When George Gross entered the Napoleon Care Center in Napoleon, North Dakota, his wife Julia Gross faced the prospect of having to spend over $120,000 of the couple’s assets before he would qualify for Medicaid assistance. Since they only had a little more than $200,000 other than their home and a few personal belongings, that prospect looked bleak to Mrs. Gross. Like many other spouses of nursing home residents Mrs. Gross decided to purchase a special type of annuity to secure eligibility for Medicaid for her husband.

The kind of annuity Mrs. Gross purchased a month after her husband entered the nursing home was a non-assignable, single-premium immediate annuity. She paid $150,000 for a contract that guaranteed she would receive 60 monthly payments of $2,855.91. She effectively converted an available resource into a stream of income, and in almost any jurisdiction in the country (including Arizona) that would have made Mr. Gross eligible for Medicaid.

But North Dakota’s Medicaid program had a different idea. Although the annuity prevented Mrs. Gross from cashing it in or assigning it to anyone else, Medicaid official Blaine Nordwall insisted that she could sell her right to receive monthly payments. If a secondary market exists for such a sale, reasoned Mr. Nordwall, then Mrs. Gross’ annuity had a cash value after all, and it was up to her to prove otherwise.

Although Mrs. Gross even brought national experts to testify that the annuity could not be transferred and that no market could exist for the "stream of income," that was not good enough for either the Medicaid officials or the North Dakota Supreme Court. The state’s high court ruled that Mr. Nordwall’s insistence that a "factors market" exists was enough to put the burden on Mrs. Gross to prove a negative—that no one would be willing to bargain with her to buy her right to receive monthly checks.

As a result the entire purchase price of the annuity continued to be treated as a resource available to her—and therefore to her husband. Mr. Gross died in the nursing home fifteen months later without receiving the Medicaid benefits his wife had tried to qualify him for. Estate of Gross v. ND Dep’t of Human Services, October 12, 2004.

What does Mrs. Gross’ dilemma mean for others trying to qualify their spouses for Medicaid coverage? Although the North Dakota approach has not yet been adopted in most other states, it demonstrates that the rules are changing rapidly, and that they have become increasingly harsh over time. In fact, several states (notably including Connecticut, Ohio and Wisconsin) have already adopted the same approach administratively, though they may not have court cases yet approving the practice. For more information on Medicaid annuities, check Tennessee lawyer (and personal friend) Tim Takac's informative website. Unfortunately, the confusion too often means that money that should go to long-term medical care must instead go to lawyers to analyze and interpret the rules.

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