ET AL., PLAINTIFFS,
v.
JEFFREY C. MILLER, ET AL., DEFENDANTS.

The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Angeline Dokos ("Dokos") and Katherine Malenk ("Malenk") (collectively "plaintiffs"), acting both for themselves and for a putative class, sue the Illinois Department of Public Aid ("IDPA") and its Director Jeffrey Miller ("Miller")*fn1 challenging the validity of Ill.Rev.Stat. ch. 23, § 3-1.3 (the "transfer of assets rule" or simply the "rule"). That rule applies to otherwise Medicaid-eligible aged, blind or disabled persons who have, before filing their Medicaid applications, transferred assets for less than fair market value. It presumptively excludes such persons from any Medicaid eligibility for a period of five years, measured from the date of such transfer. Since the decision in Drogolewicz v. Quern, 74 Ill. App.3d 862, 30 Ill.Dec. 865, 393 N.E.2d 1212 (1st Dist. 1979), however, defendants have been required to limit, and have limited, the presumed ineligibility in terms of the actual value of the transferred asset rather than for a full five years.

Plaintiffs claim the rule (1) violates their rights under the Fourteenth Amendment and (2) conflicts with federal law in violation of the Supremacy Clause. IDPA and plaintiffs have filed cross-motions for partial summary judgment on the latter issue. Alternatively plaintiffs seek a preliminary injunction enjoining IDPA from enforcing the rule and requiring it to reprocess Medicaid applications of the last five years on which aid has been denied under the rule. Finally plaintiffs have moved for class certification. For the reasons stated in this memorandum opinion and order:

  1. Plaintiffs' motion for summary judgment is
     granted.

  2. Plaintiffs' motion for class certification is
     continued pending further submissions, if desired,
     by the parties.

Facts

IDPA administers the Medical Assistance ("Medicaid") program under Article V of the Illinois Public Aid Code, Ill.Rev.Stat. ch. 23, §§ 5-1 et seq. Medicaid provides medical care for several classes of persons if they are unable to pay for such care themselves: aged, blind and disabled persons and dependent children and their families. Its program is funded jointly by state money and by federal money provided under Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. Under 42 U.S.C. § 1396a IDPA is required to administer Medicaid in accordance with federal law.

Persons are eligible to receive Medicaid if they are either "categorically" or "medically" needy. Those receiving cash welfare payments under Aid to Families with Dependent Children ("AFDC") and Supplemental Security Income ("SSI") are, with a limited exception, "categorically needy" — meaning simply that they automatically qualify for Medicaid. Persons who do not receive cash welfare payments but demonstrate an inability to pay medical bills are deemed "medically needy" and are eligible for Medicaid to the extent such bills exceed their ability to pay.

Illinois' transfer of assets rule applies to all categorically and medically needy Medicaid applicants except for persons whose potential eligibility is as families with dependent children. In order to receive Medicaid:

  The person shall not have made, at any time within 5
  years immediately prior to the filing of his
  application, a voluntary or involuntary assignment or
  transfer of any legal or equitable interest in real
  or personal property, whether vested, contingent or
  inchoate, for the purpose of qualifying for or
  increasing his need for aid under this Article.

  Any assignment or transfer of property made without
  consideration, or for a consideration which is not
  paid, or which does not approximate the fair, cash
  market value of the property shall, prima facie, be
  deemed made for the purpose of qualifying for or
  increasing the need for aid. Unless and until
  evidence sufficient to prove the contrary is
  submitted, or the property is reassigned or
  retransferred to the applicant, or its equivalent
  value returned, he shall be ineligible for aid under
  this Article for 5 years following the date of the
  transfer or assignment.

  If aid has been granted as a result of a failure to
  disclose any transfer or assignment of property or to
  report any change in status with respect to property
  or income, as required by Section 11-18 and 11-19 of
  Article XI, the aid may at any time be cancelled or
  suspended or the amount thereof varied.

In November 1977 Dokos applied for and was denied Medicaid because assets transfers within the previous five years to her daughter-in-law, grandson and a creditor of her deceased son rendered her ineligible under the rule. Malenk applied for and began receiving Medicaid payments in July 1977. Several months later IDPA terminated payments when it discovered she had sold a house in 1975 and allegedly had received inadequate consideration for the sale. Termination of Malenk's benefits was subsequently upheld by an IDPA Board that heard her administrative appeal.
*fn2

On January 27, 1978 plaintiffs filed this action under 42 U.S.C. § 1983, 28 U.S.C. § 2201 and 2202 for declaratory and injunctive relief. Specifically they charge the transfer of assets rule is unlawful because:

  1. it violates the Constitution by denying plaintiffs
     and the putative class members equal protection
     and due process under the law;

  2. it "takes into account" in determining Medicaid
     eligibility financial resources other than those
     "currently available" to the applicants in
     violation of 42 U.S.C. § 1396a(a)(10) and
     (17);

  3. it applies a more restrictive eligibility standard
     to aged, blind or disabled persons than to
     families with dependent children in violation of
     42 U.S.C. § 1396a(a)(17) and
     42 C.F.R. § 448.3(c)(1)(iv); and

  4. it discriminates against handicapped persons in
     violation of 29 U.S.C. § 794 and
     20 C.F.R. § 84.5(2).

Plaintiffs also sought certification of the class of:

  all aged, blind and disabled persons who have
  applied, are applying, or will apply for medical
  assistance pursuant to Ill.Rev.Stat. ch. 23, §
  5-1, and have been, are being, or will be denied
  benefits, or whose benefits have been, are being, or
  will be

  cancelled solely because they have transferred
  property within the preceding five years for less
  than adequate consideration.

On February 17 and March 17, 1978, respectively, Judge Bua entered a temporary restraining order and preliminary injunction enjoining IDPA from enforcing the transfer of assets provision against Dokos and Malenk. At the same time he denied class certification as unnecessary, stating that a determination as to the legality of the rule on plaintiffs' individual claims would necessarily "affect" all applicants.

On July 11, 1978 plaintiffs filed their summary judgment motion, limited to the contention that the transfer of assets provision contravenes applicable federal law. At the same time they again moved for class certification. On August 28, 1978 IDPA filed its cross-motion for summary judgment, also limited to the federal statutory issues. During the nearly two-year period thereafter while the case was still assigned to Judge Bua, the parties supplemented their submissions on the cross-motions to reflect continuing developments in this fluid area of the law. After assignment to this Court the parties updated their submissions but then suggested that a then-pending case in the United States Supreme Court, Beltran v. Myers, was likely to provide the definitive answer to the question before this Court.

Beltran has now been decided in a way that defeated the parties' expectations in that respect.*fn3 Thus the cross-motions must be resolved without the Supreme Court's guidance. Two developments since the parties' original submissions are of particular significance in that resolution:

1. In Drogolowicz v. Quern, 74 Ill. App.3d 862, 30 Ill.Dec. 865, 393 N.E.2d 1212 (1st Dist. 1979) the Illinois Appellate Court determined that the automatic five-year disqualification feature of the transfer of assets provision violates the mandate of 42 U.S.C. § 1396a(a)(17) that, as the Court put it, states not "assume the availability of income which may not, in fact, be available. . . ." Accordingly the Court held that, consistent with federal law, IDPA may "take into account only the actual value of the asset . . . transferred and provide assistance for any medical expenses . . . which may still be owing after such a computation." In response to that decision IDPA promulgated a new Rule 3.405:

  Property transfers completed within five years of the
  date of application for assistance shall be
  considered in determining eligibility. If a fair
  market value was not received, the client shall be
  ineligible for assistance unless he can provide
  acceptable proof that he did not transfer the
  property to qualify for or increase his need for
  public assistance. . . . The period of ineligibility
  lasts from the initial date [of application] for as
  long as the asset would meet the clients [sic] needs
  if it were available, but in no case shall it last
  longer than 5 years from the date of transfer.

2. On December 28, 1980 President Carter signed into law Amendment No. 1936 to the Pneumococcal Vaccine Act, H.R. 8406 (the "Boren-Long Amendment"), Section 5 of Public Law 96-611. In inimitable Congressional style, despite the title of the Act itself the Boren-Long Amendment dealt with Medicaid eligibility:

  Section 1613 of the Social Security Act is amended by
  adding at the end thereof the following new
  subsection:

DISPOSAL OF RESOURCES FOR LESS THAN FAIR MARKET VALUE

  (c)(1) In determining the resources of an individual
  (and his eligible spouse, if any) there shall be
  included (but subject to the exclusions under
  subsection (a)) any resource (or interest therein)
  owned by such individual or eligible spouse within
  the preceding 24 months if such individual or
  eligible spouse gave away or sold such resource or
  interest at less than fair market value of such
  resource or interest for the purpose of establishing
  eligibility for benefits or assistance under this
  Act. (2) Any transaction described in paragraph (1)
  shall be presumed to have been for the purpose of
  establishing eligibility for benefits or assistance
  under this Act unless such individual or eligible
  spouse furnishes convincing evidence to establish
  that the transaction was exclusively for some other
  purpose. . . .

  (b) Section 1902 of the Social Security Act is
  amended by adding at the end thereof the following
  new subsection: (j)(1) Notwithstanding any other
  provision of this title, an individual who would
  otherwise be eligible for medical assistance under
  the State plan approved under this title may be
  denied such assistance if such individual would not
  be eligible for such medical assistance but for the
  fact that he disposed of resources for less than fair
  market value. If the State plan provides for the
  denial of such assistance by reason of such disposal
  of resources, the State plan shall specify a
  procedure for implementing such denial which, except
  as provided in paragraph (2), is not more restrictive
  than the procedure specified in section 1613(c) of
  this Act.

  (2) In any case where the uncompensated value of
  disposed of resources exceeds $12,000, the State plan
  may provide for a period of ineligibility which
  exceeds 24 months. If a State plan provides for a
  period of ineligibility exceeding 24 months, such
  plan shall provide for the period of ineligibility to
  bear a reasonable relationship to such uncompensated
  value.

On July 1, 1981 the Boren-Long Amendment will take effect.
*fn4

  Available Income and Resources Under 42 U.S.C. § 1396a(a)(10)
                            and (17)

Sections 1396a(a)(10) and (17) impose statutory limitations on the criteria to be employed by states in determining Medicaid eligibility. They require the states to "provide for taking into account only such income and resources as are, as determined in accordance with standards provided by the Secretary, available to the applicant or recipient." 45 C.F.R. § 248.3(b)(1) (1976) sets the standards in response to the statutory mandate:

  [W]ith respect to both the categorically needy and,
  if they are included in the plan, the medically
  needy, a State plan must: (1) Provide that only such
  income and resources as are actually available will
  be considered and that income and resources will be
  reasonably evaluated.

Plaintiffs claim the transfer of assets rule contravenes those provisions by "assuming" recipients and applicants have access to resources not "actually available" to them. IDPA does not contest the general applicability of those provisions to the Illinois Medicaid program. Rather it urges the rule is a "fraud prevention statute" having nothing to do with resource availability. Accordingly, IDPA reasons, the available resources requirement simply has no bearing on the validity of the rule.

IDPA's contention that the rule is fraud-oriented (and does not "consider" unavailable assets) is based in large part on three of the rule's characteristics (quoting from IDPA's memorandum)*fn5:

  1. "This statute looks not to the value of the
     transferred asset but looks rather to the state of
     mind of the applicant who has made the transfer.

  2. "There is no provision that an applicant would be
     ineligible for the period of time in which the
     asset would have been consumed had the property
     not been transferred [nor] any attempt . . . to
     compute how long the applicant could have lived
     upon the transferred asset . . .

  3. "The statute provides that an applicant does have
     the opportunity to show that they [sic] did not
     transfer their assets to qualify for assistance."

Thus plaintiffs maintain the transfer of assets rule is a "resource counting" rather than a "fraud prevention" provision. IDPA argues the converse. Both parties apparently assume it requires resolution of that dispute to dispose of the issue raised under 42 U.S.C. § 1396a(a)(10) and (17) and their implementing regulation.

In the Court's view the parties' dispute, as so framed, poses a false issue. After all, the federal requirement is that in formulating its Medicaid eligibility rules the state may take into account "only such income and resources as are actually available" to the applicant or recipient. Whether cast as a "resource" or a "fraud" rule, any state law that considers non-available resources is at odds with that mandate.

Read literally (and there is no reason to do otherwise), the federal provisions leave no room for recasting as "actually available" any assets that the recipient or applicant has in fact relinquished. Against that benchmark the transfer of assets rule is fatally flawed: A recipient's or applicant's eligibility is critically impacted by the use of assets no longer in his or her possession. Whether that impact results from the state's desire to stem fraud or to "count resources,"*fn6 the rule clearly contravenes the federal law directive that only actually available resources be considered for eligibility purposes.

True enough, as so construed the federal law left a significant loophole in the Social Security Act by permitting the type of fraud at which transfer of assets rules are directed. But that initial legislative oversight in a complex statute does not justify a judicial cure. That should be left to Congress — and Congress has in fact responded by enacting the Boren-Long Amendment. As its sponsor Senator Long stated on the Senate floor on behalf of the Amendment*fn7 (Cong.Rec. S16505, daily ed. Dec. 13, 1980, emphasis added):

  In recent years a number of States have uncovered an
  abusive practice in which certain individuals
  transfer substantial assets to their families or to
  others in order to bring themselves down to the
  welfare eligibility level which will qualify them for
  payments under the supplemental security income (SSI)
  program and for fully paid medical care under the
  medicaid program. Unfortunately, the present law
  is so written as to make this subterfuge
  possible.

Because the Amendment becomes effective July 1, 1981 the Illinois rule has been invalid up to now.*fn8

Applicability of 42 U.S.C. § 1396a(f)

In 1974 Congress created SSI to replace Aid to the Aged, Blind and Disabled ("AABD"). Recipients of cash benefits under either program have qualified as categorically needy for Medicaid purposes. AABD had been a federal-state cooperative venture under which eligibility and benefit determinations were made by the states within the bounds established by the Social Security Act. SSI is wholly federally funded, with its eligibility and benefit determinations made by the Social Security Administration.

From the outset SSI eligibility levels were more liberal than prior AABD levels in several states. Those states might have suffered substantial fiscal impact as a result, for they are required to supply Medicaid assistance to all SSI recipients (because they are categorically needy). To mitigate that impact Congress enacted 42 U.S.C. § 1396a(f) ("Section 209(b)"), which basically allows a state to keep the Medicaid eligibility standard it employed on January 1, 1972:

  Notwithstanding any other provision of this
  subchapter . . . no State . . . shall be required to
  provide medical assistance to any aged, blind or
  disabled individual . . . for any month unless such
  State would be (or would have been) required to
  provide assistance to such individual . . . had its
  plan for medical assistance . . . in effect on
  January 1, 1972, been in effect in such month. . . .

Illinois exercised the option to retain its January 1, 1972 eligibility standards. On that date the Illinois transfer of assets rule was in effect. Accordingly, IDPA reasons, Section 209(b) insulates the rule from attack.

IDPA's argument could have some force against assaults based on either of two arguments:

  (1) that under the so-called comparability provisions
      of the Social Security Act, eligibility standards
      may not be more restrictive for aged, blind or
      disabled persons than for families with dependent
      children or

  (2) that the rule discriminates unlawfully against
      handicapped person.*fn9

However it is plain that Section 209(b) cannot bear on the asset availability issue. In 1972 as well as today federal law required that states take into account only resources currently available. IDPA does not argue to the contrary. Stated differently, Section 209(b) only "insulates" 1972 standards that were legal in 1972. See Winter v. Trainor, ¶ 28,151, CCH Medicare and Medicaid (N.D.Ill. 1977).

Plaintiffs' Motion for Class Certification and Prayer for Relief

As stated earlier in this opinion plaintiffs seek class certification, which Judge Bua has previously denied. He found that because a determination respecting the legality of the rule on plaintiffs' individual claims would necessarily "affect" all applicants, certification was unnecessary. In that regard IDPA submits that it will "uniformly apply the court's order absent a class."

This Court of course expects IDPA to honor its promise. Nonetheless it is apparent plaintiffs' present prayer for relief cannot be implemented absent certification, for it requests that defendants be required to "reprocess immediately the Medicaid applications of all class members illegally denied Medicaid benefits in the last five years, and to grant current and ongoing eligibility to those members of the class currently eligible . . . but for the application of IDPA's illegal transfer of assets prohibition."

In large part IDPA has relied only on Judge Bua's ruling in opposing the present motion for class certification. And of course it has had no opportunity to comment on the propriety of plaintiffs' proposed class remedy in light of this opinion. Accordingly IDPA is given until June 30, 1981 to submit a short memorandum addressing class issues. Plaintiffs may submit a responsive memorandum on or before July 7, 1981.*fn10


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