Portions of Pennsylvania’s Medicaid Eligibility Requirements Found Invalid by U.S. District Court for the Eastern District of Pennsylvania

The Commonwealth of Pennsylvania attempted to make it more difficult for disabled individuals to qualify for Medicaid benefits by revising its Medicaid eligibility requirements in 2005. The new requirements imposed strict limits on pooled trusts. Some of these limits included only allowing the use of pooled trusts by individuals with special needs that could only be provided for by a pooled trust, barring individuals over the age of sixty-five from using pooled trusts, and disqualifying all members of a pooled trust from receiving an exemption if one member did not meet certain requirements.

A group of Medicaid recipients who used pooled trusts sued the Commonwealth, arguing that the new law’s eligibility requirements were more stringent than those imposed by federal law and were thus invalid. The Commonwealth objected on numerous grounds and claimed that the new law did not concern Medicaid eligibility and was only created to regulate special needs trusts in general. The Commonwealth further claimed that even if the law did concern Medicaid eligibility, states were not prohibited from counting assets in special needs trusts when considering Medicaid eligibility.

In Lewis v. Alexander (E.D. Pa., No. 06-3963, Aug. 22, 2011), the U.S. District Court for the Eastern District of Pennsylvania ruled that portions of the new law were invalid. The court determined that the plaintiffs were a certified class and that “Congress intended to permit disabled persons age 65 and older to form pooled special needs trust accounts.” Though states may impose a transfer penalty when trust accounts are established, the court invalidated the portion of the new law that rendered disabled persons eligible for benefits under federal law, ineligible under state law. Additionally, the court invalidated the portion of the new law that forced pooled trusts to use half of the funds remaining in a deceased beneficiary’s account to pay the Commonwealth back for Medicaid services and the portion that forced trusts to only make expenditures that reasonably related to the beneficiary’s needs.

See U.S. Court Rules That Restrictions on Pooled Trusts, Including Age Barrier, Do Not Comply with Federal Law, Elder Law Answers, Aug. 29, 2011.