State can't take annuity for spousal MassHealth costs.

Byline: Pat Murphy

The named beneficiary of a decedent's annuity is entitled to residual benefits pursuant to the terms of the annuity contract, notwithstanding the state's asserted entitlement to reimbursement for long-term care payments made by MassHealth on behalf of the annuitant's elderly spouse, a Superior Court judge has ruled.

The plaintiff, Laurie A. Dermody, was the contingent beneficiary of an annuity contract purchased from Nationwide Insurance by her father, Robert Hamel. He designated the state Medicaid program as primary beneficiary to the "Extent Benefits Paid."

Upon Robert's death, the state claimed full residual benefits from the annuity despite the fact that he never applied for or received MassHealth benefits. The state staked its claim to the remainder of the annuity based on MassHealth's payment of nursing home costs incurred by the Robert's wife, Joan Hamel.

The plaintiff argued that her father's annuity was "actuarially sound" and therefore in compliance with the federal Medicaid Act's "sole benefit rule," 42 U.S.C. 1396(p)(c)(2)(B). Accordingly, the plaintiff argued that the annuity could not be penalized as a disqualifying transfer of assets, leaving the annuity contract to be enforced in accordance with its terms.

The state argued that a 2006 amendment to the Medicaid Act, 42 U.S.C. 1396(p)(c)(1)(F), required that the "Extent Benefits Paid" language in Robert's annuity contract be interpreted to encompass MassHealth payments on behalf of his institutionalized spouse. Thus, the state argued, it was entitled to the full remaining balance of the annuity.

But Judge C. William Barrett rejected the state's statutory interpretation.

"[T]he court agrees with the plaintiff's interpretation, which is that an annuity that is actuarially sound pursuant to paragraph (2) need not satisfy the annuity rules set forth in subparagraph (F)," Barrett wrote. "As a result, the court will enter a declaration that Robert was not required to name the Commonwealth as his primary beneficiary to the extent benefits were paid on Joan's behalf, and because Robert did not receive MassHealth benefits himself, the plaintiff is the proper beneficiary of his annuity contract."

Moreover, the judge decided that the plaintiff was entitled to summary judgment on her claim that Nationwide breached her father's annuity contract. Barrett further denied in part Nationwide's motion for summary judgment with respect to the plaintiff's claims that the...

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