Medicaid Eligibility: Federal v. State Court Authority on the Effect of Lifetime Transfers to a Community Spouse

After settling the federal claims in a Medicaid case, a U.S. district court remanded the remaining issues back to the state court in Indiana since the case involved significant issues concerning the transfer of property to the community spouse that would ultimately affect the administration of Medicaid benefits in Indiana.

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Novak v. Indiana Family and Social Services Administration (U.S. Dist. Ct., S.D. Ind., No. 1:10–cv–677–RLY–DKL, Feb. 29, 2012).

Facts:  Mr. Novak, the Medicaid applicant, obtained an Order from a state court in Indiana that permitted his legal guardian to transfer all of Mr. Novak’s assets (retaining only $1,000) to his wife, to be applied for her care and support.  The following year, Mr. Novak applied for Medicaid benefits and his application was denied.  The reason for his ineligibility was the transfer of resources to his wife the previous year.  Following this disconcerting decision, his wife filed an appeal on his behalf, and the case was removed to federal court.

Court’s Decision:  The federal court ultimately ordered that the case be remanded back to the state court of Indiana since the final undecided issue was the judicial review of a state administrative agency decision denying Medicaid eligibility.  Mrs. Novak requested that the federal court retain jurisdiction and rule on the remaining issue, claiming that the judicial economy would be better served if they remained in federal court.  Since the case was already on the docket for 18 months, and Mrs. Novak was 82 years of age, they argued that they would be prejudiced by the additional delay caused by the remand.

The federal court denied their request, and remanded the case back to state court.  In remanding the case, the court determined that the final case will involve two issues:  (i) “When can a person petition a court for an order approving the transfer of assets for the benefit of the community spouse?” and (ii) if assets can be transferred prior to an assessment, “whether the assets which the state court ordered transferred must actually be transferred in order for the Community Spouse Resource Allowance to be calculated on the basis of that state court order.”  According to the federal court, the outcome of these issues will have lasting effect on the administration of Medicaid benefits in Indiana, so any potential prejudice against the Novaks was outweighed.