IRAs as Countable Assets for a Community Spouse

The latest in a line of cases from various states holding that an IRA or other retirement account of a community spouse is not exempt in determining Medicaid eligibility for the institutionalized spouse is Ark. Dep’t of Human Svcs. v. Pierce, 2014 Ark. 251 (May 29, 2014).  This is a problem in many states, and it may become a problem in other states which currently exempt spousal retirement accounts but may change their policies in the future.

Mr. Pierce entered a nursing home in July, 2010, but it was not until December, 2011 that his wife, Martha, filed a Medicaid application for him.  As of the filing of the application Martha had about $352,500 in her IRA and 401(k) accounts.  The application was denied because her assets, counting those accounts, totaled about $358,500, well above the Community Spouse Resource Allowance of $109,560.

The Pierces argued that the Medicaid program should not count Martha’s retirement accounts as available resources since that was a more restrictive methodology for evaluating resources than the methodology used by the Supplemental Security Income (SSI) program, and thus violated 42 U.S.C. §§ 1396a(a)(10)(C)(i) and 1396a(r)(2)(B).

The Pierces relied on the SSI rule for disregarding retirement accounts in 20 C.F.R. § 416.1202(a), which provides that pension funds of an ineligible spouse such as IRAs or work-related pension plans are excluded in computing available resources of an individual “who is living with” the ineligible spouse.  The obvious problem in relying on that regulation is that Martha was no longer living with her husband, so on its face the regulation did not apply.  Unlike Medicaid, under the SSI program, if spouses are living apart there is no deeming of resources of any sort, so there is no need for an explicit exemption of retirement accounts of the ineligible spouse under SSI.  At best, the argument could be made that since SSI disregards retirement accounts if the couple are living together, surely it would do likewise if it would otherwise deem resources when they were living apart.  But there simply is no SSI policy on point.

The court relied on several cases from other jurisdictions that also concluded that there was no requirement to exempt retirement accounts of community spouses under the Medicaid program.  Houghton v. Reinertson, 382 F.3d 1162 (10th Cir. 2004); Mannix v. Ohio Dep’g of Human Servs., 134 Ohio App. 3d 594, 731 N.E.2d 1154 (1999); Martin v. Ohio Dep’t of Human Servs., 130 Ohio App. 3d 512, 720 N.E.2d 576 (1998); and Mistrick v. Division of Medical Assistance & Health Services, 154 N.J. 158, 712 A.2d 188 (1998).

The Pierces relied on Keip v. Wis. Dep’t of Health & Family Servs., 232 Wis. 2d 380, 606 N.W.2d 543 (Wis. Ct. App. 1999), which had reached an opposite result.  There the court has applied 20 C.F.R. § 416.1202(a) because the Keips had been considered to be living together when the institutionalized spouse had first gone to the nursing home (he had been admitted in October and returned before Christmas, and then was readmitted the next April).  That, of course, was not the fact pattern in the other cases.  Keip also had turned on a provision in the State’s Medicaid Handbook, but the court in Pierce pointed out that there was no comparable manual provision in Arkansas.

While it is possible that other courts will follow Keip rather than Pierce (in which there was one justice dissenting on the basis of Keip), there are other alternatives to protecting spousal retirement accounts that would have a much greater likelihood of success than litigating the issue.  In light of all the recent cases concerning the requirement that annuities in payment status be treated as income rather than resources, see, e.g., Geston v. Anderson, 729 F.3d 1077 (8th Cir. 2013), retirement accounts of community spouses could be annuitized.  Then there no longer would be excess resources, just a stream of income, which Medicaid could not count pursuant to 42 U.S.C. § 1396r-5(b)(1), although the State might be able to bring a support claim against the community spouse (but the claim should be based on the Medicaid rate which generally is much lower than the private pay rate).  See Poindexter v. State, 229 Ill. 194, 890 N.E.2d 410 (2008).

Another alternative would be for the community spouse to file a spousal refusal statement declining to make her excess resources available.  Under 42 U.S.C §1396r-5(c)(3) the excess resources should not be counted so long as there was an assignment of support rights to the state, which almost always is the case under state law or as part of the boilerplate on the application.  See Morenz v. Wilson-Coker, 415 F.3d 230 (2d Cir. 2005).  As with an annuity generating income above the Minimum Monthly Maintenance Needs Allowance, the state might bring a support claim, but again it would be limited by the Medicaid rate.

In states which currently exempt retirement accounts of community spouses, but try to change their policy to follow the Pierce line of cases, attorneys will need to examine the requirements for rule making under their state administrative procedure act.  Some states have very strict rule making provisions, others do not.  Where a change is proposed there certainly are equitable arguments that can be made along the lines of those in Kiep and the dissent in Pierce about why retirement accounts should be protected.  Given the finances of most states’ Medicaid programs, however, it may be an uphill battle to retain such protections for community spouses.
As always, our goal is to provide tools and updates that support you as you navigate the growth and vitality of your elder law practice. If you have any questions on how ElderCounsel can partner with you to increase your practice efficiencies – from education to document drafting software or practice development systems- please schedule a brief consultation, call us at (888) 789-9908, or email us at We look forward to hearing from you soon and hope you find these updates beneficial to your practice.

Leave a Reply