## Facts

- Glenda Morris applied for long-term-care Medicaid benefits in Oklahoma; the agency denied eligibility because the couple’s combined resources exceeded the Medicaid asset limit for the institutionalized spouse.
- The agency calculated a Community Spouse Resource Allowance (CSRA) for Leroy Morris (the community spouse), leaving remaining countable resources attributable to Glenda above the eligibility limit.
- To reduce countable resources, the Morrises purchased burial contracts and a nontransferable, nonsaleable annuity designed to be actuarially sound and payable solely to Leroy.
- After Glenda reapplied, the Oklahoma agency again denied benefits, concluding that the annuity was a countable asset for eligibility purposes and, alternatively, that the purchase triggered a transfer penalty by moving resources to the community spouse beyond the CSRA.
- The Morrises sued state officials under 42 U.S.C. § 1983 and the Supremacy Clause, alleging the state’s treatment of the annuity conflicted with federal Medicaid law; the district court granted summary judgment for the state.
- Glenda died during the litigation; Leroy continued the case individually and as representative of her estate.

## Issues

1. Whether federal Medicaid law permits an institutionalized spouse to spend down excess resources by purchasing a qualifying annuity payable to the community spouse in addition to the community spouse’s CSRA.
2. Whether a state Medicaid agency may treat such a qualifying annuity as an available resource for eligibility or impose a transfer-of-assets penalty based on its purchase.

## Decision

- The Tenth Circuit reversed the district court’s summary judgment for the state defendants and remanded.
- The court held that federal Medicaid law allows a couple to convert countable resources into income for the community spouse through purchase of a qualifying annuity, even when the community spouse retains the CSRA.
- The court rejected the state’s attempt to treat the annuity as a countable resource when it met federal requirements governing qualifying annuities.
- The court also rejected the state’s alternative transfer-penalty theory where the transaction fit within the federal annuity framework and was treated as an exchange for value rather than a penalizable transfer.

## Legal Principles

- Under the spousal-impoverishment provisions of the Medicare Catastrophic Coverage Act, Congress distinguishes between countable resources for the institutionalized spouse and income payable to the community spouse.
- Federal Medicaid provisions governing qualifying annuities limit a state’s ability to reclassify a compliant annuity as an available resource for eligibility.
- A qualifying annuity may be used to convert joint resources into community-spouse income that does not count against the institutionalized spouse’s Medicaid eligibility, even if the community spouse already retains the CSRA.
- A state may not impose a transfer-of-assets penalty on a transaction structured within Congress’s annuity rules when the transaction is treated as an exchange for value rather than a gratuitous transfer.
- When state Medicaid administration conflicts with controlling federal Medicaid requirements, federal law preempts the inconsistent state interpretation.

## Conclusion

The Tenth Circuit held that federal Medicaid law permits purchase of a qualifying annuity payable to the community spouse beyond the CSRA and bars the state from denying eligibility by counting the annuity as a resource or treating its purchase as a penalized transfer, requiring reversal and remand.


Morris v. Okla. Dep’t of Hum. Servs., 685 F.3d 925 (10th Cir. 2012)