Challenge To New Federal Law Dismissed: It’s Unenforceable

JUNE 2, 1997 VOLUME 4, NUMBER 48

Last year, Congress alarmed and confused tens of thousands of seniors and their financial and legal advisers. The Health Insurance Portability and Accountability Act (usually referred to as the “Kennedy-Kassebaum” bill after its principal sponsors) made a number of positive changes to health insurance practices. Buried in the Act’s provisions, however, was a short section that looked like an attempt to turn legitimate (and legal) long term care planning into a crime.

No member of Congress has claimed authorship of the alarming criminal provision, which appeared in the final version of the legislation spontaneously. The surprising lack of ownership of the criminalization law may be explained by the fact that the punitive measure was a chilling example of legislative overkill. There may be another reason no one claims credit for the provision, however: it is extraordinarily poorly written.

Section 217 of the Kennedy-Kassebaum bill does change the law to make it a crime to give away assets for the purpose of qualifying for Medicaid long term care eligibility. It does not, however, provide a penalty for the crime, or describe the crime as either a felony or a misdemeanor. Furthermore, the provision is so confusingly drafted that it appears to make it a crime to give away assets only if the nursing home patient makes an application for Medicaid before he or she becomes eligible for benefits. In other words, only the applicant who is foolish (or misinformed) enough to make an application too soon could be charged with a crime.

Since the new law did not change the period of ineligibility caused by making gifts, and since it does not include penalty provisions, it could be argued that it did not change anything, but only served to alarm and confuse an already vulnerable population. That, in fact, is exactly the argument made before an Oregon Federal Court judge by Margaret Peebler and her attorney, Tim Nay.

At the time her admission into an Oregon nursing home, Peebler had $14,824.22 in her bank accounts. She consulted Nay about how she might preserve some of those funds for her own future needs, or at least for her heirs; he advised her that she could give away about half of her assets and qualify for Medicaid assistance in three months. He also cautioned her, however, that under one interpretation of the new law she might commit a crime by doing so.

Peebler decided to take the chance, and gave $7,785 to her great-nephew. In an attempt to head off future problems, she then asked the Federal judge to rule that she could not be prosecuted so long as she waited the three months before making a Medicaid application. Nay joined in her lawsuit, since he was concerned that his advice might be construed so as to make him an accessory to the theoretical crime.

U.S. Attorney General Janet Reno (the defendant in Peebler’s lawsuit) asked the Oregon judge to dismiss the action. The basis for her motion to dismiss was that her reading of the statute was the same as Nay’s. Under that interpretation, so long as Ms. Peebler did not make an application before her three-month ineligibility period had expired she had not committed a crime. Consequently, Nay’s advice could not have made him an accessory.

The Oregon Federal judge has now agreed with Reno and dismissed Peebler’s lawsuit. At the same time, the Attorney General’s office has advised Congress that Reno will not initiate prosecutions of anyone who does not apply for Medicaid before the penalty period for gifts expires.

Congress is considering repeal of what has become known as the “Granny Goes to Jail” law. House Resolution 216, sponsored by Rep. LaTourette of Ohio, already has more than fifty co-sponsors, from both parties. A companion bill has been introduced in the Senate. Neither lists a single Arizona Congressman as a co-sponsor.

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