Czepiga Daly Pope & Perri Challenges Connecticut's Medicaid Regulations on Annuities

Our office represents a client who is suing the Connecticut Department of Social Services (DSS) over the State's treatment of annuities for Medicaid applicants. The laws regarding Medicaid (Title XIX) are very complex, especially in spousal situations. Under federal law, when one spouse is institutionalized, the spouse living at home (the "well spouse") is entitled to keep their own monthly fixed income, regardless of the amount. The definition of fixed income includes social security, pension and immediate annuity payments. Under federal law fixed annuity income means regular payments from an immediate annuity that is irrevocable, non–assignable and actuarially sound (meaning that an amount equal to at least the premium payment will be paid back over the person's life expectancy). Under the Medicaid law the well spouse may retain no more than $109,560 (in addition to a home and car), so excess assets can be converted to a fixed income stream by purchasing an immediate annuity for a term of years. Since the spouse's fixed income is exempt, the annuity purchase becomes an effective asset protection tool.

Despite the fact that federal law permits the use of spousal immediate annuities, the Connecticut DSS promulgated a regulation that counts fixed annuity income as an asset in determining Medicaid eligibility. DSS does not, however, treat the income from an IRA immediate annuity as an available asset; they are targeting only non–IRA immediate annuities. The State's rationale is that a secondary market exists for a company to purchase the income stream for a lump sum payment, which is typically a fraction of the premium payment. That lump sum would then be a counted asset, exceeding the amount a well spouse is entitled to retain (a maximum of $109,560), thereby resulting in the State's denial of the Medicaid application. The State's regulation is not only unconstitutional, since federal law specifically exempts a spouse's fixed income in determining Medicaid eligibility, but it also creates a legal impossibility in trying to force the assignment of a non–assignable annuity.

In Lopes v. DSS, which is pending in the Connecticut District Court, our client is suing DSS over the constitutionality of the State's annuity provisions. Specifically, our client is seeking a preliminary injunction, enjoining the State from enforcing the regulation that counts fixed income as an asset. Several decisions from other federal district courts affirm the use of such a spousal annuity, so the likelihood of success in our lawsuit is very good. Attorneys Paul T. Czepiga and Brendan F. Daly are joined by New York Attorney Rene Reixach in this lawsuit.