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Evans v. State

Court of Appeals of Illinois, Fourth District

December 24, 2013

PEGGY J. EVANS, By and Through Joanne Durbin, Her Agent, Plaintiff-Appellant,

Appeal from Circuit Court of Sangamon County. No. 10MR502. Honorable, John W. Belz, Judge Presiding.


In an action challenging the four-month penalty period of Medicaid noneligibility imposed on plaintiff based on her purchase of a life insurance policy and her transfer of $4,000 to one of her daughters, the decisions of the Department of Human Services and the Department of Healthcare and Family Services were upheld, despite plaintiff's contentions that the Departments did not follow the " long-standing policy" of using the private-pay rate at the long-term healthcare facility the applicant was in at the time of the decision but, rather, used the rate in effect at the time of her application for Medicaid assistance in making the decision, and that the insurance policy was assigned for burial expenses and was exempt, since federal law explicitly provides that the pay rate at the time of the application should be used and plaintiff did not have a contract for her burial expenses, in that the funds in the trust plaintiff created for the life insurance allowed the funds to pass to her children rather than going to burial expenses.

Duane D. Young (argued), of LaBarre, Young & Behnke, of Springfield, for appellant.

Lisa Madigan, Attorney General, of Chicago (Michael A. Scodro, Solicitor General, and Carl J. Elitz (argued), Assistant Attorney General, of counsel), for appellees.

JUSTICE POPE delivered the judgment of the court, with opinion. Justices Knecht and Steigmann concurred in the judgment and opinion.



Page 753

[¶1] In December 2008, defendants, the Department of Healthcare and Family Services (HFS) and the Department of Human Services (DHS) (collectively, the Departments) granted plaintiff, Peggy J. Evans', application for Medicaid assistance but imposed penalty periods of noneligibility, citing certain nonallowable asset transfers.

[¶2] Evans sought administrative review, and the circuit court affirmed. Evans appeals, arguing the Departments erred in (1) using Evans' long-term-care private-pay rate as of the date of her Medicaid application in calculating a one-month penalty period and (2) imposing a three-month penalty period where she created an exempt burial contract. We affirm.


[¶4] On April 3, 2008, Evans, a resident of a long-term health care facility, filed for Medicaid assistance. At the time of her application, the private-pay rate at the facility was $120 per day ($3,600 per month).

[¶5] On August 25, 2008, Evans purchased a life insurance policy from Funeral Director's Life Insurance Company for $12,000. That same day, the proceeds of the policy were assigned to create an irrevocable trust. The trust named plaintiff's three children, including her daughter, Joanne Durbin, Evans' power of attorney, as the residual beneficiaries. The terms of the trust are not in dispute. Article 9 of the trust requires the trustee to pay the funeral and burial expenses incurred provided evidence of those expenses is presented to the trustee within 45 days of Evans' death. Under the terms of the trust, the trustee may not pay any expenses after 45 days of Evans' death. Article 4, paragraph B, of the trust provides " any remaining assets shall be distributed to the residual beneficiary," i.e., Evans' children.

[¶6] On August 28, 2008, a $4,000 check was written on Evans' checking account to Joanne.

[¶7] On December 14, 2008, the Departments approved Evans' application but determined she was ineligible for Medicaid

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funding for a four-month period. She was assessed a one-month penalty for the $4,000 transfer to Joanne as well as an additional three-month penalty for the $12,000 insurance purchase. The penalty period ran from August 1, 2008, through November 30, 2008.

[¶8] Evans appealed, and an administrative hearing was held on November 13, 2009. During the hearing, Evans acknowledged the $4,000 check was a nonallowable transfer. However, Evans argued the penalty period should have been calculated using the private-pay rate for her care as of the date of the Departments' decision instead of the rate as of the date of her application. By the time her application was approved, the private-pay rate had increased from $120 per day ($3,600 per month) to $135 per day ($4,050 per month). Using the $135-per-day figure, Evans contended no penalty should be assessed because the $4,000 transfer was less than the $4,050 private-pay rate ($4,000 divided by $4,050 yields 0.99 and results in a zero-month penalty). The Departments calculated the one-month penalty using the $3,600 figure as follows: $4,000 divided by Evans' $3,600 private pay rate equals 1.1, which results in a one-month penalty. Evans argued the decision date had been used by the Departments " for the last 30 years."

[¶9] Evans also argued the $12,000 life insurance purchase was exempt from any penalty because its proceeds were assigned to an irrevocable trust to pay an estimated $12,000 in funeral and burial expenses. Evans presented an estimate for anticipated funeral and burial costs by a local funeral home in the amount of $12,136.48. However, Evans conceded she did not enter into any contracts regarding those services. Evans argued she did not contract with the funeral home because she wanted her family to have the flexibility to purchase services from other providers. Evans argued these " exact" types of contracts have been permitted in " many other cases." The trust in this case provided for payment of funeral expenses so long as a bill was presented to the trustee within 45 days of death.

[¶10] On July 12, 2010, the Departments issued their joint final administrative decision upholding the four-month penalty period. Specifically, the Departments found the following:

" The record of the hearing shows that on August 28, 2008, $4,000.00 was transferred from [Evans'] checking account. At [the] hearing, all parties agreed that this was a non-allowable transfer. However, the imposition of a one month penalty period remains at issue. The private pay rate at the long term care facility was $120.00 per day, or $3,600 per month at the time of [Evans'] application in April 2008. By the decision date of December 14, 2008, the private pay rate was $135.00 per day, or $4,050.00 per month. The Department's Policy Manual offers no specific guidance in this matter. However, the Department's argument that federal statute applies is compelling. The federal code cited above [(42 U.S.C. 1396p(c)(1)(E)(i))] is quite clear, and the decision to utilize a private pay rate of $3,600.00 per month was, therefore, appropriate. Based on a non-allowable asset transfer of $4,000, the local office correctly imposed a one month penalty.
Regarding the transfer of $12,000, as cited above, the purchase of a life insurance policy, and assignment to an irrevocable trust represents the transfer of an asset. Such transfer is allowable if the total value of funeral goods and services to be received at [the] time of death is comparable to the face value of the life insurance policy, i.e., fair market value

Page 755

is received. In this case, [Evans] purchased a policy with a provider allowing for payment of funeral/burial expenses to the provider of choice. In the absence of a contract with a specific provider, only an estimate of funeral/burial expenses was provided. The beneficiary, as noted on the Application for Life Insurance or Annuity, was the irrevocable trust agreement. This policy was then assigned to the referenced irrevocable trust. While the trust agreement specifies that upon [Evans'] death payment is to be made for all allowable funeral/burial expenses, as indicated on Exhibit B of the trust agreement, there is no assurance that the full $12,000.00 will, in fact, be utilized for such expenses. In fact, Article 4, Part B of the trust agreement specifies that 'any remaining assets shall be distributed to the residual beneficiary.' The residual beneficiaries are [Evans'] children. There is no inference that at the time of [Evans'] death the proceeds of the trust will not be used in total for payment of funeral/burial expenses. Nevertheless, in the absence of a burial contract, no such guarantee exists and the actual fair market value of the transaction cannot be determined. The local office acted correctly, therefore, in considering the transaction as a non-allowable transfer resulting in an additional three month penalty period."

[¶11] On August 13, 2010, Evans filed a complaint in the circuit court seeking administrative review of the Departments' decision.

[¶12] On November 8, 2012, the circuit court affirmed the Departments' decision to impose the ...

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