The opinion
Filed 3/27/15
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
DEBORAH HERTING, as Trustee, etc., H040220
(Santa Cruz County
Plaintiff and Appellant, Super. Ct. No. PR46057)
v.
CALIFORNIA DEPARTMENT OF
HEALTH CARE SERVICES,
Defendant and Respondent.
In this case we are called upon to examine the relationship between “special needs
trusts,” which allow certain individuals to qualify for public medical assistance under the
federal Medicaid program, and the provisions entitling the state to recover the amounts it
has paid to provide such assistance. Deborah Herting, trustee of the Alexandria A.
Pomianowski Special Needs Trust, appeals from an order requiring the trust to reimburse
respondent, the Department of Health Care Services (DHCS or the Department) for
medical expenses the Department had paid in behalf of the trust beneficiary, Alexandria
Pomianowski, before her death. Herting contends that the trust assets were exempt from
the Department’s reimbursement rights because the beneficiary was under 55 years of age
when the services were provided. We conclude that the Department was entitled to
reimbursement of the medical expenses it paid under both the federal Medicaid statutes
and the statutes and regulations implementing Medicaid through California’s medical
assistance program, known as Medi-Cal. Accordingly, we will affirm the order.
Overview
The federal Medicaid program, created in 1965 by adding Title XIX to the Social
Security Act, is a complex “system of ‘cooperative federalism,’ ” in which both the
federal government and participating states “reimburse certain costs of medical treatment
for needy persons.” (Harris v. McRae (1980) 448 U.S. 297, 301, 308; see 42 U.S.C.
§ 1396 et seq.) Those eligible for Medicaid assistance include “severely impaired
individuals” such as Alexandria Pomianowski, the beneficiary of the trust at issue. (42
U.S.C. § 1396a, subd. (a)(10)(A)(i)(II)(bb).)
The functioning of the Medicaid system depends on a “financial contribution by
both the Federal Government and the participating State.” (Harris v. McRae, supra, 448
U.S. at p. 308.) “Although participation in the Medicaid program is entirely optional,
once a State elects to participate, it must comply with the requirements of Title XIX,”
many of which are set forth in 42 U.S.C. section 1396a et seq. (hereafter “section 1396a”)
(Harris v. McRae, supra, at p. 301.) Nevertheless, “ ‘[t]he [Medicaid] program was
designed to provide the states with a degree of flexibility in designing plans that meet
their individual needs. [Citation.] As such, states are given considerable latitude in
formulating the terms of their own medical assistance plans.’ [Citation.]” (Olszewski v.
Scripps Health) (2003) 30 Cal.4th 798, 810.) California has implemented the Medicaid
program through the Medi-Cal Act, described in Welfare and Institutions Code
section 14000, et seq.
In this case, the relevant statutory provisions are those delineating Medicaid and
Medi-Cal eligibility and recovery requirements, particularly 42 U.S.C. section 1396p
(hereafter “section 1396p”) and Welfare and Institutions Code section 14009.5,
respectively. Section 1396a, subdivision (a)(18), specifically requires the state to
“comply with the provisions of section 1396p . . . with respect to liens, adjustments and
recoveries of medical assistance correctly paid, transfers of assets, and treatment of
certain trusts.” Accordingly, Welfare and Institutions Code section 14009.5 prescribes
2
the conditions under which DHCS may claim reimbursement from the estate of a
Medi-Cal recipient. Entering into the picture are the provisions for “special needs trusts,”
which, in Probate Code sections 3600-3605, enable a disabled person to qualify for
Medi-Cal benefits by sheltering money that exceeds the limit of the individual’s
eligibility. This case calls for application of these provisions and for resolution of any
apparent incongruities among them.
Procedural Background
Alexandria Pomianowski was 19 years old in April 2009, when she was in a
catastrophic automobile accident which left her a ventilator-dependent quadriplegic with
associated medical complications. After being released from a four-month hospital stay
she continued to need total care in all aspects of daily living, including bathing, feeding,
dressing, toileting, and mobility. A lawsuit was filed on her behalf against the County of
Santa Cruz and Ford Motor Company, eventually culminating in a settlement for
$3,175,000.00. In a December 2010 order approving the settlement the superior court
directed that these funds be deposited in a special needs trust, less amounts directly
payable to Kaiser Permanente for medical care, to DHCS, and to Alexandria’s attorney.
Accordingly, on February 1, 2011, $1,424,019.39, was placed in the Alexandria A.
Pomianowski Special Needs Trust. Appellant Deborah Herting, Alexandria’s mother,
was the trustee.
On January 19, 2013, when she was 23, Alexandria died. By this time there was
$1,294,453.23 in cash left in the trust account. Herting notified DHCS of the death in
accordance with Probate Code section 9202, which gave the Department four months
thereafter in which to file a claim against Alexandria’s estate. Within that period the
Department filed its claim for reimbursement of $417,812.43 in health care costs it had
paid under the Medi-Cal program.
In July 2013 Herting filed a final account and petition for termination of the trust,
along with a request for denial of the Department’s claim for reimbursement from the
3
trust. Herting invoked the exceptions set forth in section 1396p, subdivision (b)(1)(B),
and Welfare and Institutions Code section 14009.5, subdivision (b)(1), which limit the
Department’s right to recover from the estate of a decedent who received medical care
while under 55 years of age.
DHCS opposed Herting’s request for preclusion of its reimbursement claim.
Citing section 1396p, subdivision (d)(4)(A), the Department pointed out that a special
needs trust, while allowing a disabled person under 65 to be eligible for public assistance
under Medicaid, must also provide for reimbursement to the state upon the person’s
death. Tracking that federal mandate, the Department noted, was title 22 of the
California Code of Regulations, which in section 50489.9 prescribes the same condition
1
of eligibility. Alexandria had been deemed eligible for Medi-Cal benefits only because
her trust contained that reimbursement provision. Finally, the Department cited
Probate Code sections 3604 and 3605, which give specified government agencies
(including DHCS) priority over the funds remaining in the trust after the death of a
special needs trust beneficiary. In short, the Department argued, “[t]o apply the 55 and
under limitation in Section 1396p(b), as argued by the Trustee, to special needs trusts,
1
California Code of Regulations, title 22, section 50489.9 provides that a special needs
trust is considered a resource “available” to the individual only after it is distributed, thus
ensuring eligibility for Medi-Cal. The qualifying trust is described in this regulation as
“A trust established on or after August 11, 1993, which meets all of the following
conditions: [¶] (A) A trust, or portion of a trust, that contains the assets of an individual
or spouse who was both disabled as verified in accordance with Section 50167(a)(1) and
under the age of 65 when the trust was established and who is currently disabled whether
or not he/she is age 65 or over, and [¶] (B) A trust that is established for the benefit of the
disabled individual or disabled spouse in subsection (a)(1)(A) of this section by a parent,
grandparent, legal guardian of the individual, or a court, and where [¶] (C) The State
receives all remaining funds in the trust, or respective portion of the trust, upon the death
of the individual or spouse or upon termination of the trust up to an amount equal to the
total medical assistance paid on behalf of that individual by the Medi-Cal program. . . .”
(Cal. Code Regs., tit. 22, § 50489.9, subd. (a)(3).)
4
would not only thwart the intent of the statute to provide for payback of Medi-Cal
expenses, but would lead to an unreasonable result that is contrary to public policy. For
no logical reason, recovery by the State from special needs trusts would be limited to
those individuals who incurred medical expenses between the ages of 55 and 65, and the
heirs of all others would get a windfall of taxpayer funds,” contrary to the intent of
Congress.
The superior court approved the settlement but granted the Department’s claim.
The court recognized that the express purpose of the trust had been to enable Alexandria
to qualify for Medi-Cal and that the payback provisions of the document reflected that
purpose. The court therefore ordered that the Department be reimbursed from the
remaining funds in the trust in the full amount of its claim. Herting filed a timely appeal
from the order.
Analysis
Herting’s central argument is that DHCS has no right of recovery from a special
needs trust when the beneficiary is under the age of 55. As Herting recognizes, Congress
revised the Medicaid system in response to abuses by wealthy individuals, particularly
those over 65, who used trusts not only to establish eligibility for benefits but also to
preserve their assets for the benefit of their children or other third parties. (Lewis v.
Alexander (3d Cir. 2012) 685 F.3d 325, 332-333; see also Weisner, OBRA ‘93 and
Medicaid: Asset Transfers, Trust Availability and Estate Recovery Statutory Analysis in
Context, 19 Nova L. Rev. 679 (1995); Rosenberg, Supplemental Needs Trusts for People
with Disabilities: The Development of A Private Trust in the Public Interest (2000) 10
B.U. Pub. Int. L.J. 91, 151 (Rosenberg).) As part of the Omnibus Budget Reconciliation
Act of 1993, Congress tightened the eligibility rules, while adding certain exceptions,
notably subdivision (d)(4)(A), to section 1396p in order to exempt the severely disabled
under age 65 whose assets would otherwise make them ineligible for Medicaid, by
permitting the establishment of a supplemental or special needs trust. Congress thus
5
struck a balance between curbing abusive asset transfers and ensuring access to public
assistance by the disabled. Section 1396p, subdivision (d)(4)(A), now states that a
determination of eligibility does not include the assets in a trust established for “an
individual under age 65 who is disabled (as defined in section 1382c (a)(3) of this title)
and which is established for the benefit of such individual by a parent, grandparent, legal
guardian of the individual, or a court if the State will receive all amounts remaining in the
trust upon the death of such individual up to an amount equal to the total medical
assistance paid on behalf of the individual under a State plan under this subchapter.”
(§ 1396p, subd. (d)(4)(A), italics added.) In California, Probate Code section 3605
permits a court to order the establishment of a “special needs trust” for a person with a
2
disability, but the order “shall include a provision that all statutory liens in favor of the
State Department of Health Care Services , the State Department of State Hospitals, the
State Department of Developmental Services, and any county or city and county in this
state shall first be satisfied.” (Prob. Code, § 3604, subd. (d).)
It is the adverbial dependent clause of section 1396p, subdivision (d)(4)(A),
quoted in italics above, that fueled the controversy in this case. Herting has relied on a
separate subdivision of section 1396p to argue that the state may not recover the
remaining amounts in Alexandria’s trust because she was under age 55 when she
received Medicaid benefits. Subdivision (b)(1)(B) of section 1396p states: “[(b)](1)
No adjustment or recovery of any medical assistance correctly paid on behalf of an
individual under the State plan may be made, except that the State shall seek adjustment
or recovery of any medical assistance correctly paid on behalf of an individual under the
State plan in the case of the following individuals: . . . [¶] (B) In the case of an individual
2
The statute applies if the “person with a disability has a disability that substantially
impairs the individual’s ability to provide for the individual’s own care or custody and
constitutes a substantial handicap,” and the person “is likely to have special needs that
will not be met without the trust.” (Prob. Code, § 3604, subds. (b)(1), (b)(2).)
6
who was 55 years of age or older when the individual received such medical assistance,
the State shall seek adjustment or recovery from the individual’s estate, but only for
medical assistance consisting of [¶] (i) nursing facility services, home and
community-based services, and related hospital and prescription drug services, or [¶] (ii)
at the option of the State, any items or services under the State plan (but not including
medical assistance for Medicare cost-sharing or for benefits described in
section 1396a(a)(10)(E) of this title).” (§ 1396p, subd. (b)(1)(B).)
California’s plan reflects these guidelines in Welfare and Institutions Code
section 14009.5 (hereafter “section 14009.5”), which requires DHCS to “claim against
the estate of the decedent, or against any recipient of the property of that decedent by
distribution or survival an amount equal to the payments for the health care services
received or the value of the property received by any recipient from the decedent by
distribution or survival, whichever is less.” (§ 14009.5, subd. (a).) The statute further
provides, however, that the Department “may not claim in any of the following
circumstances: [¶] (1) The decedent was under 55 when services were received, except
in the case of an individual who had been an inpatient in a nursing facility.” (§ 14009.5,
subd. (b)(1).) The California regulation applicable to this statute also requires that the
Department provide an exemption of its reimbursement claim “[w]here the decedent was
under age 55 when the services were provided, unless the decedent was an inpatient in a
nursing facility, intermediate care facility for the mentally retarded, or other medical
institution.” (Cal. Code Regs., tit. 22, § 50961, subd. (d)(1).) “Decedent” is defined in
section 14009.5, subdivision (d)(1), as “a beneficiary who has received health care under
this chapter . . . and who has died leaving property to others either through distribution or
survival.”
But all of these provisions apply to recovery from the aid recipient’s estate,
whereas the Department’s claim was made pursuant to the statutes governing special
needs trusts and the terms of the trust at issue. We agree with the Department that this
7
distinction controls the outcome of the parties’ dispute. Alexandria’s trust was not estate
property but an instrument created for the specific and exclusive purpose of ensuring that
she qualify for Medi-Cal benefits and have enough resources to supplement those
benefits and enhance her compromised quality of life. As noted above, section 1396p,
subdivision (d)(4)(A), recognizes special needs trusts for Medicaid eligibility purposes if
the individual is under 65 and disabled and if the state will be reimbursed for the amount
it paid for the individual’s medical care. Thus, as the Department points out,
Alexandria’s trust would not have been approved by the court had it not contained the
condition required in section 1396, subdivision (d)(4)(A). It is through this condition that
the device of the special needs trust “strikes a balance between the private interest of the
Medicaid recipient in having a supplemental source of support and the public interest in
recovering the costs of Medicaid expenditures.” (Rosenberg, supra, at p. 136.)
Likewise, in California, the applicable Medi-Cal provisions are not those
pertaining to estate recovery but those governing establishment of special needs trusts
and recovery from those trusts upon the beneficiary’s death. Under Probate Code
section 3604, a special needs trust may not be approved without a provision that all
3
statutory liens in favor of DHCS and other public entities “first be satisfied.” More to
the point is Probate Code section 3605, which describes the procedure to be followed
upon the death of the special needs trust beneficiary. Subdivision (b) of that statute
provides, in pertinent part, “Notwithstanding any provision in the trust instrument, at the
3
In summarizing the enactment of Probate Code section 3604, the Legislative Counsel
explained, “This bill would require that the terms of the trust established for the benefit of
the minor or incompetent person be court approved and satisfy specified requirements.
The bill would also provide that property held under a special needs trust would be
subject to claims of the State Department of Health Services, the State Department of
Mental Health, the State Department of Developmental Services, and a county or city and
county in this state, under specified circumstances.” (1992 Cal. Legis. Serv. Ch. 355
(A.B. 3328).)
8
death of the special needs trust beneficiary or on termination of the trust, the trust
property is subject to claims of the State Department of Health Care Services, the State
Department of State Hospitals, the State Department of Developmental Services, and any
county or city and county in this state to the extent authorized by law as if the trust
property is owned by the beneficiary or is part of the beneficiary’s estate.” The
remaining subdivisions prescribe the notice that the trustee must give to the Department,
the four-month period in which the Department may claim reimbursement from the
trustee, the circumstances under which the statute of limitations is tolled with respect to
the Department’s claim, and the consequences of the trustee’s distribution before the
Department’s four-month period has expired. No exception is stated for claims against a
4
trust created for a beneficiary under age 55. That the provision contains the words “as if
the trust property is owned by the beneficiary or is part of the beneficiary’s estate” does
not warrant engrafting estate-recovery text onto a statute specifically targeted to special
needs trusts. The Department’s claim was authorized by Probate Code section 3605.
California Code of Regulations, title 22, section 50489.9 reflects this legislation:
It states that a special needs trust properly constituted (i.e., established by a parent,
grandparent, legal guardian, or, as here, a court for the benefit of a disabled individual
under 65) shields the trust assets if “[t]he State receives all remaining funds in the trust,
or respective portion of the trust, upon the death of the individual or spouse or upon
4
The California Law Revision Commission Comment to Probate Code section 3605
may appear to support Herting’s position by stating, “On the death of the special needs
trust beneficiary or on termination of the trust, trust property may become subject to
reimbursement claims under federal or state law [including Medicaid and Medi-Cal]. . . .
For this purpose and only this purpose, the trust property is treated as the beneficiary’s
property or as property of the beneficiary’s estate.” We do not read this comment, made
before the enactment of OBRA ’93, as a declaration that specific statutes and regulations
governing government claims against special needs trusts may be disregarded simply by
calling the trust assets estate property.
9
termination of the trust up to an amount equal to the total medical assistance paid on
behalf of that individual by the Medi-Cal program.” Thus, to be approved by the court
Alexandria’s trust had to contain a payback provision in compliance with the federal and
state statutes under which her eligibility for assistance was established. Had the trust not
contained that provision, all of the settlement funds would have been deemed available
for her care, thereby disqualifying her from public assistance.
The terms of Alexandria’s trust fully conformed to the federal and state law
discussed above. Clearly its central purpose was to ensure the availability of resources
5
for Alexandria’s care, not to serve as an estate-planning device. Article Four, Section 1,
stated: “It is the intention of this trust to satisfy Medi-Cal and Supplemental Security
Income (hereinafter “SSI”) program requirements so that its establishment and funding
do not prejudice the Beneficiary’s eligibility for such public benefits. It is also the
intention of this trust that it be administered in a way to satisfy Medi-Cal and SSI
program requirements for preserving the Beneficiary’s eligibility for public benefits, as
well as the amount of such benefits (except if the Trustee determines·in the Trustee’s
discretion that distributions causing some loss of benefits would be in the Beneficiary’s
5
Article Two, Section 5 of the trust states: “The purpose of this trust is to provide for
the special needs of the Beneficiary, a disabled adult. The Beneficiary presently suffers
from a disability that substantially impairs her ability to provide for her own care and
custody and constitutes a substantial handicap. The Beneficiary either receives or is
entitled to receive public benefits on account of her disabilities. In general, this trust is
therefore intended to supplement, and not to supplant, the public benefits that would be
available to the Beneficiary if this trust did not exist. [¶] Currently, the Beneficiary has
basic living needs such as special programs and equipment that public benefits may not
provide. It is vitally important that the Beneficiary receive these services to maintain a
level of human dignity and humane care. If this Trust were to be invaded by creditors, to
be subjected to any liens or encumbrances, or to cause the Beneficiary’s public benefits
to be terminated, the trust corpus would likely be depleted before the Beneficiary’s death
because the cost of care for persons with disabilities is high. In that event, there would be
no remaining source of payment for either emergencies or supplemental support for the
Beneficiary’s needs.”
10
best interests).” In two separate paragraphs the trust expressly stated that it complied
with section 1396p, subdivision (d)(4)(A), Probate Code sections 3600-3613, and
California Code of Regulations, title 22, section 50489.9, subdivision (a)(3).
Accordingly, in the trust directions for administration upon the beneficiary’s death,
Article Seven, section 1, prescribed the order of distribution of trust assets, “[s]ubject to”
state notice and reimbursement requirements. Those requirements were delineated in the
“Notice and Payback Provisions” section of Article Seven, which acknowledged that
compliance with section 1396p, subdivision (d)(4)(A) and 22 California Code of
Regulations section 50489.9 was mandatory in order to enable Alexandria to maintain her
eligibility for Medi-Cal. After giving the Department notice of the beneficiary’s death,
the trustee was required to “first distribute to [DHCS], then to any other appropriate state
agency entitled to Medi-Cal reimbursement from the remaining principal and income of
this trust, up to the amount remaining in this trust, an amount equal to the total medical
assistance paid on behalf of the Beneficiary by the Medi-Cal program.” (Italics added.)
Herting followed the law and the terms of the trust in notifying DHCS of
Alexandria’s death. Upon receiving the Department’s timely claim citing section 1396p,
subdivision (d)(4)(A), and Probate Code section 3605, she was obligated to pay the
$417,812.43 claim from the assets remaining in the trust, which exceeded $1 million.
Shewry v. Arnold (2004) 125 Cal.App.4th 186, on which Herting relies, does not
convince us otherwise. In Shewry, the Department sought reimbursement from Brenda
Arnold, a disabled adult who had been the conservator of her mother’s person and estate.
Arnold’s mother, Etoria Hatcher, was enrolled in Medi-Cal after the proceeds of a
settlement were placed in a special needs trust with Arnold as trustee. When Hatcher
died, Arnold withdrew all but $2.31 from the trust and did not notify DHCS. Eventually
the Department learned of Hatcher’s death and claimed more than $90,000 from Arnold
as recipient of the remaining trust assets. Arnold refused on the ground that she was
Hatcher’s only surviving child and was disabled.
11
The Department sued Arnold and obtained summary judgment, but the Second
District, Division Five, reversed. The court held that the Medicaid reimbursement
provisions of section 1396p, subdivision (b)(2)(A), and Medi-Cal section 14009.5,
subdivision (b)(2)(C), barred recovery from the trust beneficiary’s estate under the
exception for a beneficiary with a disabled child. The estate, reasoned the court, included
the trust assets. In the court’s view, no different treatment after a Medi-Cal recipient’s
death was warranted for special needs trusts. Subdivision (d) of section 1396p was
considered inapplicable because it related only to eligibility for benefits, not
reimbursement. (Shewry, supra, 125 Cal.App.4th at pp. 196-197.) Consequently, the
court determined that Arnold, an adult disabled child of the trust beneficiary, was entitled
to the remaining trust assets free of the Department’s reimbursement claim. That
conclusion was supported by “sound public policy,” the court added, because
enforcement of DHCS’s reimbursement claims “would likely result in hardship” to the
adult disabled child of a deceased beneficiary’s disabled child. (Id. at p. 198.)
We depart from Shewry only insofar as it generally interprets the Medicaid and
Medi-Cal statutes to deem the assets of any special needs trust to be part of a
beneficiary’s estate after death. In Shewry, the trust assets (except for $2.31) had already
been distributed to Arnold, so the Department had to proceed against Arnold--not as
trustee, but as the “sole recipient of the beneficiary’s estate.” (Shewry, supra, 125
Cal.App.4th at p. 191.) Here the claim is against neither the estate nor any recipient of
the decedent’s property, but directly against the trust, which was extant at the time the
Department made its claim. The statutes and regulations governing recovery from a
special needs trust do not exempt beneficiaries under age 55, either directly or by making
them “subject to” the estate recovery provisions. Nor do we see a public policy reason in
this case to shield the trust assets from recovery so that the $417, 812.43 spent by the
public can pass to Alexandria’s parents along with the rest of the trust assets. Such a
result would contravene both the text of the provisions discussed above and the clear
12
intent of Congress and our Legislature. We conclude, therefore, that the superior court
properly granted the Department’s reimbursement claim against Alexandria’s trust after
her death.
Disposition
The judgment is affirmed.
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_________________________________
ELIA, J.
WE CONCUR:
_______________________________
RUSHING, P. J.
_______________________________
PREMO, J.
Herting, as Trustee, etc. v. California Department of Health Care Services
H040220
Trial Court: Monterey County Superior Court
Superior Court No. PR046057
Trial Judge: Hon. Paul M. Marigonda
Counsel for Plaintiff/Appellant: Myers Urbatsch
Deborah Herting, as Trustee, etc. Kevin Patrick Urbatsch
Lily Moallem
Counsel for Defendant/Respondent: Office of the Attorney General
California Department of Health Care Services Kamala D. Harris
Attorney General
Julie Weng-Gutierrez
Senior Assistant Attorney General
Susan M. Carson
Supervising Deputy Attorney General
Hadara R. Stanton and Cheryl Lynn Feiner,
Deputy Attorneys General
Herting, as Trustee, etc. v. California Department of Health Care Services
H040220