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The 2nd U.S. Circuit Court of Appeals has upheld the doctrine of “spousal refusal” — an estate-planning technique that will allow elderly spouses to keep their homes and other assets longer, even when their impoverished spouse is in a nursing home paid for by Medicaid. Previously, Connecticut only recognized a mathematical formula that first forced the institutionalized spouse to be impoverished to the level of $1,600 in possessions. The “community spouse” was required to expend roughly half of his or her remaining assets on the institutionalized spouse’s care. Depending on the couple’s assets at the beginning of the spend-down phase, the community spouse could stop paying the nursing-home bills when his or her assets were in the $95,000 to $19,000 range. In an effort to prevent Medicaid’s spousal impoverishment requirements from being too harsh, Congress passed the Medicare Catastrophic Coverage Act of 1988. It allowed the community spouse to formally refuse to have his or her assets counted with the institutionalized spouse’s on one condition: the spouse in the nursing home had to sign over to the state all of his or her legal rights to be supported by the community spouse. That forced the state to hash out the actual support obligation on the basis of equitable principles, not just math. PAPER CHASE? Some Connecticut elder law attorneys see the 2nd Circuit’s decision in Morenz v. Wilson-Coker as momentous, with an impact likely to spread beyond the three 2nd Circuit states of New York, Connecticut and Vermont. F. William O’Connor, an Avon, Conn., elder law specialist who’s also a certified public accountant, said spousal refusal is a valuable new planning tool. “[I]t’s certainly a victory for the elderly. The big question is what the state’s response is going to be. This will have a ripple effect throughout the country,” O’Connor said. “It shifts the burden [of collection] to the state, where the state previously did not have the requirement to chase the reticent spouse. Now it’s going to.” In the state’s appellate brief and arguments, Assistant Attorney General Patrick B. Kawanashie repeatedly complained that allowing the spousal refusal option would force the state into a “pay and chase” scheme and might allow the elderly to qualify for Medicaid while making their assets harder to collect. Previously, “spousal refusal” had been recognized only by New York state. “Now you have the two additional states in the 2nd Circuit,” said O’Connor. He predicted that some federal legislation will be introduced as a result of the Morenz v. Wilson-Coker decision. Ren� H. Reixach Jr. argued the case for plaintiffs Robert and Clara Morenz. Reixach — a partner in the Rochester, N.Y., firm of Woods Oviatt Gilman — has handled federal spousal impoverishment cases in New York, Pennsylvania and Illinois. In his view, the MCCA, 42 U.S.C. �1396r5(c), mandates that the spousal refusal technique be recognized as legal in all states. “It makes the process more fair,” Reixach said in an interview. “It allows an individualized determination. Medicaid eligibility is otherwise based on a formula, a formulaic amount. This year in Connecticut, if you start with $35,000, the state will let you keep $19,100 as the elderly, community spouse — not much of a cushion.” It’s valuable, Rexaich added, to be able to use refusal to qualify for Medicaid coverage and base support obligations on the individualized circumstances of the community spouse. HIDDEN BENEFITS At the District Court level, Jane L. Tyree and Joshua Z. Hersh, of the Westport, Conn., elder law firm of Hersh & Fowler-Cruz, represented the Morenzes. They won before U.S. District Court Judge Stefan Underhill, who concluded that the spousal refusal statute could not be less ambiguous. On appeal to the 2nd Circuit, Department of Social Services Commissioner Patricia Wilson-Coker argued that the plain meaning rule of statutory construction is inapplicable in this case. Furthermore, the agency contended, Connecticut has no statute that allows a spouse to assign his or her support rights to the state, making Robert Morenz’s assignment of rights a legal nullity. The 2nd Circuit found that assignment statute C.G.S. 17b-285 is focused on situations where the community spouse refuses to provide financial information, or the nursing-home spouse is incapacitated, but does not preclude a competent, voluntary assignment of rights from the institutionalized spouse to the state. Hersh, a certified elder law attorney, pointed out the new spousal refusal option has hidden benefits. “Medicaid generally only pays only 60 to 70 percent of the higher ‘private pay’ rate for nursing homes,” he said. Thus, when the spousal refusal option is in place, the community spouse repays, at most, at the discounted Medicaid rate. Tyree, an associate at the firm who handled the District Court case, said one purpose of the Medicare Catastrophic Coverage Act was to prevent unnecessary “pauperization” of the noninstitutionalized spouse. But when the DSS formula is applied out of context, it can work to impoverish spouses, Tyree maintained. Connecticut, Hersh and Tyree agreed, has a reputation as a tough state for Medicaid enforcement, where qualification on “hardship” grounds is very seldom granted. The Morenzes’ factual situation makes the case particularly intriguing. In 2000, at the age of 82, Robert Morenz began transferring assets of $323,131 to his wife by power of attorney and entered a Wilton nursing home. By Nov. 1, 2003, his assets were down to $1,600 — the amount Medicaid allows. His wife, however, had over $200,000, more than the $90,660 community spouse limit that Medicaid normally allows. They claimed no hardship, resting their case solely on the MCCA’s spousal refusal provision. The 2nd Circuit’s July 14 opinion, written for a unanimous court by Judge Guido Calabresi, flunked DSS in reading comprehension. The spousal refusal provision says the community spouse’s assets won’t disqualify an institutionalized spouse if he or she has “assigned to the state any rights to support from the community spouse … or (C) the State determines that denial of eligibility would work an undue hardship.” The state’s position was that both hardship and assignment of rights were required. “ Wilson-Coker would, in effect, have us read this disjunctive ‘or’ as a conjuntive ‘and,’” Calabresi wrote. The state, he concluded, “has, at most, demonstrated poor drafting” of a complex statute. The effect of the ruling allows Clara Morenz to retain $157,500 in assets above the Medicaid limit, subject to collection by the state, which holds the spousal support rights assigned from her husband. Tyree said the federal statute should be applicable to the Medicaid programs of all 50 states and that no other circuit court has construed the language of the spousal refusal provision. “This is the first case. Most states have just ignored it up to now,” she said. Attorney General Richard Blumenthal said his office is reviewing the ruling. “The most I can say right now is that we will need to study the decision and consult with DSS as to changes in policy or state law necessary to meet the court’s concerns,” he said.

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