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COHEN BY COHEN v. QUERN

December 20, 1984

SAM COHEN, BY HIS NEXT FRIEND SIDNEY COHEN, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
ARTHUR F. QUERN, INDIVIDUALLY AND AS DIRECTOR OF THE ILLINOIS DEPARTMENT OF PUBLIC AID, PATRICK KAIN, INDIVIDUALLY AND AS ADMINISTRATOR OF THE MEDICAL ASSISTANCE PROGRAM, ILLINOIS DEPT. OF PUBLIC AID, AND ILLINOIS DEPARTMENT OF PUBLIC AID, DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

This class action, filed under 42 U.S.C. § 1983, the Declaratory Judgment Act, and Title XIX of the Social Security Act, 42 U.S.C. § 1396-1396p, seeks to challenge certain policies of the Illinois Department of Public Aid (IDPA) as violating Title XIX and regulations issued pursuant thereto. The plaintiff class consists of two groups: 1) all medically needy families with dependent children and all medically needy aged, blind, and disabled residents of group care facilities who are eligible for IDPA assistance under Title XIX*fn1; and 2) all eligible applicants for Medicaid in Illinois whose applications have been or are approved on or after June 10, 1979, and who have either paid for (or have had paid for on their behalf) necessary medical care and services in the three-month period prior to their IDPA applications. The matter is currently before the court on the motion of plaintiffs for summary judgment as to Count II of the complaint. This count represents all the issues still pending before the court. For the reasons stated below, the plaintiffs' motion is granted.

Medicaid; A Brief Overview

In 1965, Congress enacted Title XIX of the Social Security Act, 42 U.S.C. § 1396-1396p (Medicaid), to provide federal subsidies to states financing medical assistance to indigent families with dependent children, and to blind, disabled, or elderly individuals. Under the Medicaid program two basic groups were eligible for Medicaid assistance. The first, termed the "categorically needy," consisted of persons who also received cash assistance from one of several state-federal cooperative programs: Old Age Assistance, 42 U.S.C. § 301-306 (repealed 1974); Aid to Families with Dependent Children (AFDC), 42 U.S.C. § 601-615; Aid to the Blind, 42 U.S.C. § 1201-1206 (repealed 1974); and Aid to the Permanently and Totally Disabled, 42 U.S.C. § 1351-1355 (repealed 1974). See 42 U.S.C. § 1396a(a)(10)(A)(i). In Illinois, the categorically needy were (and are) classified into two groups: AFDC recipients, and Aid to the Aged, Blind and Disabled (AABD) recipients. See Ill.Rev.Stat. ch. 23, § 3-1 (1982). Under Title XIX, all participating states were required to provide benefits to the categorically needy. See generally Winter v. Miller, 676 F.2d 276, 277 (7th Cir. 1982).

The second group, termed the "medically needy," 42 C.F.R. § 435.800, consisted of persons with large medical expenses who met the non-financial requirements for cash assistance (e.g., were aged, blind, or disabled), but who had incomes higher than the maximum eligibility levels for those programs. 42 U.S.C. § 1396d(a). Persons in the medically needy group became eligible for Medicaid by incurring medical expenses equal to the amount by which their total income exceeded the income of those who receive cash welfare assistance. Thus, these persons were required to "spend-down" this excess amount in order to qualify for medical assistance. Providing relief to the medically needy was optional under the 1965 Medicaid program. See Winter, 676 F.2d at 277.

In 1972, Congress amended the Social Security Act to shift some of the financial burden of the categorical assistance programs from the states to the federal government, and enacted the Supplemental Security Income Program, 42 U.S.C. § 1381-1383c (SSI). Under the SSI amendments, which went into effect on January 1, 1974, the aged, blind, and disabled eligible for welfare assistance began to receive cash grants through the federal SSI program rather than from their individual states. The 1972 amendments also raised benefits and eased eligibility criteria under these programs to allow more people to receive general welfare assistance. However, because eligibility for Medicaid was tied to general welfare eligibility, these amendments "threatened to swell the Medicaid rolls and place a large and immediate fiscal burden on participating states." Winter, 676 F.2d at 278.

Fearful that the higher federal limit governing Medicaid eligibility might cause participating states to abandon the program, Congress enacted § 209(b) of the Act, 42 U.S.C. § 1396a(f), which allowed states the option of limiting Medicaid assistance to those aged, blind, or disabled individuals who would have qualified under the income ceilings in effect on January 1, 1972. States which elect this option, however, are required to provide medical assistance for the medically needy and to incorporate a "spend-down" provision for determining eligibility levels. 42 U.S.C. § 1396a(f). The spend-down ensures that those individuals who would otherwise be eligible under the higher federal limits are allowed to deduct their incurred medical expenses from their income before the state can determine whether 1972 eligibility levels were met. Illinois, along with fifteen other states, elected the 209(b) option. See Schweiker v. Gray Panthers, 453 U.S. 34, 39 n. 6, 101 S.Ct. 2633, 2638 n. 6, 69 L.Ed.2d 460 (1981).

Statement of the Case

The Illinois Department of Public Aid (IDPA), as the state agency responsible for administering the Medicaid program in Illinois, Ill.Rev.Stat., ch. 127, § 48a (1982), is required to follow a plan consistent with the requirements of Title XIX and the regulations promulgated thereunder by the Secretary of Health and Human Services (HHS). Brogan v. Miller, 537 F. Supp. 139, 142 (N.D.Ill. 1982). Plaintiffs challenge three aspects of the IDPA's current plan with regard to IDPA's definition of "incurred" expenses. First, plaintiffs contend that the IDPA is required by federal law to credit against spend-down all medical expenses for which a Medicaid applicant remains currently liable. Second, plaintiffs contend that IDPA violates federal law by refusing to credit against spend-down incurred medical bills which have been paid by a third party who is not legally responsible for the bills. Finally, plaintiffs contend that IDPA must establish a procedure for making refunds to participating health care providers who have been paid for services which are found to be retroactively covered by Medicaid. These claims will be discussed in turn.

1.  Whether IDPA must credit against spend-down all
    incurred medical expenses for which applicants are
    currently liable.

IDPA has implemented the spend-down requirement with respect to the aged, blind, and disabled nursing home residents and the AFDC-related medically needy in this case by creating a one month "established period" over which income is compared to the appropriate Medical Assistance-No Grant (MA-NG) standard. AABD Manual, PO-620(3); AFDC Manual, PO-620(3) (Plaintiffs' Exhibits 8 & 3).*fn2 Under the IDPA's regulations, if the expenses concern services provided during the one-month period, they may be credited against spend-down. AABD Manual at PO-620(4); AFDC at PO-620(3). If, however, the expenses concern services provided before the one-month period, only "actual payments made during the current period" may be credited. AABD Manual at PO-620(17) (Plaintiffs' Exhibit 9); AFDC Manual at PO-620.5. As a result, individuals who do not receive a bill until more than a month after the services are provided may not use that bill to establish Medicaid eligibility unless they pay it first.

Plaintiffs challenge this result as violating 42 C.F.R. ¶ 435.732(c)(1)*fn3, which requires state agencies to credit towards spend-down all "expenses incurred by the individual or financially responsible relatives for necessary medical and remedial services," and 42 U.S.C. § 1396a(a)(17)(D), which requires state plans to "tak[e] into account, except to the extent prescribed by the Secretary, the costs . . . incurred for medical care or for any other type of remedial care recognized under state law." As plaintiffs note, neither the statute nor the implementing federal regulations state any limit on the age of bills which may be credited towards spend-down, and speak in terms of "incurred" expenses rather than "paid" bills. Since "incurred" generally is defined as "becom[ing] liable or subject to," Gadway v. Blum, 567 F. Supp. 772, 775 (N.D.N.Y. 1983) (citing Webter's Third New Int'l Dictionary at 1146), plaintiffs argue that the statute implicitly requires § 209(b) states to credit against spend-down all medical expenses for which the applicant is currently liable, and does not give the states any discretion to impose an age limitation on those expenses in determining Medicaid eligibility.

To support their construction, plaintiffs note that the HHS interpretive guidelines support its position:

  [W]hile the state cannot arbitrarily exclude
  unpaid bills incurred prior to the initial
  eligibility period (for which the applicant may,
  in fact, remain liable) a cut off period could be
  established for ...

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