Justice for the Rich; Slapdown for the Rest of Us

In a September 30, 2016 decision, Price v. Medicaid Director, 838 F.3d 739 (6th Cir. 2016), The U.S. Sixth Circuit Court showed its lack of compassion and understanding of those who have limited income and modest net worth. The court held that while nursing home residents may have their eligibility for care paid by the state backdated up to three months before they apply for Medicaid, assisted-living residents, whose benefits are generally much lower, may not. The court took pains to resolve ambiguities against the impoverished assisted-living residents in contrast to the court’s willingness to find loopholes that favor wealthy taxpayers in a very recent tax case.

The key ruling in Price is that federal law prohibits the state from extending eligibility for Medicaid assisted-living services under the Home and Community-Based Services Waiver, or simply “Waiver,” that are rendered before a beneficiary’s “service plan” is approved. The Medicaid application for nursing home residents is effectively a one-step process because they are determined eligible for the services when admitted. Application for Waiver benefits has two steps – financial eligibility determined by the Medicaid agency and physical need evaluated by a “Waiver Agent,” typically the Area Agency on Aging, which develops the service plan. Depending on the region, applicants might wait six months or more on a waiting list for the Waiver Agent to get around to evaluating them.

While nursing home applications can languish for months on a Medicaid worker’s desk, on approval the eligibility begins with the application date if the applicant was then factually eligible. It is even possible to apply for three months of benefits preceding the original application. Waiver applicants get no such treatment. According to the Price decision, eligibility for benefits begins, if at all, when the Waiver Agent signs the service plan.

Price and the other plaintiffs sued the Ohio Medicaid director, complaining that Waiver beneficiaries should be eligible for retroactive benefits the same as nursing home Medicaid beneficiaries. The operant provision in the Social Security Act reads, in part, as follows:

[S]tates must offer Medicaid assistance to all beneficiaries for care and services included under the [Medicaid] plan and furnished in or after the third month before the month in which [the beneficiary] made application … for such assistance if such [beneficiary] was (or upon application would have been) eligible for such assistance at the time such care and services were furnished. 42 U.S.C.A. § 1396a(a)(34).

According to the court’s rationale, the plaintiffs would have been entitled to Waiver reimbursement during the three months prior to their applications only if those services were provided, under 42 U.S.C.A. § 1396n(c)(1), “pursuant to a written plan of care.” “Pursuant” means “after,” in the court’s view. Thus, a prospective Medicaid beneficiary is eligible only after the service plan is signed. Price v. Medicaid Dir., 838 F.3d 739, 747-49 (6th Cir. 2016).

The court could have reached the opposite result if it had based its rationale on “or upon application would have been” eligible, which would relate backward, rather than its dubious reliance on the temporal aspect of “pursuant to.”

To buttress its holding, the court observed that a prospective applicant could request an evaluation and service plan in advance of applying for Medicaid. This is asinine. There would seldom be such an opportunity.

In the first place, the family would have no way of knowing that it would be necessary to ask for an evaluation that early unless they have an elder-law attorney on retainer and consult him or her almost constantly. Secondly, the need to apply for Waiver services generally comes close on the heels of the need for care.

Comparing this decision to a tax decision, Summa Holdings v. Commissioner, No. 16-1712, Slip Op. at 5 (6th Cir. Feb. 16, 2017), it is clear that the court cares deeply about preserving rich families’ millions and not a all about preserving poor families’ pittances.

The tax attorneys for the Benensons, a wealthy family near Cleveland, Ohio, concocted an ingenious tax strategy involving a “domestic international sales corporation” (DISC) and Roth IRAs. According to the decision:

Summa Holdings is the parent corporation of a group of companies that manufacture a variety of industrial products. Its two largest shareholders are James Benenson, Jr. (who owned 23.18% of the company in 2008) and the James Benenson III and Clement Benenson Trust (which owned 76.05% of the company in 2008). James Benenson, Jr. and his wife serve as the trustees, and their children, James III and Clement, are the beneficiaries of the Trust.

In 2001, James III and Clement each established a Roth IRA and contributed $3,500 apiece. Just weeks after the Benensons set up their accounts, each Roth IRA paid $1,500 for 1,500 shares of stock in JC Export, a newly formed DISC. The Commissioner did not challenge the valuation of these shares then and has not challenged them since. To prevent the Roth IRAs from incurring any tax-reporting or shareholder obligations by owning JC Export directly, the Benensons formed another corporation, JC Holding, which purchased the shares of JC Export from the Roth IRAs. From January 31, 2002 to December 31, 2008, each Roth IRA owned a 50% share of JC Holding, which was the sole owner of JC Export.

With this chain of ownership in place, the family, trust, and company were a few clicks away from the possibility of considerable future tax savings. Summa Holdings paid commissions to JC Export, which distributed the money as a dividend to JC Holding, its sole shareholder. JC Holding paid a 33% income tax on the dividends, then distributed the balance as a dividend to its shareholders, the Benensons’ two Roth IRAs. From 2002 to 2008, the Benensons transferred $5,182,314 from Summa Holdings to the Roth IRAs in this way, including $1,477,028 in 2008. By 2008, each Roth IRA had accumulated over $3 million.  Summa Holdings, Slip Op. at 5 (Feb. 16, 2017).

Each of these cases turned on subtle legal principles that could have been resolved either for or against the appellants. It is not coincidence or simple luck that the wealthy litigants won and the poor ones lost.

This is not to say that federal courts never issue decisions that disadvantage the rich or help the poor. However, studies clearly show that the courts have a marked proclivity to favor wealthy litigants over poor ones. Michele Benedetto Neitz, “Socioeconomic Bias in the Judiciary,” 61 Cleveland State L. Rev. 137 (2013); see also Ga. Supreme Court Comm’n on Racial & Ethnic Bias in the Court Sys., “Let Justice be Done: Equally, Fairly, and Impartially,” 42 Ga. St. U. L. Rev. 687 (1996).

Occasionally, a jurist is perceptive enough to comment on the disparity. Dissenting from the court’s decision in United States v. Pineda-Moreno, 591 F.3d 1120 (9th Cir. 2010), Chief Judge Alex Kosinski stated,“No truly poor people are appointed as federal judges, or as state judges for that matter. Judges, regardless of race, ethnicity, or sex, are selected from the class of people who don’t live in trailers or urban ghettos.” He termed this “unselfconscious cultural elitism” and observed that for him and his colleagues “the everyday problems of people who live in poverty are not close to our hearts and minds because that’s not how we and our friends live.” Pineda-Moreno at 1123.

There was a time when lawyers and judges were socially and economically closer to their clients and litigants. Abraham Lincoln, who attended school for less than a year was a case in point. In 50 years, the law has changed from a reasonable career choice for those on the lower rungs of the economic latter to all but unreachable even for the lower middle class. Prior to World War II, legal education in the United States was more haphazard. In Michigan, only two years of college were required before law school. By the 1970s, admission to law school in Michigan and most other states required a bachelor’s degree. Law school tuition was relatively affordable up until the 1990s. Since then, tuition has skyrocketed. The legal profession has become the province of the affluent.

We in the elder law and disability rights community cannot reverse decades of elitist self-selection in our profession. However, we must become aware of the “unselfconscious cultural elitism” in ourselves and the hearing officers and judges we practice before.

We can relate socially with most of the judiciary because we speak their language. Our kids go to school with their kids. We see them at PTSA meetings and civic events. What we must do is learn to relate to those who live in trailer parks and ghettos and truly accept their humanity. Then, perhaps, we can communicate what we have learned to the hearing officers and judges making crucial decisions about their liberty and property.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney