Amicus Curiae Brief — Atkins v. Rivera

eupreme Court, U.S, 7"

FILED

No. 85-632 | JAN 31 ‘$aa

POR OA) JR

—_

‘ ™ . ea * |

Iu the Supreme Court of the United States

OCTOBER TERM, 1985

CHARLES ATKINS. COMMISSIONER.

MASSACHUSETTS DEPARTMENT OF PUBLIC WELFARE.

PETITIONER

SANTOS RIVERA. ET AL.

ON WRIT OF CERTIORARI TO THE

SUPREME JUDICIAL COURT OF MASSACHUSETTS

BRIEF FOR THE UNITED STATES AS

AMICUS CURIAE SUPPORTING PETITIONER

(CHARLES FRIED

solcio)or (rere ral

RICHARD K. WILLARD

1 cc stant Attor eu (re neral

KENNETH 8S. GELLER

De pity Solicitor (+6 }

JERROLD J. GANZFRIED

4 oO I ’ }

AS stant to the SOT ror freneral

JOHN F. CorRDEsS

NICHOLAS S. ZEPPOS

Attorneys

Di partme« tof Justice

RONALD E.. ROBERTSON Washinaton. D.C. 20530

(General Counsel (202) ¢ 2219

DAVID R. SMITH

Attor ey

De partment of Health

and Human Services

Washington, D.C. 20201

QUESTION PRESENTED

part icipat-

use up to a sh

nerliod r compu yr tne e income

must Spe

Medicaid

lawful.

re S

Interest of the United States

Statement 2

Summary of argument 9

Argument:

The Secretary’s regulation authorizing up to

month period for computing excess income that n :

be spent down to qualify for Medicaid is consistent

with the lancuage and policies of the Medicaid Act

and is clearly within the scope of the Secretary s

rulemaking authority 12

\. The Secretary's longstanding regulation ad pted

pursuant to an express grant of rulemaki!

authority must be given controlling weight 12

B. The Secretary’s regulation is consistent with the

“same methodology” language of the Act sinc

that language does not refer to the length of the

spend dow ner od 19

C. The Secretary's regulation is consistent with the

“comparability” requirement of the Act 26

Conclusion 30

rr . . rr Ce i ’

TABLE OF AUTHORITIES

(Cases:

American Paper Institute, Inc. v. American Ele:

trie Power Corp., 461 U.S. 402 ; 4

Andrus Vv. Shell Oil Co.. 446 U.S. 657 L5

A pe r Hosiery Co. v. Leader, 310 U.S. 469 16

Batterton Vv. Francis, 432 U.S. 416 10. 13

Beltran v. Myers, 701 F.2d 91, cert. denied, 462

U.S. 1134 97 OS

Cases—Continued: Page

Board of Governors V. First Lincolnwood Corp.,

139 U.S. 234 16

Caldwell v. Blum, 621 F.2d 491, cert. denied, 452

U.S. 909

Calkins v. Blum, 511 F. Supp. 1073, aff'd, 675 F.2d

14 28

Chevron U.S.A. Ine. v. Natural Resources Defense

Council, Inc., No. 82-1005 (June 25, 1984) 13-14, 21

Connecticut Department of Income Maintenance V.

Heckler, No. 83-2136 (May 20, 1985) 20, 21

DeJesus Vv. Perales, 770 F.2d 316 passim

Doe v. Wilson, [1982] Medicare and Medicaid

Guide (CCH) * 32,148 (D. Vt. Aug. 16, 1982) 19

EEOC v. Associated Dry Goods Corp., 449 U.S.

590 16

. Fabula v. Buck, 598 F.2d 869 28

Ford Motor Cre dit Co. V. Milhollin, 444 U.S. 555 27

Greklek v. Toia. 565 F.2d 1259, cert. denied, 436

U.S. 962 28

, Harris v. McRae, 448 U.S. 297 1.2

4 Hogan V. Heckler, 769 F.2d 886 passim

Morton v. Mancari, 417 U.S. 535 26

Norweaian Nitrogen Products Co. v. Unite d States,

288 U.S. 294 15

Parsoi s Stee l, Tne. Vv. Fu st Alabama Bank, No. 4 -

1616 (Jan. 27, 1986) 26

Schweiker v. Gray Panthers, 453 U.S. 34 passim

Schweiker v. Hogan, 457 U.S. 569 1,10, 16, 18, 29

T’nited States V. Ruthe rford, 442 U.S. 544 16

Williams v. St. Clair, 610 F.2d 1244 6, 13

Winter v. Miller, 676 F.2d 276 5

Statutes and regulations:

Deficit Reduction Act of 1984, Pub. L. No. 98-369,

S$ 2373(c), 98 Stat. 1112 25

Omnibus Budget Reconciliation Act of 1981, Pub

L. No. 97-35, 95 Stat. 357 ef seq.:

§ 2171 (a), 95 Stat. 807 16

$ 2171 (a) (3), 95 Stat. 807 21

S$ 2315(a), 95 Stat. 855 25

Tax Equity and Fiscal Respo1 lity Act of 1982,

Pub. L. No. 97-248, § 137(b) (8), 96 Stat. 378 16. ?]

Pub. L. No. 92-6038, 86 Stat. 1329, et seq

Tit. II, 86 Stat. 1370:

S 209(b), 86 Stat. 1389 :

Tit. II], 86 Stat. 1465 5

Pub. L. No. 93-233, § 13(a) (3), 87 Stat. 960 16

12 U.S.C. (1970 ed.) 301 et seq

12 U.S.C. 602 et seq. 5

12 T7 SC. (1976 ed.) 602(a) (8) 26

12 U.S.C. 602 (a) (13) 8, 20

12 U.S.C. 602(a) (13) (A) 25

12 U.S.C. (1976 ed.) 602(a) (28) 26

12 U.S.C. (1970 ed.) 1201 et seq 3

12 U.S.C. 1302 13, 19

12 T7 S.C. (1970 ed.) 1351 ef seq 3

12 U.S.C. 1381 et seq 3

12 U.S.C. 1396 17

12 ULS.( 396a i.a

l

1396a (a) (10)

U.S.C. 1396a (a) (10) (A) 1) 2

[ 1396a (a) (10) (CO) {

[ 1396a (a) (10) (C) (i) 91. 292

12 U.S.C. 1396a (a) (10) (C) 1) CID) 17

U.S.C. 1396a(a) (10) (C) (1) CIID) 7.8.11, 19, 25

| 12396a (a) (10) (C) Civ) 17

| 1396a (a) (] ‘

12 U.S.C. 13896a (f) 3

. 1896b 9

]

396b (f) (1) (B) 1) {

12 S.C. 1896b(f) (2) §. 29

2, S.C 1396p (c) (?) (BRB) (1) 6

Mass. Ann. Laws ch. 118E (Law. Co-op. 1975)

~ p

‘ . . or 4 9

sectiol o9.4 ‘ |

Section 435.110 (a) 5

> Bed

Section eve) 120 (a) 2

utes and regulations—Continued : Page

Section 435.401 (c) 26

Section 435.725 8)

Section 435.733 6

Section 435.811 (c) |

Sections 435.821-435.823 5

Section 435.831 2.5, 8, 13, 23, 24

Section 435.831 (a) 5

Section 435.831 (a) (1)-(3) 20

Section 435.831 (b) ]

Section 435.831 (c) i

Section 435.831 (d) 30

Section 435.832 6

Section 440.220 17

15 C.F.R. 248.21(a) (4) (1970) 5

24 Fed. Reg. 1321 (1969) (codified at 45 C.F.R

948. 21(a) (4) (1970)) 15

Mass. Admin. Code tit. 106 (1983) :

S 505.200 5

S§ 506.100-506.200 5

S 506.510 6

Miscellaneous :

16 Fed. Reg. 47980 (1981) 24

H.R. Rep. 213, 89th Cong., Ist Sess (1965) 1,5, 10, 14,

H.R. Rep. 97-757, 97th Cong., 2d Sess. Pt. I

(1982) 16, 22

H.R. Rep. 98-861, 98th Cong., 2d Sess. (1982) 29

Medicaid Proaram;: Medicaid Eliaqithility and Cov-

erage Criteria, 46 Fed. Reg. 47976 (1981) 22

S. Rep. 404, 89th Cong., Ist Sess. (1965) 5), 14

S. Rep. 97-139, 97th Cong., Ist Sess. (1981) 25, 26

I'S. Den’t of Health, Education and Welfare,

Handhook of Public Assistance Administration

Supplement D (June 17, 1966) 15

In the Supreme Court of the United States

OCTOBER TERM, 1985

No. 85-632

CHARLES ATKINS, COMMISSIONER.

MASSACHUSETTS DEPARTMENT OF PUBLIC WELFARE

PETITIONER

Uv.

SANTOS RIVERA, ET AL.

ON WRIT OF CERTIORARI TO THE

SUPREME JUDICIAL COURT OF MASSACHUSETTS

BRIEF FOR THE UNITED STATES AS

AMICUS CURIAE SUPPORTING PETITIONER

INTEREST OF THE UNITED STATES

Medicaid is a joint federal-state program “provid-

ing federal financial assistance to States that choose

to reimburse certain costs of medical treatment for

needy persons.” Harris v. McRae, 448 U.S. 297, 301

(1980). In developing plans for administering the

Medicaid program, states are given discretion to de-

termine who will receive Medicaid assistance as well

as the kinds of assistance provided. State Medicaid

plans, however, must comply with requirements im-

posed by the Act and by the Secretary of Health and

Human Services. 42 U.S.C. 1396a.

The United States has a significant interest in the

resolution of this case. The Supreme Judicial Court

of Massachusetts held that the Commonwealth of

Massachusetts violated the Medicaid Act by using a

six-month period for determining the excess income

that an applicant must spend on medical care before

(])

9

qualifying for Medicaid. The court held that Massa-

chusetts must use a one-month period. Massachusetts’

choice of a six-month period, however, is specifically

authorized by a regulation adopted by the Secretary

at the inception of the Medicaid program. See 42

C.F.R. 435.831. Presently, some 29 states participat-

ing in the Medicaid program use other than a one-

month period.

In the Secretary’s judgment, the regulation a1-

thorizing states to select up to a six-month period

furthers substantial policies that underlie the Med-

icaid program. It allows participating states the

choice of targeting their limited financial resources

at the most needy individuals and eases the admin-

istrative burdens placed on the states. The decision

below, by invalidating the Secretary’s longstanding

regulation, substantially disrupts the operation of the

Medicaid program. This result, if upheld by this

Court, would increase the cost of participating in

that aspect of the Medicaid program at issue in this

case—a program that is wholiy voluntary for the

states—and would thereby raise the prospect that,

rather than incur these added expenses, states will

curtail the scope of covered services, restrict eligi-

bility, or even withdraw from the program alto-

gether.

STATEMENT

1. Congress established the Medicaid program in

1965 “for the purpose of providing federal financial

assistance to States that choose to reimburse certain

costs of medical treatment for needy persons.”

Harris v. McRae, 448 U.S. 297, 301 (1980); see

Schweiker v. Gray Panthers, 453 U.S. 34, 36 (1981).

As a cooperative federal-state program,’ Medicaid

1 Both federal and state funds are used to finance the

program. See 42 U.S.C. 1396b.

3

leaves the decision whether to participate entirely to

the discretion of each state. Once that initial deci-

sion has been made, states electing to participate must

comply with requirements imposed by the Act and by

the Secretary of Health and Human Services. See

42 U.S.C. 1396a; Gray Panthers, 453 U.S. at 37.

Individuals covered by certain cash assistance pro-

grams—Supplemental Security Income for the Aged,

Blind, and Disabled (SSI) (42 U.S.C. 1381 ef seq.)

and Aid to Families with Dependent Children

(AFDC) (42 U.S.C. 602 et seqg.)—automatically

qualify for Medicaid. Thus, states that choose to par-

ticipate in the Medicaid program are required to pro-

vide Medicaid to these persons, termed the “‘categori-

cally needy.” See 42 U.S.C. 1396a(a)(10)(A) (i);

12 C.F.R. 435.4, 435.110(a), 435.120(a).* At its op-

> When Medicaid was enacted in 1965 there was no SSI pro-

gram. Rather, there were three separate state-administered

programs for the aged, blind, and disabled. See 42 U.S.C.

(1970 ed.) 301 et seq. (Old Age Assistance) ; 42 U.S.C. (1970

ed.) 1201 et seq. (Aid to the Blind); 42 U.S.C. (1970 ed.)

1351 et seq. (Aid to tre Permanent and Totally Disabled). In

1972, Congress replaced these programs with SSI. Pub. L

No. 92-603, Tit. III, 86 Stat. 1465, codified at 42 U.S.C. 1381

et seq. See Gray Panthers, 453 U.S. at 38.

Under the SSI program the federal government sets the

standard of need, which often is much higher than the state

standards set under the former state-run programs. Thus,

with the enactment of the SSI program, it was easier to qualify

for SSI, and Medicaid, since these people were now considered

categorically reedy. see Gray Panthe rs, 453 U.S. at 38. Con-

gress feared that in some states this would lead to a dramatic

increase in the number of persons who automatically qualify

for Medicaid and that, faced with this fiscal burden, some

states would withdraw from the Medicaid program. To avoid

this problem Congress “‘offered what has become known as the

‘$ 209(b) option.’” Gray Panthers, 453 U.S. at 38: see 42

U.S.C. 1396a(f). This gives states the choice of providing

Medicaid only to those SSI recipients who would have been

4

tion, a participating state may also provide coverage

to other “less needy” individuals. See H.R. Rep. 213,

89th Cong., 1st Sess. 66 (1965); 42 U.S.C. 1396a

(a)(10)(C). In general, these are people who would

otherwise qualify for SSI or AFDC except that their

income exceeds the levels set for these categorical as-

sistance programs. See Schweiker v. Hogan, 457 U.S.

569, 572-573 (1982). They are referred to as the

“medically needy.” See ibid.; 42 C.F.R. 435.4. The

medically needy may qualify for Medicaid only if

they incur medical expenses that reduce their income

to the Medicaid eligibility income standard. See 42

U.S.C. 1396a(a) (17); 42 C.F.R. 435.831(¢).*

2. The same initial steps are used for determining

the Medicaid eligibility of the medically needy as are

used for determining eligibility for SSI and AFDC

assistance. See Hogan v. Heckler, 769 F.2d 886, 888

(1st Cir. 1985). First, gross income is calculated.

eligible for Medicaid under the state standards in existence on

January 1, 1972—i.e., prior to the enactmert of the SSI pro-

gram. Those who receive SSI but fail to meet the preexisting

state standards may qualify for Medicaid by spending their

excess income on medical care. See Gray Panthers, 457 U.S.

at 39 n.5. Massachusetts has not elected to limit coverage

under Section 209(b) (86 Stat. 1389).

‘This group may be subdivided into the “AFDC-related

medically needy” and the “SSI-related medically needy,” de-

pending on the type of assistance for which the recipient

would qualify were it not for the excess income.

4The income eligibility standard for the medically needy

may not exceed 1331:° of the highest payment made by

the state under the state’s AFDC program. See 42 U.S.C.

1396b(f) (1) (B) (i); 42 C.F.R. 435.811(c); Schweiker Vv.

Hogan, 457 U.S. at 576-580. Thus, a person whose income

falls between the AFDC eligibility standard and the Medicaid

standard would qualify for Medicaid without incurring any

medical expenses. 42 C.F.R. 435.831(b). The present case

does net involve persons in that situation.

This may include money earned by the applicant, as

well as by a third party such as a spouse or a parent.

See 42 C.F.R. 435.821-435.823. Next, various deduc-

tions are subtracted from the gross income to arrive

at “countable income.” See 42 C.F.R. 435.831(a);

106 C.M.R. 505.200, 506.100-506.200.

Up to this point there is no difference between the

computations for deteimining eligibility for SSI,

AFDC and Medicaid. For example, the deductions

from income for a medically needy applicant must be

the same as those allowed to applicants for the cor-

responding cash program, SSI or AFDC. See 42

C.F.R. 435.831(a). However, because the medically

needy possess income above the Medicaid eligibility

standard, determination of their eligibility involves

an extra step not applicable to SSI or AFDC.

As noted above, before medically needy applicants

qualify for Medicaid they must incur medical ex-

penses that reduce their income (‘“‘spend down’’) to

the Medicaid eligibility standard. This “spend down

concept was incorporated into the Medicaid Act at its

origin.” Winter v. Miller, 676 F.2d 276, 277 (7th

Cir. 1982); see also 42 U.S.C. 1396a(a)(17): H.R.

Rep. 213, supra, at 68; S. Rep. 404, 89th Cong., Ist

Sess. 78-79 (1965). Since the first Medicaid regula-

tions were adopted in 1969 (45 C.F.R. 248.21(a) (4)

(1970) (now 42 C.F.R. 435.831) ), the Secretary has

permitted states to compute the excess income that

must be spent on medical care over a period of time

up to six months. This period is referred to as the

“spend down period.”

3. Massachusetts is one of 34 states (alone with

the District of Columbia, Puerto Rico, and the Virgin

Islands) that have elected to participate in the Med-

>“C_M.R.” refers to the Code of Massachusetts Ree

(Mass. Admin. Code tit. 106 (1983) ).

<a

ulations

6

icaid program and to provide coverage for the medi-

cally needy. Mass. Ann. Laws ch. 118E, $1 (Law.

Co-op. 1975). Like 29 of those states and the District

of Columbia, Massachusetts uses a spend down period

that is longer than one month,° specifically, a six-

month period for determining an applicant’s excess

income. See Mass. Ann. Laws ch. 118E, § 10 (Law.

Co-op. 1975) ; see also 106 C.M.R. 506.510. When the

applicant’s medical expenses are greater than this

six-month total of excess income, he or she qualifies

for Medicaid for the remainder of the six-month

period. *

To illustrate: if an applicant has a monthly in-

come of $400 and the Medicaid eligibility standard is

$300 per month, his income for the six-month spend

down period would be $2,400 (6 x $400) and the

Medicaid standard for the period would be $1,800

6 See S.J.C. App. 168 (“S.J.C. App.” refers to the joint

appendix filed in the Supreme Judicial Court). The Secretary

has advised us of several changes that have occurred since the

chart appearing at S.J.C. App. 168 was prepared. Thus, five

states (Texas, South Carolina, Georgia, Iowa, and Oregon)

now o.ter Medicaid to the medically needy and use a multi-

month spend down period. In addition, the period is now one

month in Illinois and as long as six months in Oklahoma.

™To qualify, an individual need not actually spend the

money on medical expenses but must only “incur” them during

the six-month period. See 42 U.S.C. 1396a(a) (17), 1396b

(f) (2). However, the individual cannot anticipate future

medical expenses he believes may be incurred during the six-

month period. See Hogan v. Heckler, 769 F.2d at 897-898;

Williams v. St. Clair, 610 F.2d 1244, 1248 (5th Cir. 1980). For

individuals in long-term care facilities, the Secretary permits

the anticipated costs of long-term care to be taken into account

at the outset of the spend down period. See S.J.C. App. 6.

This is because of the unique statutory and administrative

requirements applicable to Medicaid recipients in long-

term care facilities. See 42 U.S.C. 1396p(c) (2) (B) (i); 42

C.F.R. 435.725, 435.733, 435.832.

—

‘

(6 x $300). Thus, the applicant would then have

$600 ($2,400 minus $1,800) in excess income that

must be “spent down’’ on medical care before he

qualifies for Medicaid. Once the applicant incurs

these expenses he is eligible for Medicaid for the

remainder of the six-month period. At the end of the

six-month period, the applicant must again meet the

spend down limit before qualifying for Medicaid as-

sistance in subsequent periods. The spend down there-

fore is roughly comparable, in an operational sense,

to the deductible in an insurance policy: it is the

amount the individual must spend before payments

are provided for any covered services.

4. Respondent Rivera is the mother of two chil-

dren. Because her income is too high she cannot

qualify for AFDC and therefore is not automatically

eligible for Medicaid as categorically needy. She also

failed to qualify as a medically needy Medicaid re-

cipient because she had not spent down her excess

income on medical care. After benefits were denied

and respondent had exhausted her administrative

remedies, she brought this class action in Massachu-

setts Superior Court claiming, among other things,

that she was illegally denied Medicaid benefits by the

State. Specifically, respondent alleged that her

monthly income exceeded the Medicaid eligibility stand-

ard by $100.30 and that under Massachusetts’s six-

month spend down she was required to spend $601.80

on medical care in order to qualify for Medicaid.

J.A. 19. Respondent further alleged that she did not

meet the six-month spend down amount, but that if

the State were required to use a one-month spend

down, she would have qualified for Medicaid as medi-

‘ally needy during the month of February 1983, when

she incurred medical expenses of $314. Jbid. Re-

spondent claimed that the State’s six-month spend

down violated 42 U.S.C. 1396a(a) (10) (C) (i) (IIT)

8

and 1396a(a)(17) because the “same methodology”

was not used for computing the income of the medli-

cally and categorically needy. J.A. 21-22."

On cross-motions for summary judgment, the su-

perior court ruled for respondent. Pet. App. A28-

A45. First, it held that class certification was appro-

priate. Jd. at A34. Turning to the merits, the court

held (id. at A40-A41) that the State’s six-month

spend down period violated the “same methodology”

provision of 42 U.S.C. 1396a(a) (10) (C) (i) (III).

The court noted that AFDC eligibility is statutorily

required to be computed over a one-month period (42

U.S.C. 602(a)(13)) but that respondent Rivera and

other AFDC-related medically needy applicants had

their spend down amount for Medicaid eligibitity

computed over a six-month period. Pet. App. A4l.

To the court, this set up two different eligibility

standards for the AFDC categorically needy and the

AFDC-related medically needy, thereby conflicting

with Section 1396a(a)(10)(C) (i) (IIT). Pet. App.

A41-A42.

The superior court rejected (Pet. App. A435) the

State’s argument that its six-month spend down was

authorized by the Secretary’s regulation (42 C.F.R.

135.831). The court found that the regulation had

been supplanted by federal legislation in 1981 that

mandated for the first time a one-month budget pe-

riod for AFDC. Thus, the court concluded that the

Secretary’s regulation “would not control.” Pet. App.

A438.

5. The Supreme Judicial Court of Massachusetts

affirmed. Pet. App. Al-A26. The court rejected the

§ Respondent also claimed (J.A. 20) that the State’s method

of computing gross income violated state law. The state su-

perior court agreed with respondent (Pet. App. A38) but the

Supreme Judicial Court reversed. Jd. at A10-A22. That issue

is not raised in this Court.

2

State’s claim that because there is no spend down

computation for determining AFDC eligibility, com-

puting the spend down amount for the medically

needy could not be governed by the “same [AFDC]

methodology.” Jd. at A23. While acknowledging (id.

at A25) that “eligibility determinations for the cate-

gorically needy do not involve spend downs ay

the court deemed this difference to be of no signifi-

cance because it regarded the time period used to

compute the spend down amount as the equivalent of

the budget period used to compute AFDC eligibility.

[bid. The court further concluded that the use of a

six-month spend down period conflicted with a con-

gressional desire “to prevent the States from pursu-

ing * * * more restrictive treatment of the medically

needy” than the categorically needy. Jd. at A26.

—

SUMMARY OF ARGUMENT

1. Since the inception of the Medicaid program, a

regulation issued by the Secretary of Health and

Human Services has authorized Massachusetts, and

other participating states, to grant Medicaid benefits

to an applicant whose income exceeds the eligibility

standard, when, over a six-month period, the appli-

cant’s “excess income” is “spent down” to the des-

ignated level. This regulation has been upheld as a

reasonable interpretation of the Medicaid Act by the

two federal courts of appeals that have considered the

question. Hogan v. Heckler, 769 F.2d 886 (1st Cir.

1985); DeJesus y. Perales, 770 F.2d 316 (2d Cir.

1985). As these courts have recognized, there is no

basis in either the language or legislative history of

the Medicaid Act for invalidating th Secretary’s

longstanding regulation. The plain language of the

statute expressly grants broad authority to the Sec-

retary to “prescribe[]” rules on how to take the

costs of medical care into account in determining

10

Medicaid eligibility. See 42 U.S.C. 1396a(a) (17).

In addition, the legislative history confirms that the

Secretary is to have broad discretion in implement-

ing this intricate statute. As this Court has repeat-

edly confirmed, when the Secretary adopts a rule pur-

suant to an express grant of authority, that rule is

‘‘entitled to more than mere deference or weight

* * ** Rather, the Secretary’s [rule] is entitled to

‘legislative effect * * *.’” Schweiker v. Gray Pan-

thers, 453 U.S. 34, 44 (1981), quoting Batterton v.

Francis, 432 U.S. 416, 425-426 (1977).

The Secretary’s spend down regulation is particu-

larly compelling because it was adopted at the incep-

tion of the Medicaid program. On at least three sub-

sequent occasions Congress has amended the statutory

provisions dealing with the eligibility standards of

the medically needy and has not disapproved of the

Secretary’s policy. Indeed, Congress expressly rati-

fied the Secretary’s spend down regulation in the

legislative history of the 1982 amendments to the

Act. Clearly, there is no basis for setting aside this

longstanding administrative interpretation.

Finally, the Secretary’s authorization of a six-

month spend down period makes fiscal sense and is

faithful to the Act’s policy of focusing the “limited

resources * * * [for] welfare” (Gray Panthers, 453

U.S. at 48) on those “ ‘people [who] are the most

needy * * *.” Schweiker v. Hogan, 457 U.S. 569,

990 (1982), quoting H.R. Rep. 213, supra, at 66.

High medical costs that reduce a claimant’s income

to Medicaid eligibility levels over a six-month period

are far more persuasive indicia of hardship than are

the medical costs incurred in any one-month period,

which may be idiosyncratic and not present a true

picture of a claimant’s financial condition. The Sec-

retary’s regulation permits the states to focus their

scarce resources on the former group, who obviously

11

have the greater need for assistance. Furthermore,

use of a six-month spend down eases the administra-

tive burden placed on the states. It requires that they

compute Medicaid eligibility on a semi-annual rather

than a monthly basis, thus allowing limited state

funds to be spent on medical care rather than on the

administration of this massive program.

2. The decision below turns in large part on a

misinterpretation of the term “same methodology” in

42 U.S.C. 1396a(a)(10)(C) (i) (IIIT). Because the

AFDC program, by definition, contains no spend

down mechanism, there is no AFDC “methodology”

to apply to the spend down period. Moreover, the

legislative history explaining the term “methodology”

undermines the state court’s construction and sup-

ports the Secretary’s reading of the statute. That

history shows that the statutory reference to ‘‘meth-

odology” has nothing to do with the computation of

the spend down amount.

3. Nor can the decision below be justified by the

“comparability” requirement of 42 U.S.C. 1396a

(a)(17). That requirement is irrelevant to the spend

down computation, since it appears in the very same

section of the statute in which Congress conferred

broad authority upon the Secretary to determine how

the spend down computation should be performed. It

is this specific grant of authority, and not the gen-

eral “comparability” language, that governs here.

In sum, the state court was not free to set aside

the Secretary’s regulation simply because it preferred

another interpretation of this complex statutory

scheme. The language of the Act, the legislative his-

tory, and the administrative practice compel the con-

clusion that Congress did not mandate a one-month

spend down period. In these circumstances, the Sec-

retary’s reasonable and longstanding regulation must

be upheld.

12

ARGUMENT

THE SECRETARY’S REGULATION AUTHORIZING

UP TO A SIX-MONTH PERIOD FOR COMPUTING EX-

CESS INCOME THAT MUST BE SPENT DOWN TO

QUALIFY FOR MEDICAID IS CONSISTENT WITH

THE LANGUAGE AND POLICIES OF THE MEDICAID

ACT AND IS CLEARLY WITHIN THE SCOPE OF THE

SECRETARY’S RULEMAKING AUTHORITY

A. The Secretary’s Longstanding Regulation Adopted

Pursuant To An Express Grant Of Rulemaking Author-

ity Must Be Given Controlling Weight

1. “The Social Security Act is among the most

intricate ever drafted by Congress. * * * Perhaps

appreciating the complexity of what it had wrought,

Congress conferred on the Secretary [of Health and

Human Services] exceptionally broad author'ty to

prescribe standards for applying certain sections of

the Act.” Schweiker v. Gray Panthers, 453 U.S. 34,

13 (1981). Among those sections is the statutory pro-

vision that allows an applicant to qualify for Medicaid

by spending down excess income on medical care. 42

U.S.C. 1396a(a)(17) (emphasis added) provides in

pertinent part:

A State plan for medical assistance must * * *

include reasonable standards * * * for determin-

ing eligibility for and the extent of medical as-

sistance under the plan * * * and provide for

flexibility in the application of such standards

with respect to income by taking into account,

except to the extent prescribed by the Secretary,

the costs * * * ineurred for medical care or for

any other type of remedial care recognized under

State law * * *

The statute gives the Secretary broad authority to

“prescribe[]”’ how the costs of medical care should

be considered; it does not require the Secretary to

compute spend down amounts over any particular

13

period. See Hvgan v. Heckler, 769 F.2d 886, 896-897

(1st Cir. 1985). Nor does the statute place partici-

pating states into an administrative or regulatory

straitjacket in considering medical expenses. On the

contrary, it expressly allows participating states to

“nrovide for flexibility” in taking into account the

costs of medical care. The Secretary’s regulation,

which permits states to choose a period of up to six

months to compute this amount,’ is faithful to the

statute’s expressly stated emphasis on ‘‘flexibility.”

See DeJesus vy. Perales, 770 F.2d 316, 324 (2d Cir.

1985); Williams v. St. Clair, 610 F.2d 1244, 1248

(5th Cir. 1980).*°

The Secretary’s regulation thus is supported by the

plain language of the statute. As a _ regulation

adopted pursuant to the explicit grant of rulemaking

authority in Section 1396a(a)(17), it is “ ‘entitled

to more than mere deference or weight.’” Gray

Panthers,. 453 U.S. at 44, quoting Batterton v.

Francis, 432 U.S. at 426. It must be given “legisla-

tive effect” (432 U.S. at 425) and is entitled to ‘‘con-

trolling weight” (Chevron U.S.A. Inc. v. Natural Re-

® The regulation (42 C.F.R. 435.831) provides:

The [state Medicaid] agency must determine income

eligibility of medically needy individuals in accordance

with this section. The agency must use a prospective

period of not more than 6 months to compute income.

In addition to the authority conferred on the Secretary

by Section 1396a(a) (17), the Act also gives the Secretary

the power to “make and publish such rules and regulations,

not inconsistent with [the Act], as may be necessary [for its]

efficient administration.” 42 U.S.C. 1302. Since the Act does

not specify any length of time for computing the spend down

amount (see Hogan v. Heckler, 769 F.2d at 889), even in the

absence of Section 1396a(a) (17) the general rulemaking au-

thority in Section 1302 would be sufficient authorization for

the Secretary tec fill in the gaps left by Congress.

14

sources Defense Council, Inc., No. 82-1005 (June 25,

1984), slip op. 5), unless it is arbitrary, capricious or

inconsistent with the Medicaid statute.

2. a. The Secretary’s regulation authorizing up to

a six-month spend down period is also supported by

the legislative history of Section 1396a(a)(17). See

Hogan v. Heckler, 769 F.2d at 892-893. The spend

down provision was “designed to correct one of the

weaknesses identified in the medical assistance for

the aged program.” S. Rep. 404, supra, at 78. Spe-

cifically, Congress focused on the problem of a person

“whose income exceeds the [income] limitation

adopted by the State” and thus is “ineligible for * * *

medical assitance,” but whose expenditures for medi-

eal care on occasion may reduce his disposable in-

come to a point near the leve! needed for categori-

cal assistance. /bid. Congress’s solution was to di-

rect the Secretary and participating states to “take

into account, except to the extent prescribed by the

Secretary, the costs * * * incurred for medical care.”’

Ibid. Like the language of the statute, which the

Senate Report tracks, the Report shows that Con-

gress conferred broad discretion on states and the

Secretary in taking into account the costs of medical

care in determining the Medicaid eligibility of the

medically needy. See Hogan v. Heckler, 769 F.2d at

893. The House Report contains virtually identical

language. See H.R. Rep. 213, supra, at 68.

Nothing in the legislative history indicates that

Congress intended to mandate any particular spend

down period, much less a one-month period. Indeed,

to the extent Congress expressed any view on the

length of the spend down period, it directly contra-

dicted the state court’s conclusion that a one-month

period is required. The House Report, in describing

the effect of the spend down amount, used a one-year

period to illustrate the operation of the spend down

15

concept. See H.R. Rep. 213, supra, at 68 (emphasis

added) (“If the test of eligibility should be $2,000 a

year, an individual with income in excess of that

amount shall not be required to use his income [on

medical care] to the extent he has remaining less

than $2,000.”). In light of this reference to a possi-

ble annual spend down computation, there is no basis

upon which to conclude that the Secretary’s authori-

zation of a six-month period conflicts with the Act.

See Hogan v. Heckler, 769 F.2d at 893.

b. It also is significant that the Secretary’s deci-

sion to authorize a spend down period of up to six

months was included in the first set of Medicaid

instructions issued by the Department of Health,

Education, and Welfare (Handbook of Public Assist-

ance Administration—Supplement D § D-4220(A) (4)

(June 17, 1966)); and it was included in the first

set of Medicaid regulations adopted in 1969. 34 Fed.

Reg. 12821 (codified at 45 C.F.R. 248.21(a) (4)

(1970)). See DeJesus v. Perales, 770 F.2d at 322-

323 n.8; Hogan v. Heckler, 769 F.2d at 893 nn.13, 14.

Thus, the administrative determination was made

immediately after the Act’s passage “by the men

charged with the responsibility of setting its ma-

chinery in motion, of making the parts work effi-

ciently and smoothly while they are yet untried and

new.” Norwegian Nitroven Products Co. v. United

States, 288 U.S. 294, 315 (1933); see Andrus v. Shell

Oil Co., 446 U.S. 657, 667-668 (1980).

These principles are particularly appropriate where,

as here, Congress has forgone opportunities to alter

the Secretary’s view. On no less than three occasions

since the agency adopted its spend down policy in

1966, Congress has amended the provisions of the

Medicaid Act dealing with eligibility standards for

the medically needy; not once has it disapproved of

16

the Secretary’s policy." In fact, as we discuss below

(pages 22-23), in considering one of the most recent

amendments to the Act, Congress expressly approved

of the regulation at issue here. See H.R. Rep. 97-

757, 97th Cong., 2d Sess. Pt. 1, at 18 (1982). In such

circumstances, where Congress is aware of the Sec-

retary’s construction and has seen fit not to overturn

it, the courts are bound to conclude that the agency

has correctly discerned the legislative intent. See

United States v. Rutherford, 442 U.S. 544, 554

(1979). See also EEOC vy. Associated Dry Goods

Corp., 449 U.S. 590, 600 n.17 (1981); Board of Gov-

ernors v. First Lincolnwood Corp., 439 U.S. 234, 248,

251 (1978); Apex Hosiery Co. v. Leader, 310 U.S.

469, 489 (1940).

3. Finally, the Secretary’s regulation, and the

State’s decision to use a six-month spend down period,

are fully consistent with the policies underlying the

Medicaid program. As noted above, states are not

obliged to offer Medicaid to the medically needy; the

decision whether to participate in the program is left

to the discretion of each state. See Schweiker vy.

Hogan, 457 U.S. at 573. Congress made this coverage

optional so that the “most needy” would “have the

first call upon the resources of the States to provide

medical care.” H.R. Rep. 213, supra, at 66.

Massachusetts’s six-month spend down period is

faithful to this policy because it allows the State to

focus its resources on those most in need of assistance.

See Hogan v. Heckler, 769 F.2d at 889; ef. Schweiker

v. Hogan, 457 U.S. at 590. Unquestionably, a person

whose medical expenses for one month may bring him

below the Medicaid eligibility limit is not as needy

11 See Pub. L. No. 93-233, § 13(a) (3), 87 Stat. 960: Pub.

L. No. 97-35, §2171(a), 95 Stat. 807; Pub. L. No. 97-248,

§ 137(b) (8), 96 Stat. 378.

17

as someone who incurs more substantial medical ex-

penses for six months. As the Second Circuit noted,

“Tulsing a one-month spend-down * * * would mean

that individuals with relatively high monthly incomes

might qualify for Medicaid coverage of a substantial

part of a larger hospital bill received in a single

month, even though such individuals would have ex-

cess income in subsequent months that could be used

to help pay the bill.” DeJesus v. Perales, 770 F.2d

at 322: see Hogan vy. Heckler, 769 F.2d at ©90 n.10.

Massachusetts, like many other partici,ating states,

has chosen not to extend its Medicaid program to

such individuals, and by limiting benefits to those

most needy, is able to offer a wider range of medical

services and a more generous standard of income

eligibility. 42 U.S.C. 1396, 1396a(a) (10) (C) (i) (IT)

and (C) (iv); 42 C.F.R. 440.220. .

The lower court’s reasoning, however, would re-

quire Massachusetts, and some 28 other states and

the District of Columbia, to expand their Medicaid

programs dramatically to include persons who might

have high medical costs for only a single inonth.

Indeed, Massachusetts estimates that in the first year

alone the change to a one-month spend down period

would cost an additional $20 million, or more than

10°, of the State’s total expenditures for the AFDC-

related medically needy. See S.J.C. App. 186."* This

change would force a significant reallocation of the

resources of the State and might lead to a reduction

in the benefits presently offered to those persons con-

sidered the most needy. When faced with the prospect

of such increased costs, some states might seek to

keep expenses constant by eliminating coverage for

Similarly, in DeJesus v. Perales, 770 F.2d at 320. it was

estimated that New York would incur annual additional ex-

penditures of $78 million.

18

certain services or by making eligibility standards

more restrictive. Other states might even reconsider

their decision to offer any optional Medicaid assist-

ance to the medically needy. These results cannot be

squared with the policies underlying the Medicaid

Act. See Hogan v. Heckler, 769 F.2d at 899.

In this complex area of social policy, any effort to

draw lines among the needy is difficult and subject to

criticism. Wherever the line is drawn, those who nar-

rowly fail to qualify are nonetheless needy. Cf.

Schweiker v. Hogan, 457 U.S. at 589-592. That is

true whether the spend down period is six months or

one month. For example, at respondent Rivera’s in-

come level, a one-month spend down would be $100.30.

In other words, if she incurred $300 in medical ex

penses in a particular month,” a one-month period

would make $199.70 of that total eligible for coverage

and would reduce her out-of-pocket cost to $100.30.

Suppose, however, that another individual at the same

income level had recurring monthly medical expenses

of $100. That individual would never become eligible

for Medicaid, yet at the end of six months he would

be out of pocket $600. Although over six months he

would have incurred medical expenses twice that of

respondent Rivera’s ($600 versus $300), he would re-

ceive no Medicaid benefits while she would. As a re-

sult, his out-of-pocket costs would be almost six times

higher than respondent’s ($600 versus $100.30). As

this example shows, the decision below does not elimi-

nate harsh consequences, it simply shifts the place

where the line is drawn. But that is a decision prop-

erly left to the expert agency to which Congress has

delegated that responsibility.

‘3 Respondent Rivera alleged that her medical expenses in

February 1983 were $314 (J.A. 19).

19

In addition, the Secretary’s regulation significantly

eases the administrative burden on those states offer-

ing Medicaid to the medically needy, a policy ex-

pressly recognized by the Act. See 42 U.S.C. 1502.

Since states must recompute Medicaid eligibility at

the end of each spend down period, the six-month

period “limit[{s] the frequency of redetermination of

eligibility for the medically needy.” Doe v. Wilson,

[1982] Medicare and Medicaid Guide (CCH) © 32,148,

at 10,544 (D. Vt. Aug. 16, 1982). The added costs

involved in making these more frequent computations

would increase state spending not on the medically

needy, but on hiring more employees to deal with the

dramatically expanded case load. See 8.J.C. App. 183-

186. Faced with the reality that “[t]here are limited

resources to spend on welfare” (Gray Panthers, 453

U.S. at 33), the Secretary’s decision to ease the ad-

ministrative burden on participating states and there-

by not “dissipate resources that could have been spent

on the needy” (7bid.) is surely a reasonable one.

B. The Secretary’s Regulation Is Consistent With The

“Same Methodology” Language Of The Act Since That

Language Does Not Refer To The Length Of The Spend

Down Period

In holding that the Medicaid Act mandates a one-

month spend down period, the court below relied

heavily on 42 U.S.C. 1396a(a)(10)(C) (i) (IIT). In

pertinent part, that provision states (emphasis

added):

[T]he methodology to be employed in determin-

ing [medically needy] eligibility * * * shall be

the same methodology which would be em-

ployed under the supplemental security income

program in the case of groups consisting of

aved, blind, or disabled individuals in a State in

which such program is in effect, and which shall

be the same methodology which would be em-

ployed under the appropriate State plan * *

20

to which such group is most closely categorically

related in the case of other groups * * *

The court reasoned that the phrase “same methodol-

ogy” must include the length of time used to compute

the spend down amount. Since the budget period for

AFDC is one month (see 42 U.S.C. 602(a)(15)),

the court concluded that it must be one month for the

Medicaid spend down period as well. As both the

First and Second Circuits have held, this conclusion

is based on an erroneous understanding of the word

“methodology.” DeJesus v. Perales, 770 F.2d at 324-

326; Hogan v. Heckler, 769 F.2d at 899-901. Neither

the language of the statute nor the legislative history

supports the state court’s analysis. Indeed, as we

now show, there are clear indications that Congress

endorsed the Secretary’s interpretation.

1. The statutory language provides no support for

the state court’s conclusion that “methodology” must

include the length of the spend down period. The

Medicaid Act provides no definition of the term

“methodology,’”’ much less one that embraces the state

court’s construction. Accordingly, it is the Secre-

tary’s interpretation to which the Court must look for

guidance. See Connecticut Department of Income

Maintenance v. Heckler, No. 83-2136 (May 20,

1985), slip op. 6. In the Secretary’s view, the “same

methodology” requirement refers only to those com-

putations common to determining AFDC eligibility

and Medicaid eligibility—.e., what income or re-

sources are includable, how particular types of income

(such as interest or court-ordered support) are

treated, and what deductions or disregards to income

are available. See 42 C.F.R. 435.831(a)(1)-(3).

The spend down concept is not common to both pro-

grams. Siner AFDC eligibility is categorical, there

is no spend down computation. Thus, the spend down

computation, a step unique to the Medicaid program,

21

—

cannot be governed by AFDC “methodology” because

no such “methodology” exists. In these circumstances,

the Secretary’s reading of language left undefined by

Congress is patently reasonable. See DeJesus v.

Perales, 770 F.2d at 326.

Rather than look to the Secretary’s expertise for

guidance, the state court instead substituted its pre-

ferred reading of a highly technical statute. In

doing so, the court misconceived its role. Where, as

here, the agency is entrusted with interpreting the

statute, the issue for the court is not whether the

agency’s construction is the only reasonable one or

whether the court agrees with that construction. See

Connecticut Department of Income Maintenance v.

Heckler, slip op. 6. Rather, the question is whether

“it is a reasonable interpretation of the relevant pro-

visions.” American Paper Institute, Inc. v. American

Electric Power Corp., 461 U.S. 402, 423 (19838) (em-

phasis in original). See Chevron U.S.A. Inc. v. Nat-

ural Resources Defense Council, Inc., slip op. 5-6.

Here, the legislative history plainly shows that the

Secretary’s interpretation of the term “methodology”’

is reasonable; in fact, it is the only plausible inter-

pretation.

2. The “same methodology” requirement was en-

acted as part of the technical corrections to the Med-

icaid Act made by the Tax Equity and Fiscal Re-

sponsibility Act of 1982 (TEFRA). Pub. L. No. 97-

248, §$137(b)(8), 96 Stat. 378. This legislation

was passed in response to regulations promulgated

by the Secretary pursuant to a 1981 amendment to

the Medicaid Act made in the Omnibus Budget Rec-

onciliation Act of 1981 (OBRA). Pub. L. No. 97-

39, § 2171(a) (3), 95 Stat. 807. The Secretary read

OBRA’s amendment of 42 U.S.C. 1396a(a) (10)

(C)(i) as permitting the states to use income and

resource standards and criteria for the medically

22

needy that differed from those used for the categori-

cally needy. Consistent with that interpretation of

the 1981 amendment, the Secretary issued regula-

tions authorizing states to adopt different standards

for computing income and available resources—steps

common to AFDC eligibility and to Medicaid eligi-

bility for the medically needy. These regulations had

nothing whatever to do with the spend down computa-

tion. (The regulation governing the spend down was

unchanged by these 1981 regulations.) See Medicaid

Program; Medicaid Eligibility and Coverage Criteria,

46 Fed. Reg. 47976 (1981).

The next year, in TEFRA, Congress amended Sec-

tion 1396a(a) (10) (C) (i) to include the “same meth-

odology” requirement, specifying that its sole intent

was to disapprove of the Secretary’s 1981 regulations.

The House Report explaining the “same methodology”

requirement clearly demonstrates that the spend down

regulation was not one of Congress’s concerns. H.R.

Rep. 97-757, 97th Cong., 2d Sess. Pt. 1, at 13 (1982)

(emphasis added) :

[T]he 1981 Reconciliation Act made no changes

in the applicable income and resource eligibility

rules.

Unfortunately, the Department, in its interim

final rule of September 30, 1981, 46 Fed. Reg.

47976, assumed that the conferees had intended

to give the States extensive flexibility in this

area as well. This is simply incorrect. When the

Statement of Managers of the conference com-

mittee report spoke of providing the States “with

flexibility in establishing eligibility criteria and

scope of services within the medically needy pro-

gram to address the needs of different popula-

tion groups more appropriately,” (H.R. Rep.

97-208, p. 971), it was referring to the service

package and coverage group provisions, not in-

viting a wholesale rewriting of current income

‘> 8

and resource standards and methodologies. This

amendment makes clear that the Department

had no authority to alter the rules that applied

before September 30, 1981, with respect to med-

ically needy income levels, medically needy re-

source standards, and the methodology for treat-

ing medically needy income and resources. The

Committee bill reaffirms the financial require-

ments previously in effect for the medically needy

(42 C.F.R. sec. 4835.800-435.845).

The language in the House Report is critical in

two respects. First, in emphasizing that the “same

methodology” requirement was intended to overrule

only the 1981 regulations dealing with matters other

than spend down, the Report made clear that the

spend down period was in no way affected by the

amendment. See DeJesus v. Perales, 770 F.2d at 727;

Hogan vy. Heckler, 769 F.2d at 901. Second, the Re-

port expressly approved the pre-1981 OBRA regula-

tions, which contained the regulation authorizing a

six-month spend down (42 C.F.R. 435.831). As the

First Circuit noted in Hogan v. Heckler, 769 F.2d

at 901 (emphasis in original): “the quoted Report

specifically ‘affirm[ed] the financial requirements’

previously contained in 42 C.F.R. 8§ 435.800-435.845.

This included the regulation challenged in this action

allowing a six month spenddown period, 42 C.F.R.

S 435.831. * * * It is hard to imagine a clearer indi-

cation that Congress did not intend to equate the

length of the spenddown period with the length of the

budget period used to determine income.”

That Congress did not intend to abrogate the spend

down regulation is obvious from an examination of

the 1981 regulations to which the “same methodol-

ogy” language was directed. The preamble to the

1981 regulations discussed the concept of methodol-

ogy, and conclusively establishes that the spend down

24

period was not included (46 Fed. Reg. 47980 (1981)

(emphasis added) ):

G. Treatment of Income and Resources

1. Provisions: States are no longer required

to apply a uniform methodology for treating in-

come and resources in such matters as deemed

income, interest, court-ordered support pay-

ments, and infrequent and irregular income.

father the State plan must specify the meth-

odology that will be used; and that methodology

must be reasonable. (See 42 C.F.R. 435.850-

435.852 and 436.850-436.852, as added by this

final rule.)

2. Discussion: Before the 1981 Amendments,

the methodology for treatment of income and

resources of the medically needy depended on

the individuals’ relationship to a specific cash

assistance program. For example, the method-

ology for deeming the income of medically needy

aged, blind, and disabled was taken from the

SSI program. This was based on the former

wording of section 1902(a)(10) of the Act that

described the medically needy, in part, as in-

dividuals who “except for income and resources”

would be eligible for cash assistance and for

Medicaid as categorically needy. Furthermore,

section 1902(a)(17)(C) of the Act required

that the meinedology for the treatment of in-

come and resources be reasonable and gave the

Secretary authority to prescribe standards re-

garding that methodology.

Thus, the term “methodology,” as used in the pre-

amble to the 1981 regulations, referred solely to the

general treatment of income and resources; it did not

include the length of the spend down period. Nor was

42 C.F.R. 435.831 (which authorizes the use of a six-

month spend down period) identified as a regulation

or

As

a

relevant to the change in permissible “methodology.”

Since the 1982 TEFRA amendment adding the “same

methodology” language sought to undo only the changes

made by the 1981 regulations, and those regulations

clearly did not affect the spend down period, the ref-

erence to “methodology” in 42 U.S.C. 1396a(a) (10)

(C) (i) (IIL) cannot sensibly be read to include spend

down. See DeJesus v. Perales, 770 F.2d at 327;

Hogan v. Heckler, 769 F.2d at 901. Accordingly,

the state court’s conclusion that the 1982 amendment

to the Act disapproved of HHS’s regulation authoriz-

ing up to a six-month spend down period must be

rejected.”

14 Subsequent legislative history further buttresses the Sec-

retary’s reading of the “same methodology” language. See

DeJesus V. Perales, 770 F.2d at 326 n.12. In the Deficit Reduc-

tion Act of 1984, Congress amended Sectien 1396a(a) (10)

(C) (i) (IIIT) to impose a moratorium on the Secretary’s dis-

approval of state Medicaid plans that might be inconsistent

with the “same methodology” language of Section 1396a(a)

(10) (C) (i) (IIT). See Deficit Reduction Act of 1984, Pub. L.

No. 48-369, § 2373(c), 98 Stat. 1112. In enacting this mora-

torium, Congress reaffirmed that its sole intent in using the

term “same methodology” was to override the Secretary’s

1981 OBRA regulations. See H.R. Rep. 98-861, 98th Cong.,

2d Sess. 1366-1367 (1982).

'* The state superior court (Pet. App. A43) attributed sig-

nificance to a provision in the 1981 OBRA that mandated one-

month budgeting to calculate AFDC benefits. See Pub. L. No.

97-35, § 2315(a), 95 Stat. 855 (codified at 42 U.S.C. 602(a)

(13) (A)). According to the state court, this represented an

implicit repeal of the Secretary’s longstanding regulation and

implicitly required that the spend down amount be computed

over a one-month period. The court’s analysis is flawed in

several respects. First, the legislative history of the change

makes clear that it was aimed solely at correcting problems

in the AFDC program. See S. Rep. 97-139, 97th Cong.,

Ist Sess. 516-517 (1981). Nothing in this amendment to the

AFDC statute or its legislative history even hints at an intent

26

C. The Secretary’s Regulation Is Consistent With The

“Comparability” Requirement Of The Act

In the courts below, respondents also claimed that

the Secretary’s six-month spend down regulation con-

flicted with the “comparability” requirement of 42

U.S.C. 1396a(a)(17). Although the Supreme Judi-

cial Court did not address that issue, respondents

(Br. in Opp. 8 & n.4) rely on it as a basis for de-

fending the judgment below.”

to alter the Secretary’s regulation authorizing a six-month

spend down period under the Medicaid Act. The state court’s

reliance on this AFDC amendment therefore is flatly incon-

sistent with the settled rule that repeals by implication are

disfavored. Parsons Steel, Inc. Vv. First Alabama Bank, No.

84-1616 (Jan. 27, 1986), slip op. 5; Morton v. Mancari, 417

U.S. 535 (1974). Second, as the First Circuit noted in Hogan

v. Heckler, 769 F.2d at 901-902, although OBRA amended the

AFDC statute to mandate one-month budgeting for calculat-

ing benefits, the 1982 House Report on TEFRA states that

in OBRA Congress “expressly approved of [the Secretary’s]

regulations, including [the spend down regulation].” This ex-

plicit endorsement of the Secretary’s spend down regulation

surely nullifies any contrary inferences to be drawn from the

AFDC amendment. Finally, although it was not until 1981

that Congress required a one-month budgeting period for cal-

culating AFDC benefits, many states had previously used a

one-month budget (see S. Rep. 97-139, supra, at 516), and the

pre-existing AFDC statute had required states to determine

AFDC eligibility (as opposed to the level of AFDC benefits)

on a monthly basis. See 42 U.S.C. (1976 ed.) 602(a) (8) and

(28); S. Rep. 97-139, supra, at 440. Thus, “throughout the

period during which the Secretary’s regulation permitting a

six-month spend-down has been in force, eligibility for AFDC

has been determined by calculating income on a monthly basis.”

DeJesus V. Perales, 770 F.2d at 323 n.9.

16 Respondents also contend (Br. in Opp. 7-8) that another

of the Secretary’s regulations, 42 C.F.R. 435.401(c), bars the

use of a six-month spend down period. That contention has

no merit. Section 435.401(c) prevents a state’s eligibility

requirements for the medically needy from being more restric-

or

Section 1396a(a)(17) (emphasis added) provides

in pertinent part:

* *

A State plan for medical] assistance must

include reasonable standards (which shall be

comparable for all growps and may, in accord-

ance with standards prescribed by the Secretary,

differ with respect to income levels, but only in

the case of [the medically needy], based on the

variations between shelter costs in urban areas

and rural areas) for determining eligibility for

and the extent of medical assistance under the

plan * * *

Respondents alleged in the state courts (J.A. 21-22)

that since the AFDC program uses a one-month

budget period, Section 1396a(a)(17) requires that a

“comparable” period be used for the Medicaid spend

down period. The First and Second Circuits correctly

rejected this spurious contention. See DeJesus v.

Perales, 770 F.2d at 323-324, 327; Hogan v. Heckler,

769 F.2d at 891-898."

tive than those used for the related categorically needy. The

Secretary has consistently interpreted that regulation to

apply solely to those determinations common to calculating

eligibility for categorical assistance and Medicaid. Because

AFDC eligibility involves no spend down calculation, it is im-

possible for the Medicaid spend down to be “more restrictive”

than the nonexistent AFDC measure. The Secretary’s inter-

pretation of his regulations is thus clearly reasonable and is

due the greatest deference. Ford Motor Credit Co. v. Mil-

hollin, 444 U.S. 555 (1980).

17 Cases that have read Section 1396a(a)(17) or Section

1396a(a) (10) to require comparability between the medically

needy and categorically needy are readily distinguishable.

Most important, none of those cases dealt with the spend down

period. Instead, they all concerned income and resource com-

putations for determining the Medicaid eligibility of the

medically needy—computations that are common to determin-

ing eligibility for AFDC. See Beltran v. Myers, 701 F.2d 91

28

First, the statute’s “comparability” requirement is

not relevant to determining the spend down amount.

The “comparability” requirement of Section 1396a

(a)(17) was a feature of the original Medicaid Act;

for nearly two decades, however, the Secretary has

interpreted that requirement not te preclude states

(9th Cir.), cert. denied, 462 U.S. 1134 (1983) (transfer of

assets rule) ; Caldwell v. Blum, 621 F.2d 491 (2d Cir. 1980),

cert. denied, 452 U.S. 909 (1981) (same); Fabula v. Buck,

598 F.2d 869 (4th Cir. 1979) (same); Greklek v. Toia, 565

F.2d 1259 (2d Cir. 1977), cert. denied, 436 U.S. 962 (1978)

(work expenses deductions from income); Calkins v. Blum,

511 F. Supp. 1073 (N.D.N.Y. 1981), aff’d, 675 F.2d 44 (2d Cir

1982) (income disregard rule). Thus, they did not concern

the problem presented here—a computation unique to deter-

mining the Medicaid eligibility of the medically needy. See

De “esus V. Perales, 770 F.2d at 328.

These cases differ from this one in another significant re-

spect. In striking down the state Medicaid rules at issue, the

courts relied heavily on the fact that the state rules conflicted

with the Secretary’s regulations that mandated identical treat-

ment for the particular computation. See Caldwell, 621 F.2d

at 495; Greklek, 565 F.2d at 1261 n.5; Calkins, 511 F. Supp. at

1093. Here, by contrast, the state’s Medicaid rule is affirma-

tively authorized by the Secretary’s longstanding regulation.

See Hogan V. Heckler, 769 F.2d at 898.

Respondents also claim (Br. in Opp. 8) that Massachusetts

violates the comparability requirement by treating some

AFDC-related medically needy differently from others. In

particular, respondents state that in Massachusetts some

AFDC-related medically needy qualify for Medicaid without

a spend dowr because Massachusetts uses a Medicaid income

eligibility standard that is slightly higher than the AFDC

standard (see note 4, supra). Respondents then assert that

Massachusetts computes the income of this group over one

month, but uses a six-month period for those AFDC-related

medicaily needy not in this group. In fact, however, there is no

disparity in treatment in computing the spend down amount

among the AFDC-related medically needy, because there is no

need to perform that computation for persons who already

meet the Medicaid standard.

29

from using spend down periods as long as six months.

Indeed, it would be anomalous to conclude that the

“comparability” requirement implicitly governs the

spend down period when the statute’s express refer-

ence to the spend down concept, which is at the end

of the same subsection, specifies only that state plans

must “‘provide for flexibility in the application of such

standards with respect to income by taking into ac-

count, except to the extent prescribed by the Secre-

tary, the costs * * * incurred for medical care.” 42

U.S.C. 1396a(a) (17) ; see also 42 U.S.C. 1396b(f) (2).

Accordingly, Section 1396a(a)(17) gives broad

discretion to the Secretary, and to participating

states, to determine how to take the costs of medical

care into account in determining Medicaid eligibility

for the medically needy. This express delegation to

the Secretary to determine how much an applicant

for Medicaid must spend for medical care refutes

respondents’ argument that the vague “comparable

standards” language reflects Congress’s intent that

the spend down amount be computed in a specific

fashion. See DeJesus v. Perales, 770 F.2d at 324;

Hogan v. Heckler, 769 F.2d at 893, 896-897.

Second, as this Court has recognized, although Sec-

tion 1396a(a)(17) requires “comparability among

the various ‘categories’ for which federal assistance

[is] available, * * * th[is] provision[] d[oes] not

require that the medically needy be treated compar-

ably to the categorically needy in all respects.”

Schweiker v. Hogan, 457 U.S. at 587. Thus, it can-

not be asserted that the Act mandates identical treat-

ment for both the categorically needy and the medi-

cally needy in every aspect of determining Medicaid

eligibility. If Congress had intended that there be

no difference in treatment between the categorically

needy and the medically needy, it surely would have

30

said so. But the statute says that treatment must be

“comparable,” not identical. As Judge Friendly

wrote for the Second Circuit, “[c]omparison invites

an examination of differences as well as resem-

blances.” DeJesus v. Perales, 770 F.2d at 324. And

the obvious difference between the categorically needy

and the medically needy is that while the former au-

tomatically qualify for Medicaid, the latter have ex-

cess income that must be spent on medical care before

they qualify. See 42 U.S.C. 1396a(a) (17); 42 C.F.R.

435.831(d). The categorically needy have no spend

down amount, hence no spend down period. Compara-

bility, therefore, can hardly require identical treat-

ment on the point at issue in this case.

CONCLUSION

The judgment of the Supreme Judicial Court of

Massachusetts should be reversed.

Respectfully submitted.

CHARLES FRIED

Solicitor General

RICHARD K. WILLARD

Assistant Attorney General

KENNETH S. GELLER

Deputy Solicitor General

JERROLD J. GANZFRIED

Assistant to the Solicitor General

JOHN F. CORDES

RONALD E. ROBERTSON NICHOLAS §S. ZEPPOS

General Counsel Attorneys

DAVID R. SMITH

Attorney

Department of Health

and Human Services

FEBRUARY 1986