United States District Court, Western District of New York
September 4, 1991
CRAIG HIMES, ET AL., PLAINTIFFS,
LOUIS W. SULLIVAN, M.D., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Larimer, District Judge.
DECISION AND ORDER
Plaintiffs, suing on behalf of themselves and all similarly
situated Medicaid applicants and recipients throughout New
York State, ask this Court to enjoin the defendants from
counting as "available income" court-ordered support payments
and mandatory payroll deductions in determining Medicaid
eligibility. This matter is before the Court on plaintiffs'
motion for a preliminary injunction and for class
For the reasons that follow, I must deny plaintiffs' motion
for a preliminary injunction.
The named plaintiffs in this action are Medicaid applicants
or recipients who have been informed that their benefits will
be reduced or discontinued because their available income,
including taxes and court ordered support payments, exceeds
allowable limits. Prior to January 1, 1991, amounts that a
plaintiff was ordered to pay in child support were deducted
automatically by the State in the calculation of the payor's
monthly income. Likewise, amounts that a plaintiff had
deducted from his or her salary for the payment of income and
FICA taxes were not included as income.
A. Statutory Framework.
Medicaid, enacted in 1965 as Title XIX of the Social
Security Act, 42 U.S.C. § 1396 et seq., is a jointly financed
federal-state program designed to provide medical assistance to
those who lack sufficient income and resources to pay for
health care. A state is not required to participate in the
Medicaid program. Once a state chooses to participate in the
program, however, it must create a state plan that complies
with the requirements imposed by the Medicaid Act and the
federal Medicaid regulations.
States participating in the program must provide Medicaid
coverage to the "categorically needy."
42 U.S.C. § 1396a(a)(10)(A); Atkins v. Rivera, 477 U.S. 154, 106 S.Ct.
2456, 91 L.Ed.2d 131 (1986). The "categorically needy" are
persons eligible for cash assistance under either the SSI
program, 42 U.S.C. § 1381 et seq., or the AFDC Program,
42 U.S.C. § 601 et seq. Notably, SSI and AFDC are intended to
provide financial assistance for basic necessities, but are not
designed to cover medical expenses. Consequently, Congress
directed participating states to provide medical assistance,
through the Medicaid program, to these individuals who would
otherwise be unable to meet their medical expenses. Schweiker
v. Gray Panthers, 453 U.S. 34, 37, 101 S.Ct. 2633, 2636, 69
L.Ed.2d 460 (1981).
A participating state also may elect to provide medical
benefits to the "medically needy." The "medically needy" are
individuals who satisfy the eligibility requirements of AFDC
or SSI but whose income exceeds the maximum income levels
permitted under the various cash assistance programs.
Atkins, 477 U.S. at 157, 106
S.Ct. at 2458. These individuals qualify for benefits under
Medicaid only after they incur expenses that reduce their
income to the eligibility level of a "categorically needy"
person. In other words, the medically needy must "spend down"
the amount by which their income exceeds the eligibility
level, so that their income matches the income of persons
eligible for AFDC or SSI. Atkins, 477 U.S. at 158, 106 S.Ct. at
Most states promptly elected to participate in the Medicaid
program, and many chose to provide coverage to the "medically
needy." By 1967, however, Congress realized that it was
"fiscally improvident to rely exclusively on the states to set
income limits for both aspects of the Medicaid program."
Schweiker v. Hogan, 457 U.S. 569, 575-76, 102 S.Ct. 2597, 2602,
73 L.Ed.2d 227 (1982). Consequently, in 1968, Congress enacted
section 1396b(f)(1)(B), which limits federal financial
participation in the Medicaid program. This section provides
that the "applicable income limitation with respect to any
family is the amount determined, in accordance with standards
prescribed by the Secretary, to be equivalent to 133 1/3
percent of the highest amount which would ordinarily be paid to
a family of the same size without any income or resources."
In 1982, Congress amended § 1396a of the Medicaid statute to
require states to use "the same methodology" for the medically
needy as would be employed for the categorically needy. See Tax
Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), Pub.L.
No. 97-248 (1982). The Secretary interpreted TEFRA to require
states to use the same disregards and deductions in determining
financial eligibility for the medically needy as those utilized
in the AFDC and SSI cash assistance programs. In response,
Congress in 1984 enacted a moratorium that prohibited the
Secretary from imposing penalties and disapproving state plans
that used less restrictive eligibility criteria than the AFDC
and SSI methodologies. See Deficit Reduction Act of 1984
("DEFRA"), Pub.L. No. 98-369, § 2373(c)(1), 98 Stat. 494, 1112
In reply to the Secretary's narrow interpretation of the
1984 moratorium, Congress passed additional legislation in
1987 to clarify its intent. See Medicare and Medicaid Patient
and Program Protection Act of 1987 ("MMPPPA"), Pub.L. No.
100-93, § 9, 101 Stat. 680, 695 (1987). The Medicare
Catastrophic Coverage Act of 1988 made this moratorium
permanent by allowing states to be less restrictive, but not
more restrictive, than the AFDC and SSI methodologies.
42 U.S.C. § 1396a(r)(2).
Section 1396a(r)(2) provides, in relevant part:
The methodology to be employed in determining
income and resource eligibility for [medically
needy] individuals . . . may be less restrictive,
and shall be no more restrictive, than the
methodology [employed in determining eligibility
under the State plan most closely categorically
To determine whether a person is entitled to Medicaid
benefits, a state may consider only the income and resources
that are "available" to the applicant or recipient.
42 U.S.C. § 1396a(a)(17)(B). It is this statute, and the interpretation
of "available" income, that is at the heart of the dispute in
the instant case.
B. The New York State Plan.
New York State participates in the Medicaid program and has
elected to provide Medicaid benefits to the "medically needy."
Prior to January 1, 1991, New York used an income methodology
for the medically needy that expressly disregarded
court-ordered support payments and mandatory payroll
deductions in the calculation of countable income. In other
words, New York automatically excluded court-ordered support
payments and mandatory payroll deductions for income taxes in
determining Medicaid eligibility. See former N.Y. Social
Service Law, §§ 366.2(a)(5) and 366.2(a)(7).
In September 1985, the New York State Department of Social
Services ("NYSDSS") submitted State Plan Amendment ("SPA")
85-25 to the federal Health Care Financing
Administration ("HCFA") for approval. The SPA contained a
proposed list of income disregards, including those at issue
in this case. Thereafter, in March 1989, and prior to a final
determination on SPA 85-25, the HCFA issued and sent to the
State Medicaid Manual ("SMM"), Transmittal No. 33.*fn2
According to the Secretary, this transmittal describes HCFA's
policy on the use of the so-called "more liberal disregards,"
and provides in relevant part:
Section 303(e) of the Medicare Catastrophic
Coverage Act (MCCA) of 1988 adds § 1902(r)(2) [§
1396a(r)(2)] to the Medicaid statute. Under this
new section, you may employ, for all Medicaid only
eligibility groups . . . income and resource
methods that are more liberal than those of the
most closely related cash assistance program. . . .
Exempted from the definition of more liberal
policies are those which result in rendering
current eligibles ineligible. Because Federal
Financial Participation (FFP) limits under §
1903(f) [§ 1396b(f)] remain unchanged, application
of more liberal income methods under color of §
1902(r)(2) to those eligibility groups which are
subject to § 1903(f) limits might result
impermissibly in these limits being exceeded.
Then, on April 3, 1989, the Administrator of the HCFA
notified NYSDSS that SPA 85-25 had been partially disapproved.
In particular, the Administrator informed the State that New
York's income exemptions for payroll withholdings and
court-ordered support payments were disallowed. The April 3,
1989 letter from HCFA to NYSDSS explained:
We also noted in our review of [SPA 85-25] that
more liberal deductions for income taxes, FICA,
and court ordered support payments were
previously incorrectly approved as part of SPA
82-9. We also noted that listed as an approved
more liberal disregard under SPA 82-9 is a
disregard of health insurance premiums in
addition to federally mandated deductions (ie.,
under regulations at 42 C.F.R. § 435.831). To the
extent that these are not deductions required under
this regulation, application of the disregards can
result in Federal financial participation (FFP)
limits being exceeded. Approval of these additional
disregards, however, does not allow the State to
claim FFP for services rendered to any individual
or family whose income exceeds the FFP limits in
section 1903(f). Therefore, the States should
remove these policies from its approved plan.
In order to bring New York's plan into compliance with the
Secretary's directives, the New York State Legislature amended
New York's Medicaid statute in December 1990. See Chapter 938,
§ 38 of the Laws of 1990. The Legislature deleted income taxes
and court ordered support payments as specific income
exemptions, effective January 1, 1991. Id.; see former N.Y.Soc.
Serv.Law, § 366.2(a)(7).
On December 31, 1990, the NYSDSS notified the various county
social service departments of this change in a form
administrative letter ("ADM"). The letter stated that "the
mandatory payroll deductions and court ordered support
payments are being eliminated as income exemptions. The
exceptions will be described in the forthcoming ADM." NYSDSS
claims that new regulations were promulgated on an emergency
basis on May 1, 1991. They were to be implemented
prospectively, only after actual notice was given to
individual applicants and recipients.
C. The Parties' Contentions.
Plaintiffs allege three grounds for the granting of
preliminary injunctive relief. First, plaintiffs contend that
the Secretary's interpretation of "available income" to
include court-ordered support payments and mandatory payroll
deductions contravenes the plain language of
42 U.S.C. § 1396a(a)(17)(B), and should be enjoined. In plaintiffs' view,
the language of § 1396a(a)(17) is unambiguous and prohibits
states, and the Secretary, from including these items in the
calculation of countable income because such income is not
"actually available" to the Medicaid applicant or recipient.
Plaintiffs also claim that the Secretary's current
interpretation conflicts with the legislative history of the
statute, as well his prior interpretation, which was
contemporaneous with the enactment of the Medicaid law.
Plaintiffs maintain that the Secretary's current
interpretation differs from his longstanding position of
excluding these items from available income.
As to the second ground for relief, plaintiffs allege that
the State failed to give advance public notice of the changes
in New York's countable income rules as required under the
Medicaid regulations. Finally, plaintiffs assert that the
State violated federal regulations by failing to consult with
a properly constituted Medical Care Advisory Committee
("MCAC") regarding implementation of the State's new rules.
The Secretary argues in response that the Medicaid Act and
its legislative history provide no basis for plaintiffs'
restrictive notion of "available income." The Secretary
contends that the plain language of § 1396a(a)(17)(B) does not
preclude states from counting court-ordered support payments
and mandatory payroll deductions in the calculation of
available income. That section, according to the Secretary, is
intended by Congress to guard against the false attribution of
unrealized income from one person to another. Furthermore,
argue defendants, under the test of Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43,
104 S.Ct. 2778, 2781, 81 L.Ed.2d 694 (1984), the Secretary's
rational interpretation of the federal statute is entitled to
substantial deference, since the plain language of §
1396a(a)(17) does not speak directly to this issue.
Next, the State contends that the federal notice provision
relied upon by plaintiffs is inapplicable in this case.
Finally, the State asserts that it complied with all relevant
federal regulations in seeking the advice of the MCAC, but
that the MCAC failed to respond with any recommendations.
A. Standard of Review.
When a court reviews an agency's construction of a statute
it is confronted with two questions. First and foremost, is
the question whether Congress has directly spoken to the
precise matter at hand. Chevron, 467 U.S. at 842, 104 S.Ct. at
2781. "If the intent of Congress is clear, that is the end of
the matter; for the court, as well as the agency, must give
effect to the unambiguously expressed intent of Congress." Id.,
at 842-43, 104 S.Ct. at 2781. If, however, the court decides
that Congress has not directly addressed the precise question
at issue, the court may not simply impose its own construction
on the statute. Id. "Rather, if the statute is silent or
ambiguous with respect to the specific issue, the question for
the court is whether the agency's answer is based on a
permissible construction of the statute." Id.
Moreover, the Secretary's construction of
42 U.S.C. § 1396a(a)(17) may not be disturbed as an abuse of discretion if
it reflects a plausible construction of the statute and does
not otherwise conflict with Congress' expressed intent. See
Rust v. Sullivan, ___ U.S. ___, 111 S.Ct. 1759, 1767, 114
L.Ed.2d 233 (1991); Chevron, 467 U.S. at 844, 104 S.Ct. at
2782. More importantly, in determining whether the Secretary's
construction is permissible, this Court "need not conclude that
the agency construction was the only one it could permissibly
have adopted . . . or even the reading the court would have
reached if the question initially had arisen in a judicial
proceeding." Chevron, 467 U.S. at 843 n. 11, 104 S.Ct. at 2782
In reviewing the Secretary's interpretation, the Court must
accord substantial weight to HHS' construction of a statute
that it is entrusted to administer. In fact, "courts must
exhibit particular deference to the Secretary's position with
respect to legislation as intricate as [the Medicaid
statute]." DeJesus v. Perales, 770 F.2d 316, 327 (2d Cir.
1985), cert. denied, 478 U.S. 1007, 106 S.Ct. 3301, 92
L.Ed.2d 715 (1986). Mindful of these limitations, this Court
must therefore follow the Secretary's construction of §
1396a(a)(17)(B) unless I find that it conflicts with
unambiguous Congressional intent or is not "a permissible
construction of the statute." Chevron, 467 U.S. at 843, 104
S.Ct. at 2782.
B. The "Availability" Principle.
1. Statutory Analysis and Legislative History of
42 U.S.C. § 1396a(a)(17).
The Court's first task is to determine if Congress has
addressed precisely in 42 U.S.C. § 1396a(a)(17)(B) whether a
state is required to disregard a Medicaid recipient's
court-ordered support payments and mandatory payroll
withholdings in calculating available income. I conclude that
Congress did not. 42 U.S.C. § 1396a(a)(17)(B) requires that a
state plan for medical assistance:
include reasonable standards . . . which . . .
provide for taking into account only such income
and resources as are, as determined in accordance
with standards prescribed by the Secretary,
available to the applicant or recipient and . . .
as would not be disregarded . . . in determining
his eligibility for such aid, assistance, or
I find that this section does not speak directly to the
principal issue raised in this case, namely whether these
items must be excluded from the calculation of a Medicaid
recipient's monthly income. The plain language of the statute
makes no mention of court-ordered support payments or mandatory
payroll deductions. Nor is the term "available" income defined
anywhere in the Medicaid statute. Although Congress clearly
could have defined "available income," it expressly determined
not to do so. Instead, section 1396a(a)(17)(B) explicitly
confers upon the Secretary exceptionally broad authority to
give substance to the meaning of the term "available." See
Herweg v. Ray, 455 U.S. 265, 274, 102 S.Ct. 1059, 1066, 71
L.Ed.2d 137 (1982).
Moreover, the Supreme Court's interpretation of the
"availability principle" lends support to the Secretary's
construction of § 1396a(a)(17). While the Court has not
addressed the precise question at issue in this case, it has
stated that the "availability principle" is aimed primarily at
preventing states from imputing or assuming financial
assistance from sources who have no obligation to furnish it.
See Heckler v. Turner, 470 U.S. 184, 200, 105 S.Ct. 1138, 1147,
84 L.Ed.2d 138 (1985); Schweiker v. Gray Panthers, 453 U.S. 34,
45, 101 S.Ct. 2633, 2641, 69 L.Ed.2d 460 (1981). In light of
these Supreme Court precedents, section 1396a(a)(17) is fully
capable of supporting the Secretary's view that Congress
intended the principle of "availability" to guard against the
imputation of unrealized income from one person to another.
Having concluded that the plain language of the statute does
not impose a requirement that these items must be excluded
from income, it is necessary to consider whether the
Secretary's policy of including these items in the calculation
of income violates the intent of Congress in providing for
Medicaid benefits. Plaintiffs argue that Congressional intent
to exclude these items from income is unmistakable. In their
view, the legislative history indicates that only income
actually available to, or in the hands of, a Medicaid recipient
may be considered in the calculation of countable income. In my
opinion, however, the legislative history of the statute
supports the Secretary's view that by using the word
"available" Congress intended merely to guard against the false
attribution of unrealized income.
For example, a 1965 Senate Report summarizing the newly
enacted Medicaid Act stated:
Another provision is included that requires
States to take into account only such income and
resources as (determined in accordance with
standards prescribed by the Secretary), are
actually available to the applicant or recipient
and as would not be disregarded. . . . Income and
resources taken into account, furthermore, must
be reasonably evaluated by the States. These
provisions are designed so that the States will not
assume the availability of income which
may not, in fact, be available or overevaluate
income and resources which are available.
Examples of income assumed include support orders
from absent fathers, which have not been paid or
contributions from relatives which are not in
reality received by the needy individual.
S.Rep. No. 404, 89th Cong., 1st Sess. 78, reprinted in 1965
U.S.Code Cong. & Admin.News 1943, 2018; H.R.Rep. No. 213, 89th
Cong., 1st Sess. 67 (1965) (emphasis added).
Plaintiffs rely upon this same 1965 Senate Report, and
contend that it necessarily follows from this legislative
history that Congress intended to exclude court-ordered
support payments and mandatory payroll deductions from
countable income. Plaintiffs read too much into the history of
this provision. Contrary to plaintiffs' contentions, this
legislative history seems to indicate Congress' concern about
the "deeming" or "imputing" of income between relatives, which
was a prevalent state practice at the time. To limit this
problem, Congress added the principle of "actual availability"
to the statute.
Further support for the Secretary's construction of §
1396a(a)(17) may be found in the House Budget Committee Report
on the Omnibus Budget Reconciliation Act of 1987. The House
Report on the 1987 OBRA discussed the Committee's reasons for
advocating the "less restrictive methodology" language that
would eventually be codified at § 1396a(r)(2). This Report,
which listed examples of less restrictive methodologies that
states could establish, furnishes strong support for the
Secretary's position that § 1396a(a)(17) does not require
states to exempt court-ordered support payments and mandatory
payroll deductions from the calculation of available income.
The House stated:
The following examples, by no means exhaustive,
illustrate less restrictive methodologies that
States could establish in their medically needy
programs under the Committee amendment. . . . A
State could treat income used to make family
support payments (pursuant to a court order [or]
agreement with a District Attorney) as unavailable
to the payor for purposes of determining income
H.Rep. No. 100-391(I), 100th Cong., 1st Sess. 1, 505 (1987),
reprinted in 1987 U.S.Code Cong. & Admin.News 2313-1, 2313-325
Clearly, if Congress had specifically intended court-ordered
support payments to be mandatorily excluded, it would
not have listed this item as one that a state could choose to
establish as a less restrictive methodology. This language
indicates that participating states have the option of
implementing this less restrictive methodology, but certainly
are not required to do so.
In support of their view of "actual availability,"
plaintiffs point to a House Budget Committee Report on the
Omnibus Reconciliation Act of 1986 ("OBRA"). In 1986, the
House of Representatives passed an amendment to clarify the
counting of income and resources of an individual who is in an
institution. The House Report on the 1986 OBRA summarized this
amendment as follows:
The Committee finds the [Secretary's] position
untenable. The Committee fails to understand how
income which must, by law, be used for the
support of someone other than the Medicaid
beneficiary can be "available" to him or her. The
very purpose of a requirement at section
1902(a)(17)(B) of the Act that States take into
account only such income and resources as are
available is to prevent them from including in
income the actual amounts that an applicant or
beneficiary is legally compelled to use for
someone else's support. . . .
H.Rep. No. 99-727, 99th Cong., 2d Sess. 109-10, reprinted in
1986 U.S.Code Cong. & Admin.News 3607, 3699-3700.
However, the Senate did not consider this issue and the
House amendment was explicitly not included in the final
version of the 1986 OBRA. See H.Conf.Rep. No. 1012, 99th Cong.,
2d Sess. 223, 399, reprinted in 1986 U.S.Code Cong. &
Admin.News 3868, 4044 ("The conference
agreement does not include the House bill.") Defendants
contend that Congress' failure to enact the House amendment
supports their interpretation of "available income."
Plaintiffs disagree and claim that Congress' failure to pass
the amendment stemmed from its belief that such income was
already excluded by statute. See Emerson v. Wynia, 754 F. Supp. 705,
709 n. 4 (D.Minn. 1991), appeal pending.
In my opinion, there is no basis for plaintiffs' assertion
that Congress failed to pass this amendment because it
believed this item was previously excluded by statute.
Plaintiffs have not cited, nor has the Court found, any
legislative history to support this view. More importantly, in
revisiting the Medicaid Act in 1986 Congress demonstrated its
awareness of the Secretary's interpretation, but nevertheless
chose not to amend § 1396a(a)(17)(B). This failure by Congress
to reject HHS' construction of § 1396a(a)(17)(B) is
significant, and I find that as a result deference to the
Secretary's interpretation is "particularly appropriate" in
this case. See C.B.S., Inc. v. F.C.C., 453 U.S. 367, 382, 101
S.Ct. 2813, 2823, 69 L.Ed.2d 706 (1981).
Indeed, such deference is especially fitting where, as here,
Congress is aware of the agency's interpretation but "has not
acted to correct any misperception of its statutory
objectives." Id. It is well established that "congressional
failure to revise or repeal the agency's interpretation is
persuasive evidence that the interpretation is the one intended
by Congress." Young v. Community Nutrition Institute,
476 U.S. 974, 983, 106 S.Ct. 2360, 2366, 90 L.Ed.2d 959 (1986) (quoting
NLRB v. Bell Aerospace Co., 416 U.S. 267, 275, 94 S.Ct. 1757,
1762, 40 L.Ed.2d 134 (1974)); see also United States v.
Rutherford, 442 U.S. 544, 554 n. 10, 99 S.Ct. 2470, 2476 n. 10,
61 L.Ed.2d 68 (1979) (Once an agency's statutory interpretation
has been "`fully brought to the attention of the public and the
Congress,' and the latter has not sought to alter that
interpretation although it has amended the statute in other
respects, then presumably the legislative intent has been
2. Case Law.
The Secretary's interpretation of the legislative history of
§ 1396a(a)(17) is further buttressed by the Supreme Court's
decisions in Heckler v. Turner, 470 U.S. 184, 105 S.Ct. 1138,
84 L.Ed.2d 138 (1985), and Schweiker v. Gray Panthers,
453 U.S. 34, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981). While not directly
on point, the Court in Turner and Gray Panthers analyzed the
"availability principle" and found that it is aimed primarily
at preventing states from imputing or assuming financial
assistance from sources who have no obligation to furnish it.
For example, in Turner, the Court held that mandatorily
withheld payroll deductions were "available" income to AFDC
recipients. Turner traced the origins of the availability
principle to congressional consideration of the Social Security
Act of 1939. 470 U.S. at 200-01, 105 S.Ct. at 1147. In
construing the legislative history of the Social Security Act,
as well as the AFDC regulations, the Turner Court disagreed
with the Ninth Circuit's interpretation of the principle of
"actual availability." The Supreme Court observed that:
Contrary to the conclusion of the Court of
Appeals, the principle of actual availability has
not been understood to distinguish the treatment
of tax withholdings from that of other work
expenses. Rather, it has served primarily to
prevent the States from conjuring fictional sources
of income and resources by imputing financial
support from persons who have no obligation to
furnish it or by overvaluing assets in a manner
non-existent resources to recipients.
470 U.S. at 200, 105 S.Ct. at 1147 (emphasis added); see also
Deel v. Jackson, 862 F.2d 1079
(4th Cir. 1988) ("The
availability principle is simply not the clear-cut statutory
rule of `literal availability' that the plaintiffs claim.")
The Court in Turner concluded that the purpose of the
availability principle clearly "is to prevent the States from
relying on imputed or unrealizable sources of income
artificially to depreciate a recipient's need." 470 U.S. at
201, 105 S.Ct. at 1147; see, e.g., King v. Smith, 392 U.S. 309,
319-20, 88 S.Ct. 2128, 2134, 20 L.Ed.2d 1118 (1968).
Likewise, in Gray Panthers, the Supreme Court expressly
rejected the notion that use of the term "available" in §
1396a(a)(17)(B) demonstrates that Medicaid entitlement must be
determined on the basis of income actually in the hands of the
recipient. 453 U.S. at 47, 101 S.Ct. at 2642. Instead, the
Court found that "[i]t is clear beyond doubt that Congress was
wary of imputing the income of others to a Medicaid
applicant."*fn4 Id. It should be noted, however, that the
decision in Gray Panthers focused on the question whether the
term "available" could include the income of a spouse under
42 U.S.C. § 1396a(a)(17)(D). The Court found that the Secretary's
regulations properly permitted the "deeming" of income between
In any event, the Supreme Court in Gray Panthers noted the
explicit, and exceptionally broad, delegation of authority that
Congress conferred on the Secretary in § 1396a(a)(17)(B). It
then concluded that "the Secretary's definition of the term
`available' is entitled to more than mere deference or weight."
453 U.S. at 43-44, 101 S.Ct. at 2640 (citation omitted).
Because Congress entrusted the primary responsibility of
interpreting this statutory term to the Secretary rather than
to the courts, his definition is "entitled to `legislative
effect.'" Id. at 44, 101 S.Ct. at 2640; see also Herweg v. Ray,
455 U.S. 265, 274-77, 102 S.Ct. 1059, 1066-67, 71 L.Ed.2d 137
Although the Supreme Court's decisions in Turner and Gray
Panthers dealt with different matters than those at hand, the
Court's interpretation of the availability principle is
Plaintiffs, on the other hand, rely principally on two
decisions for the proposition that federal Medicaid law
prohibits a state agency from including court-ordered support
payments — and by analogy, mandatory payroll deductions — in
the calculation of countable income. See, e.g., Department of
Health, State of California v. Secretary of HHS, 823 F.2d 323
(9th Cir. 1987) ("DHS"); Emerson v. Wynia, 754 F. Supp. 705
(D.Minn. 1991), appeal pending.
The Ninth Circuit's decision in DHS, also relied on by the
court in Emerson, is distinguishable from the instant case. DHS
involved an appeal by the State of California from a decision
of the Secretary rejecting the State's proposed Medicaid plan
amendments. On appeal, the Secretary contended that Medicaid
procedures for calculating available income were required to
"mirror" those set forth in the SSI Act and its regulations.
823 F.2d at 327. The Court of Appeals rejected this argument
that the "same methodology" provision of the Medicaid statute
required states to follow federal SSI rules. The court in DHS
also noted that "income that a Medicaid recipient uses to pay
court-ordered child support or alimony cannot be used to reduce
the recipient's Medicaid benefits." 823 F.2d at 328. DHS,
however, contains no analysis of § 1396a(a)(17), its
legislative history or the principle of "actual availability."
In any event, because the court held that states did not
have to follow SSI rules in fashioning state plans for
Medicaid, "the discussion in DHS concerning whether child
support and alimony payments constitute income for SSI
eligibility purposes is merely dicta." Martin v. Sullivan,
932 F.2d 1273, 1277 (9th Cir. 1990) (emphasis added). Moreover, the
Ninth Circuit in Martin found that DHS "do[es] not create a
broad `actual availability' principle that is to be applied to
every case determining what constitutes `income'. . . ."
Martin, 932 F.2d at 1277. Thus, even the Ninth Circuit does not
consider DHS to be binding precedent on the scope of the
As to Emerson v. Wynia, I respectfully disagree with that
court's analysis of § 1396a(a)(17) and its legislative history.
In my view, neither the statute nor Congressional intent
plainly support plaintiffs' position.
In sum, I find that while the language of § 1396a(a)(17)(B)
itself is silent as to the question whether court-ordered
support payments and mandatory payroll deductions must be
excluded from countable income, the legislative history
supports the Secretary's construction of the statute that he is
not prohibited from including them in determining Medicaid
eligibility. Turning then to the next step in the Chevron
analysis, the Court must assess the rationality of the
Secretary's interpretation of the Medicaid Act.
3. The Secretary's Interpretation.
The Secretary argues that § 1396a(a)(17) does not require, as
plaintiffs contend, a state to exempt the items at issue here
from the calculation of countable income. While a state may
choose to disregard some or all of these items under other
provisions of the Medicaid statute, namely § 1396a(r)(2), it is
not required to do so under § 1396a(a)(17)(B). The Secretary
claims that his policy reflects both the flexibility of §
1396a(r)(2), which allows states to adopt income disregards
more liberal than those permitted in the cash assistance
programs, and the income cap of § 1396b(f), which limits
federal participation in the Medicaid program. Under this
policy, if a state opts for the more liberal disregards under
authority of § 1396a(r)(2) that income must still be considered
in determining compliance with the limits established by §
In my view, the Secretary's construction of §§ 1396a(a)(17),
(r)(2) and b(f) in this instance represents a permissible
interpretation of those statutes. It does not have to be the
only interpretation, but merely a permissible one. As noted
above, neither § 1396a(a)(17) nor its legislative history
mandates the exclusion of these items. That the challenged
interpretation is certainly plausible is clear from a review of
the legislative history of § 1396a(r)(2), which permanently
codified the 1984 moratorium. In passing the Medicare and
Medicaid Patient and Program Protection Act of 1987, Congress
addressed the Secretary's restrictive interpretation of the
1984 moratorium. The Senate Report states:
The provision [ie. § 1396a(r)(2)] only intends to
permit States to broaden Medicaid eligibility by
changing the rules under section 1396a(a)(10) and
(17) that govern income and resource eligibility of
individuals not receiving cash assistance. Medicaid
eligibility cannot be broadened by changing other
Medicaid requirements. For example, the moratorium
does not eliminate the limits on income and
resources of eligible individuals and families
under section 1396b(f) (including the requirements
that the applicable medically needy income level
not exceed the amount determined in accordance with
standards prescribed by the Secretary to be
equivalent to 133 1/3% of the most generous AFDC
eligibility standard. . . .)
S.Rep. No. 109, 100th Cong., 1st Sess., 24-25 (1987)
reprinted in 1987 U.S.Code Cong. & Admin.News 682, 705
The legislative history of § 1396b(f) reveals that the basic
purpose of the 133 1/3% income restriction was to limit Federal
financial participation in the Medicaid program. The Senate
Report to the Social
Security Amendments of 1967 contains telling language of
The committee has followed the development in the
medical assistance program with deep concern over
its rising costs. The tendency of some States to
identify as eligible for medical assistance under
title XIX large numbers of persons who could
reasonably be expected to pay some, or all, of
their medical expenses has not only significantly
increased the amount of Federal funds flowing into
this program currently but has developed further
cost projections of a level totally inconsistent
with the expectation of Congress when it enacted
title XIX in 1965.
S.Rep. No. 744, 90th Cong., 1st Sess. 3013 reprinted in 1967
U.S.Code & Admin.News 2834, 3013 (emphasis added).
By enacting § 1396b(f) Congress thus evidenced a clear intent
to prevent the dissipation of Medicaid resources. Furthermore,
in referring to the income limits of § 1396b(f) in the 1987
"moratorium" legislation, Congress expressed its intent to
provide states with the opportunity for flexibility while at
the same time maintaining limits on Federal financial
Finally, the legislative history of the Omnibus Budget
Reconciliation Act of 1987, which was enacted only months
after the MMPPPA, provides further support for the Secretary's
interpretation of § 1396a(a)(17). As noted above, the House
Budget Committee Report on the 1987 OBRA discussed the
Committee's use of the "less restrictive methodology" language,
which was to be codified at § 1396a(r)(2). The House listed
examples of less restrictive methodologies that states could
establish in their medically needy programs. For example, "[a]
State could treat income used to make family support payments
(pursuant to a court order [or] agreement with a District
Attorney) as unavailable to the payor for purposes of
determining income eligibility." H.Rep. No. 100-391(I), 100th
Cong., 1st Sess. 1, 505 (1987), reprinted in 1987 U.S.Code
Cong. & Admin.News 2313-1, 2313-325 (emphasis added).
If Congress had intended court-ordered support payments to
be mandatorily excluded, it would not have listed this item as
one that a state, could choose to establish as a less
restrictive methodology. In light of this legislative history,
I find that the Secretary's interpretation is both plausible
That the Secretary's interpretation is reasonable is also
evident from its consistency with the SSI and AFDC statutes
and regulations. Generally, SSI and AFDC serve as the basis
for determining Medicaid eligibility. Notably, these cash
assistance programs do not prohibit states from including
court-ordered child support, income tax and other mandatory
payroll deductions from the payor's income. For example, the
SSI statute defines "income" as "both earned income and
unearned income." 42 U.S.C. § 1382a(a). "Unearned income" is
further defined as "all other income." 42 U.S.C. § 1382a(a)(2).
Under 42 C.F.R. § 416.1123, the SSI regulations state what
amount of unearned income is then considered as income. In
pertinent part, this section of the regulation provides that:
We may include more or less of your unearned income
than you actually receive. . . .
(2) We also include more than you actually
receive if amounts are withheld from unearned
income because of a garnishment, or to pay a debt
or other legal obligation, or to make any other
payment such as payment of your Medicaid premiums.
(3) . . . We do not subtract from any taxable
unearned income the part you have to use to pay
personal income taxes. The payment of taxes is not
an expense you have in getting income.
42 U.S.C. § 416.1123(b) (emphasis added).*fn5
See also Peura
v. Munson, 1990 WL 259679 (D.Alaska August 13, 1990) (finding
that in light of § 416.1123, it is "reasonable for the
Secretary to not allow deductions for tax withholding").
Similarly, the AFDC regulations grant states the
option, subject to the state's need standard, of allocating or
setting aside income an individual must pay for support. See
45 C.F.R. § 233.20(a)(3)(ii)(C). That regulation specifically
provides that "[s]tates may have policies which provide for
allocating an individual's income for . . . the support of
other individuals living in the same household . . . and for
the support of other individuals living in another household."
4. Deference to Administrative Interpretation.
Finally, I address plaintiffs' argument that the Secretary's
"new" interpretation of "available income" is entitled to
little or no deference because it reverses a longstanding
agency policy that excluded court-ordered support payments and
mandatory payroll deductions from income, and thus represents
a sharp break from the Secretary's prior construction of the
Medicaid statute. Plaintiffs contend that the agency's prior
interpretation, which was issued contemporaneously with the
statute, is entitled to substantial weight. Plaintiffs charge
the Secretary with doing an about-face in disapproving New
York's Medicaid Plan in April 1989.
The Secretary maintains that there has been no change of
interpretation with respect to the income disregards at issue
here. Moreover, even if the Secretary's present policy is
viewed as a change, it represents an evolving interpretation,
not a "sharp break," and may be amply justified as a
permissible construction of the statute.
Generally, administrative interpretations of statutes are
accorded the greatest deference when promulgated
contemporaneously with the enactment of the law. Because the
Secretary's current interpretation is different from his
previous position (i.e. the 1982 approval of New York's state
plan amendment), it must be analyzed carefully. Nevertheless,
the agency's interpretation here is clearly still entitled to
deference because of its rationality. Rust v. Sullivan, ___
U.S. ___, 111 S.Ct. 1759, 1769, 114 L.Ed.2d 233 (1991).
In any event, the Supreme Court "has rejected the argument
that an agency's interpretation `is not entitled to deference
because it represents a sharp break with prior
interpretations' of the statute in question." Rust, 111 S.Ct.
at 1769 (quoting Chevron, 467 U.S. at 862, 104 S.Ct. at 2791).
Indeed, a revised interpretation deserves deference because
"`an initial agency interpretation is not instantly carved in
stone' and `the agency to engage in informed rulemaking, must
consider varying interpretations and the wisdom of its policy
on a continuing basis.'" Rust, 111 S.Ct. at 1769 (quoting
Chevron, 467 U.S. at 863-64, 104 S.Ct. at 2792). It is well
settled that an "agency is not required to establish rules of
conduct to last forever." Id. (citations omitted). Rather,
the agency must be given ample latitude to alter rules and
policies to meet the demands of changing circumstances. Id.
Thus, even if the Secretary's evolving interpretation is
viewed as a "sharp break" with the past, I find that the
Secretary amply justified his change of interpretation with a
"reasoned analysis." Id. The Secretary's policy was published
and distributed to the States in March 1989. See SMM
Transmittal No. 33; 54 Fed.Reg. 39421 (September 26, 1989).
This notice discussed the Secretary's interpretation of §
1396a(r)(2) and the use of more liberal income disregards. The
Transmittal, and later the Proposed Regulations, explained that
these additional disregards were nonetheless still subject to
the federal financial participation cap set forth in §
1396b(f). The Secretary also determined that this "new"
interpretation was in keeping with the recent Congressional
enactment of § 1396a(r)(2). I believe that the Secretary's
justifications are sufficient to support his interpretation.
Mindful of the limits to this Court's review of an agency's
construction of statutory provisions that it is entrusted to
administer, I conclude that the Secretary's
interpretation of § 1396a(a)(17) is a permissible, reasonable
construction of Congress' intent. I decline, therefore, to
substitute my judgment for the Secretary's.
C. Adequate and Timely Notice.
Plaintiffs allege next that implementation of the State's
new countable income rules must be enjoined because the State
failed to provide adequate and timely notice of its changes in
the countable income rules, as mandated by the public notice
requirements of 42 C.F.R. § 447.205. Defendants maintain that
this regulation does not apply to plaintiffs, but instead
requires only that NYSDSS give advance notice of changes in
payment rates to Medicaid providers.
Although full compliance with the advance public notice
requirements of § 447.205 is generally required, there exists
an exception for "certain legislatively mandated agency
action." California Ass'n of Bioanalysts v. Rank, 577 F. Supp. 1342,
1348 (C.D.Cal. 1983). Where, as here, the change was
caused by the legislature, rather than by an agency's
interpretation of the law, the detailed public notice
requirements are often rendered unnecessary. See, e.g., Rank,
577 F. Supp. at 1348; Claus v. Smith, 519 F. Supp. 829, 833
In Rank, the court observed that the rationale for this
legislative exception is:
[C]hanges mandated by a legislature "have already
gone through a public process," 46 Fed.Reg.
58,679 (1981), and, as a result, the objectives
of the notice requirements — ie., to secure public
comment and to promote accountability among
decisionmakers — already have been satisfied in
the legislative process. Moreover, several of the
requirements specified in § 447.205 would be
inappropriate in the context of ministerial actions
undertaken by agencies implementing the commands of
577 F. Supp. at 1348.
Similarly, in Claus v. Smith, 519 F. Supp. 829 (N.D.Ind.
1981), the court stated that where "no interpretation or
discretion [is] required of [an agency] by a given state
statute" then full compliance with the notice publication
requirements of 42 C.F.R. § 447.205 is not mandated. Id., at
833; see also Seniors United for Action v. Ray, 529 F. Supp. 55
(N.D.Iowa 1981), aff'd, 675 F.2d 186 (8th Cir. 1982) (where any
harm that accompanied a failure to comply with the § 447.205
was remedied by the giving of subsequent notice).
In the instant case, the newly enacted state law does not
require interpretation or discretion by NYSDSS. Rather, the
New York statute simply eliminates the exclusion for
court-ordered support payments and, with respect to mandatory
payroll deductions, provides that "[n]o other income or
resources, including . . . payroll deductions, whether
mandatory or optional, shall be exempt. . . ."
Moreover, there is evidence in the record before me that
NYSDSS attempted to publish new administrative regulations but
was requested by plaintiffs' counsel not to issue the ADM.
Additionally, defendants have shown that plaintiffs received
actual notice of the change in countable income rules. Where,
as here, "the party has received actual notice of the proposed
changes and therefore is able to adjust his behavior or make
comments to the same degree as he would have had the notice
provisions been fully satisfied, full compliance with § 447.205
will not be required." Rank, 577 F. Supp. at 1350; see also
United States v. Aarons, 310 F.2d 341 (2d Cir. 1962) ("If a
person has actual notice of a rule, he is bound by it. The only
purpose of the requirement for publication in the Federal
register is to make sure that persons may find the necessary
rules . . . if they seek them. It goes without saying that
actual notice is the best of all notices.")
Plaintiffs' reliance on this Court's decision in Doe v.
Perales, 782 F. Supp. 201 (1991), is misplaced. In Doe, this
Court enjoined the State for failing to provide advance public
notice, timely actual notice, and because the notice that was
provided was not adequate under 42 C.F.R. § 435.919. However,
plaintiffs in this case have
received timely actual notice and public notice was apparently
not sent at the request of plaintiffs' counsel. Moreover, the
Court in Doe found that the newly enacted state law did not
directly mandate a $350 reduction in the exempt resource limit;
but, rather, the State interpreted the legislation to require
that reduction. In contrast, this Court finds that the
statutory provisions at issue here do not vest discretion in
the hands of the NYSDSS with respect to interpreting the amount
of court-ordered support payments and mandatory payroll
deductions that may be excluded from income. The instant case
is, therefore, distinguishable from the Court's decision in
Accordingly, I find that plaintiffs have failed to establish
a likelihood of success on the merits of their claim that the
State did not provide adequate and timely public notice of the
change in countable income rules.
D. Consultation with the Medical Care Advisory Committee.
Plaintiffs also contend that NYSDSS violated federal
Medicaid regulations by failing to consult with a properly
constituted Medical Care Advisory Committee ("MCAC") prior to
the implementation of changes in the State's countable income
rules. Plaintiffs argue that defendants' breach entitles them
to preliminary injunctive relief. For its part, NYSDSS
responds that it advised the MCAC of the proposed changes in
income exemptions and invited comment, but no comments were
ever received. It was only then that the NYSDSS filed new
regulations concerning the changes in the State's Medicaid
countable income rules. Defendant Sullivan adds that in any
event the presence or absence of consultation with the MCAC
cannot cause plaintiffs irreparable harm since the MCAC is
merely an advisory body lacking authority to issue legally
A state electing to participate in the Medicaid program is
required to establish a medical care advisory committee as a
condition of its participation. 42 C.F.R. § 431.12(b). New York
State has created such a committee pursuant to N.Y.Soc.Serv.Law
§ 365-c. The federal regulations provide that the role of the
MCAC is "to advise the Medicaid agency about health and medical
care services." 42 C.F.R. § 431.12(a); see also
N YSoc.Serv.Law § 365-c. Specifically, the MCAC "must have
opportunity for participation in policy development and program
administration, including furthering the participation of
recipient members in the agency program."
42 C.F.R. § 431.12(e).
In my view, the record amply demonstrates that NYSDSS
complied with the consultation requirements of § 431.12. The
State has shown that on March 18, 1991, NYSDSS sent MCAC
members a draft of the proposed regulations, an impact
statement and "flexibility analysis exception," which discussed
NYSDSS' plan to implement the Legislature's elimination of
certain income exemptions. Further, NYSDSS provided each MCAC
member with a stamped, self-addressed envelope, and requested
his or her comments on the contemplated changes as soon as
possible. The State contends that no response or advice was
ever issued by the MCAC. NYSDSS filed the new countable income
regulations six weeks after MCAC was advised of the proposed
I find that in this case MCAC was provided with an
opportunity for "participation in policy development," as well
as "to advise the Medicaid agency about health and medical
care services." Moreover, MCAC was sufficiently apprised of
the problems and issues here. See Benton v. Rhodes, 586 F.2d 1,
3 (6th Cir. 1978), cert. denied, 440 U.S. 973, 99 S.Ct. 1539,
59 L.Ed.2d 791 (1979). Because the regulations establish only
an advisory role for MCAC, "[i]t was not necessary for the
state officials to obtain the consent of the Committee to the
reduction of the optional benefits." Id.
Plaintiffs' reliance on Morabito v. Blum, 528 F. Supp. 252
(S.D.N.Y. 1981), and Becker v. Toia, 439 F. Supp. 324, 332-33
(S.D.N.Y. 1977), is misplaced. In Morabito, MCAC was not
consulted either before or after the change in question. In
Becker, there was no functioning MCAC for over
three years. Twenty members were to have been appointed to the
committee but only six had actually received an appointment.
As a result, the Becker Court concluded that there was no MCAC
even in existence to consult.
Plaintiffs also argue that New York State's MCAC was not
properly constituted until June 27, 1991, when a Medicaid
recipient was added to the Committee. 42 C.F.R. § 431.12(d)(2)
states that MCAC must include:
Members of consumers' groups, including Medicaid
recipients, and consumer organizations such as
labor unions, cooperatives, consumer-sponsored
prepaid group practice plans and others.
Plaintiffs allege that MCAC was not properly constituted
because the Committee lacked a Medicaid recipient. It is
unclear, however, whether there were other members of
"consumers' groups" on the MCAC. Plaintiffs do not claim that
this group was completely unrepresented. If there were
"consumers" on the Committee, then the requirements of § 431.12
may have been satisfied. See Burgess v. Affleck, 683 F.2d 596,
601 n. 9 (1st Cir. 1982) ("We do not hold that any specific
number or percentage of such representatives need be present on
Even if the Court were to assume that MCAC was not properly
constituted due to the absence of a Medicaid recipient on the
Committee, plaintiffs nevertheless are not entitled to an
injunction on this ground. In Burgess, the Court of Appeals
An injunction would cause further delay in
bringing medicaid expenditures in line with
available federal funding, creating the
possibility of an eventual funding shortfall
which might drain other, possibly more urgent
programs. . . . While the MCAC did not fully
conform in makeup to the regulation, it complied
in many respects. Plaintiffs have not shown,
moreover, why they could not have contested the
composition of the committee before any changes
in the state medicaid program were made, by
seeking a declaratory judgment or otherwise.
683 F.2d at 601.
I find this reasoning wholly persuasive, and hold that the
requirement for MCAC participation, while far from ideal, has
been satisfied in this case. The New York MCAC conformed in
most respects with federal regulations and was given the
opportunity to advise and participate in policy development at
a time when the State had proposed only draft regulations.
Notably, plaintiffs did not contest the composition of the
committee at an earlier point in time. The Court therefore
concludes that plaintiffs have failed to demonstrate a
likelihood of success on the merits of this claim, or that the
balance of harms tips decidedly in their favor to compel
E. Standards for Preliminary Injunction.
For a preliminary injunction motion to be granted,
plaintiffs must demonstrate:
"(a) irreparable harm and (b) either (1)
likelihood of success on the merits, or (2)
sufficiently serious questions going to the
merits to make them a fair ground for litigation
and a balance of hardships tipping decidedly
toward the party requesting the preliminary
Seaboard World Airlines, Inc. v. Tiger Int'l, Inc.,
600 F.2d 355
, 359-60 (2d Cir. 1979), quoting Jackson Dairy, Inc. v. H.P.
Hood & Sons, Inc., 596 F.2d 70
, 72 (2d Cir. 1979).
It is well settled that the decision to grant preliminary
injunctive relief falls within the sound discretion of the
district court. Kahn Music v. Baldwin Piano & Organ,
604 F.2d 755, 758 (2d Cir. 1979), citing, Doran v. Salem Inn, Inc.,
422 U.S. 922, 931-32, 95 S.Ct. 2561, 2567-68, 45 L.Ed.2d 648
(1975). For the reasons stated above, plaintiffs have failed to
demonstrate a likelihood of success on the merits, or
sufficiently serious questions going to the merits to make them
a fair ground for litigation.
Plaintiffs' motion for a preliminary injunction is denied.
Plaintiffs' motion for class certification is granted.
IT IS SO ORDERED.