Did the Office of Medicaid Intentionally Violate Federal Medicaid Trust Law When It Stripped the Definition of the Word “Available” from MassHealth Regulations?

Before January 1, 2014, the Office of Medicaid in Massachusetts had an official, published position on what the term “available” meant in its MassHealth regulations, but the Office of Medicaid has apparently chosen not to have a definition any longer.  Some hearing officers are now reviewing MassHealth trust regulations at fair hearings and ruling that some irrevocable trusts have countable assets due to the now-undefined word “available” in the MassHealth regulations.

The proper review of irrevocable trusts for whether they are countable assets is set forth in the federal Medicaid trust law at 42 USC § 1396p(d)(3)(B)(i), which states: “In the case of an irrevocable trust, if there are any circumstances under which payment from the trust could be made to or on behalf of the individual, the portion of the corpus from which, or the income on the corpus from which, payment to the individual could be made shall be considered resources available to the individual.”  (emphasis added)  The Office of Medicaid is required to implement this federal law in Massachusetts, yet has chosen to make the regulation unclear. The regulation at 130 CMR 520.023(C), which contains the newly-undefined word “available” in (1)(d), reads, in its entirety:

“(C) Irrevocable Trusts.

(1) Portion Payable.

(a) Any portion of the principal or income from the principal (such as interest) of an irrevocable trust that could be paid under any circumstances to or for the benefit of the individual is a countable asset.

(b) Payments from the income or from the principal of an irrevocable trust made to or for the benefit of the individual are countable income.

(c) Payments from the income or from the principal of an irrevocable trust made to another and not to or for the benefit of the nursing-facility resident are considered transfers of resources for less than fair-market value and are treated in accordance with the transfer rules at 130 CMR 520.019(G).

(d) The home or former home of a nursing-facility resident or spouse held in an irrevocable trust that is available according to the terms of the trust is a countable asset. Where the home or former home is an asset of the trust, it is not subject to the exemptions of 130 CMR 520.007(G)(2) or 520.007(G)(8).

(2) Portion Not Payable. Any portion of the principal or income from the principal (such as interest) of an irrevocable trust that could not be paid under any circumstances to or for the benefit of the nursing-facility resident will be considered a transfer for less than fair-market value and treated in accordance with the transfer rules at 130 CMR 520.019(G).”

Before January 1, 2014, under the “Definition of Terms” in 130 CMR 515.001, the term “available” was defined as “a resource that is countable under Title XIX of the Social Security Act.” After the Office of Medicaid had intentionally stripped the definition of the term “available” from its regulations as of January 1, 2014, its lawyers began to argue at fair hearings that, notwithstanding the overall intention and specific terms of the irrevocable trust, simple usage of a home in an irrevocable trust meant that it was “available.” By deviously using the wrong definition of the word it had intentionally chosen no longer to define, at least one lawyer representing the Office of Medicaid is now claiming that if the home or former home of the MassHealth applicant is an asset of the trust, the home is automatically deemed to be a countable asset and no determination ever needs to made as to whether principal or income is distributable by the trustee to or for the MassHealth applicant.

The proper context of the word “available,” where the opening paragraph in 130 CMR 520.023 states that the review process be limited to “any circumstances described in the terms of the trust,” would focus on whether the principal or income of the irrevocable trust is distributable to or for the MassHealth applicant. Residing in the property does not mean the principal is “available” to the settlor of the trust as the term is used in 130 C.M.R. 520.023(C)(1)(d).  The meaning of “available” as used throughout the federal Medicaid trust laws and MassHealth regulations does not mean physically available; rather, the term “available” refers to whether the trustee has discretion to distribute the trust principal under any circumstances to or for the settlor.  The federal Medicaid trust law at 42 USC 1396p(d)(2)(B)(i) does not make reference to usage of principal as making the principal available; rather, it deals with actual payment from the trust:  “if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual, the portion of the corpus from which, or the income on the corpus from which, payment to the individual could be made shall be considered resources available to the individual, and payments from that portion of the corpus or income.” (emphasis added)  To the extent that the usage of the home could be viewed as a payment, it would be an income payment because the principal of the trust is not being consumed by merely living there.

This manipulation of the MassHealth regulations as of January 1, 2014 by the Office of Medicaid has given its lawyers (who presumably had been involved in writing the new regulations) a modicum of legal and ethical cover to make arguments that they previously knew they could not make under federal Medicaid trust law and the prior-existing definition of “available” at 130 CMR 515.001.  Such manipulation of the MassHealth regulations is in violation of the federal Medicaid trust law that the Office of Medicaid is required to implement, but to at least some lawyers representing the Office of Medicaid, the ends apparently justify the means.  Even though M.G.L. c. 118E, s. 48 provides that the Director of the Board of Hearings “shall be responsible … for the training of referees,” it is unknown to the elder law bar whether such training has occurred regarding the details of federal Medicaid trust law, so hearing officers at the Board of Hearings may be susceptible to being misled.

The opening paragraph in 130 CMR 520.023, the MassHealth trust regulations, provides no intellectual guidance in determining what the word “available” is supposed to mean, in that it uses that word twice in the same sentence without providing any definition:  “Generally, resources held in a trust are considered available if under any circumstances described in the terms of the trust, any of the resources can be made available to the individual.”  Nevertheless, a key MassHealth regulation at 130 CMR 515.002(B) provides an overarching regulatory requirement: “These regulations are intended to conform to all applicable federal and state laws and will be interpreted accordingly.”  Further, in the MassHealth regulations at 130 CMR 520.021, entitled “Treatment of Trusts,” the MassHealth trust regulations themselves anticipate misinterpretation or their own overreach by stating:  “In the event that a portion of 130 CMR 520.021 through 520.024 conflicts with federal law, the federal law supersedes.”

Having received a misleading essay from Attorney Schelong, representing the Office of Medicaid, Hearing Officer Paul C. Moore still ruled in Fair Hearing Decision 1409671 that the irrevocable trust did not allow principal to be distributed to the MassHealth applicant, yet he felt constrained by 130 CMR 520.023(C)(1)(d) to rule that the applicant’s former home that was held by the trust was nevertheless a countable asset; Attorney Schelong had written: “given that the applicant was, and the spouse is living in the real estate held in the Trusts, the principal is actually available to the spouse and was being used for the benefit of the spouse and applicant.  130 CMR 520.023. MassHealth regulation 130 CMR 520.023(C)(l)(d) provides that “the home or former home of a nursing-facility resident or spouse held in an irrevocable trust that is available according to the terms of the trust is a countable asset.”  Since under the facts as well as the terms of the Trusts, the real estate is available, it is countable and not subject to exemptions related to real estate.”  Thus, there is no question that the Office of Medicaid is exploiting the fact that the definition of “available” no longer exists in its MassHealth regulations.

In Fair Hearing Decision 1407312, the Office of Medicaid took its sham definition act even further, with Attorney Schelong writing:  “There is no delineation in this regulation that the terms of a trust must provide that both the income and principal are available in order for the fair market value of the home to be countable.”  Hearing Officer Kenneth Brodzinski adopted that recklessly misleading position, then stretched the vagueness of the regulation at 130 CMR 520.023(C)(1)(d) into the absurd ruling that all of the irrevocable trust’s assets, not just the home, were countable, as all of the other assets of the trust could be sold and used to make repairs or improvements to the “available” home.

Does it make any sense that a particular type of trust investment would cause an irrevocable trust to fail under federal Medicaid trust law, even if nothing at all could be distributed to the settlor of the trust? Oddly enough, if the home of the MassHealth applicant in Fair Hearing Decision 1409671 or 1407312 had been sold before the MassHealth application was filed, and the proceeds were then held in the irrevocable trust, none of the assets in the irrevocable trust would have been treated as countable under this strained reading of this newly-vague MassHealth regulation. Perhaps, then, the new unwritten rule in dealing with this new, flawed regulatory interpretation should be:  if the MassHealth applicant’s home or former home is in an irrevocable trust, sell it (even if merely through a paperwork-only transaction) before filing a MassHealth application.

Any confusion about what the regulation at 130 CMR 520.023(C)(1)(d) means was caused by an intentional administrative action as of January 1, 2014 by the Office of Medicaid. Lawyers representing the Office of Medicaid cannot pretend that the definition of “available” never existed in MassHealth regulations, and they are bound by the duty of administrative consistency to follow the definition used before 2014, or explain why that particular definition does not apply. To be in charge of implementing federal Medicaid trust law yet pretend not to know what the word “available” is supposed to mean may well be unethical conduct on the part of lawyers at the Office of Medicaid.