Divestment penalties may occur when individuals purchase annuities they mistakenly believe to be Medicaid-compliant. In 2014, this happened to an Ohio couple when the wife purchased an annuity that was not Medicaid-compliant. Despite appealing the divestment period penalty, their plea was denied, and the couple did not appeal again.

Initial Trask V. McCarthy Case Facts

Ursula Trask, an Ohio resident, bought a traditional spousal annuity for her husband, Phillip Trask, after he entered a nursing home. They later found out the annuity was found to be an “improper transfer” because she purchased it after Mr. Trask was admitted to the nursing home. As such, a divestment penalty period of one year was put into effect in February 2014. After unsuccessfully appealing the decision, the Trasks decided to not appeal again (Ohio law allows individuals to appeal again 30 days after the first). This eradicated any chance they had at fighting the decision.

The Trasks filed a lawsuit in February 2016 after the Ohio Department of Medicaid delivered Medicaid Eligibility Procedure Letter 112. This deemed annuities bought after the institutionalized spouse was admitted to a facility not countable resources or improper transfers if it was done prior to determining Medicaid eligibility. In their lawsuit, the Trasks requested a reimbursement for the benefits they could have received during the 13-month period.

Res Judicata And The Eleventh Amendment

Unfortunately for the Trasks, their lawsuit was dismissed in August 2016 due to the 11th Amendment and res judica. The later, translated as “claim preclusion”, more or less maintains that what is done is done. The Trasks didn’t attempt further legal action; therefore, they had no grounds on which to proceed with their case. In that decision, it states that Mrs. Trask “is bound by that decision.”

As an additional factor, the Eleventh Amendment could support the case being dismissed since it bans citizens from suing the State or its entities for financial loss. The purpose of this amendment is to preserve the state from undergoing federal jurisdiction. The amendment also bans the federal court from repaying funds the state has already denied, regardless of whether or not the state agrees with the previous ruling. In the case of the Trasks, the federal court agreed that they should have received benefits, but nothing could be done due to the Eleventh Amendment.

What Does Trask V. McCarthy Mean For Medicaid Planners?

This is an unfortunate circumstance for clients, but fortunately, they can learn from the Trasks’ grim mistake. Appealing a second time would have likely made a world of difference.

Read the full text of the Trask v. McCarthy decision here.