The opinion of the court was delivered by: Larimer, District Judge.
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.
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).
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).
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.
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.
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 ...