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HIMES v. SULLIVAN

September 4, 1991

CRAIG HIMES, ET AL., PLAINTIFFS,
v.
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 certification.*fn1

For the reasons that follow, I must deny plaintiffs' motion for a preliminary injunction.

BACKGROUND

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 2459.

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 (1984).

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
  related].

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.

DISCUSSION

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 n. 11.

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 ...

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