NANCY PROFFIT, ET AL., PETITIONERS V. BRUCE U. KOZLOWSKI, DIRECTOR, VIRGINIA DEPARTMENT OF SOCIAL SERVICES, ET AL. No. 90-5077 In The Supreme Court Of The United States October Term, 1990 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Fourth Circuit Brief For The Federal Respondent In Opposition OPINIONS BELOW The opinion of the court of appeals (Pet. App. A2-A5) is unpublished, but the decision is noted at 900 F.2d 254 (Table). The opinion of the district court (Pet. App. A6-A10) is reported at 693 F. Supp. 435. JURISDICTION The judgment of the court of appeals was entered on March 28, 1990. A petition for rehearing was denied on April 27, 1990. Pet. App. A1. The petition for a writ of certiorari was filed on July 9, 1990. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Recipients of Aid to Families with Dependent Children (AFDC) who receive nonrecurring lump sum payments are rendered ineligible for AFDC benefits for a period equal to the lump sum divided by the recipient's monthly standard of need. The question in this case is whether the Secretary of Health and Human Services may apply this "lump sum rule" in determining whether applicants for Medicaid benefits are "categorically needy." STATEMENT 1. Congress established the Medicaid program in 1965 "for the purpose of providing federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons." Harris v. McRae, 448 U.S. 297, 301 (1980). Each State determines whether it will participate in the program. Once a State elects to participate, however, it must comply with the provisions of the Medicaid statute and regulations promulgated by the Secretary of Health and Human Services. See 42 U.S.C. 1396a; Schweiker v. Gray Panthers, 453 U.S. 34, 37 (1981). States participating in the Medicaid program must provide benefits to certain "categorically needy" persons. 42 U.S.C. 1396a(a)(10)(A); 42 C.F.R. 435.4, 435.110(a), 435.120(a); see Gray Panthers, 453 U.S. at 37-39. "Categorically needy" individuals include those entitled to benefits under the Supplemental Security Income (SSI) Program, 42 U.S.C. 1381 et seq., or the Aid to Families with Dependent Children (AFDC) Program, 42 U.S.C. 601 et seq., as well as persons "who would be eligible for AFDC except for an eligibility requirement used in that program that is specifically prohibited under (Medicaid)." 42 C.F.R. 435.113 (emphasis added). In addition, a State participating in the Medicaid program is permitted -- but not required -- to provide Medicaid benefits to "medically needy" persons whose incomes are too large to qualify for categorical assistance, but who are nevertheless unable to pay their medical expenses. 42 C.F.R. 435.4, 435.300-435.340; see Gray Panthers, 453 U.S. at 37. /1/ Standards for determining Medicaid eligibility are set forth in 42 U.S.C. 1396a(a)(17). See Schweiker v. Hogan, 457 U.S. 569, 574 (1982). That section provides, in part, that a participating State must include reasonable standards * * * for determining eligibility * * * which * * * (B) provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient and * * * (D) do not take into account the financial responsibility of any individual for any applicant or recipient of assistance under the plan unless such applicant or recipient is such individual's spouse or such individual's child who is under age 21 or * * *, blind or permanently and totally disabled. Under the AFDC program, nonrecurring lump sum payments (such as personal injury awards) are counted as income. Receipt of a lump sum payment results in a period of prospective ineligibility for AFDC benefits that is determined by dividing the lump sum by the family's monthly standard of need. 42 U.S.C. 602(a)(17); 45 C.F.R. 233.20(a)(3)(ii)(F). This Court has upheld the application of the lump sum rule to personal injury awards in the AFDC context. Lukhard v. Reed, 481 U.S. 368 (1987). 2. Petitioner Arwood, a resident of the Commonwealth of Virginia, agreed to a $14,000 settlement of a personal injury lawsuit brought on behalf of her minor daughter. /2/ The money was placed in a trust account. At the time of the settlement, Ms. Arwood and her daughter were receiving $207 per month in AFDC and Medicaid benefits from the Russell County, Virginia, Department of Social Services. Pet. App. A7. In April 1987, Ms. Arwood requested and received $4,000 of the $14,000 settlement. She was advised by the Department of Social Services that, as a result of her receipt of this lump sum, she would be ineligible for AFDC and Medicaid benefits for a period of 17.46 months. By October 1987, Ms. Arwood and her family had spent the entire $4,000 to purchase an automobile, furniture, and clothing, and to pay debts and normal living expenses. Pet. App. A7. Ms. Arwood, individually and on behalf of all others similarly situated, challenged the application of the "lump sum" rule to disqualify her from receiving Medicaid benefits after the lump sum had been spent. /3/ 3. The district court held, contrary to petitioner's contention, that application of the AFDC lump sum rule in determining Medicaid eligibility is not "specifically prohibited by 42 U.S.C. 1396a(a)(17)(B). Subsection 17(B) provides that the States must adopt reasonable eligibility standards that "provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient." The court observed that the Secretary considers a lump sum as income "'available' under the AFDC program, and hence Medicaid, if it is either 'actually available' or because the applicant 'has a legal interest and has the legal ability to make such sum available for support and maintenance.'" Pet. App. A8-A9 (quoting 45 C.F.R. 233.20(a)(3)(ii)(D). The court of appeals then rejected petitioners' argument that a lump sum is no longer "available" within the meaning of the Medicaid statute after it has been spent. Pet. App. A9. The court observed that the lump sum was available to petitioner when the decision to terminate Medicaid benefits was made. Ibid. Although the court viewed petitioner's argument as logical, because medical needs are unpredictable, it concluded that "Medicaid eligibility, with a few exceptions, is entirely derivative from one's AFDC eligibility." Pet. App. A9. The court noted that the plaintiff had not, and could not, point to any specific provision of the Medicaid Act that prohibits the inclusion of lump sum awards in determining Medicaid eligibility. Pet. A10. Finally, the court observed that the Secretary's interpretation of the term "available" is entitled to more than ordinary deference, because "in a situation of this kind, Congress entrusts to the Secretary rather than the courts, the primary responsibility for interpreting the statutory term." Pet. App. A10 (quoting Gray Panthers, 453 U.S. 34, 44 (1981)). 4. The court of appeals, in an unpublished per curiam opinion, found the "opinion of the district court to be well reasoned and supported." Accordingly, the court of appeals affirmed the judgment "based on that opinion." Pet. App. A5. ARGUMENT The decision of the court of appeals is correct and does not conflict with any decision of this Court or any other court of appeals. Further review is therefore unwarranted. 1. According to petitioner (Pet. 12-21), the court of appeals "held" that "to qualify for mandatory Medicaid one first must qualify for mandatory AFDC." Pet. 12-13. Petitioner asserts that this "holding" conflicts with decisions of eight other courts of appeals. Petitioner's arguments rests on a misstatement of the holding of the courts below. In fact, the decision of the Fourth Circuit in this case does not conflict with any of the decisions cited by petitioner. As noted above, the class of persons entitled to Medicaid includes persons entitled to SSI benefits under 42 U.S.C. 1396a(f), as well as persons who would be entitled to AFDC benefits but for an eligibility requirement that is "specifically prohibited" by the Medicaid statute. 42 C.F.R. 435.113. Thus, the court of appeals' statement (Pet. App. A5) that "(t)o qualify for mandatory Medicaid, one must first qualify for mandatory AFDC benefits," standing alone, is incomplete. But that statement does not stand alone. The two-page, unpublished opinion of the court of appeals expressly affirmed the judgment of the district court "based on that (court's) opinion." Pet. App. A5. And the district court's opinion expressly recognized that the class of "categorically needy" persons is broader than the class of persons entitled to AFDC benefits. Pet. App. A9 ("Medicaid eligibility, with a few exceptions, is entirely derivative from one's AFDC's eligibility.") (emphasis added). Consequently, there is no basis for petitioner's assertion that the decision of the court of appeals "held" that AFDC and Medicaid eligibility criteria are the same. Not one of the cases cited by petitioner concerns the application of the lump sum rule to Medicaid eligibility determinations. Rather, these cases considered the effect of a specific prohibition of the Medicaid Act that precludes the States from "deeming," as income available to a Medicaid applicant, income received by persons other than the applicant's spouse (or parent if the applicant is under 21, blind, or disabled). See 42 U.S.C. 1396a(a)(17)(D); Herweg, 455 U.S. at 275 n.13. /4/ Petitioner does not argue that application of the lump sum rule is barred by Subsection 17(D)'s specific limitation on "deeming." Petitioner actually received a lump sum; there was no occasion for "deeming" in this case. Petitioner makes a different argument. She contends that application of the lump sum rule to Medicaid applicants is barred by the requirement of Subsection 17(B) that income used to compute eligibility for Medicaid must be "available" to the recipient. Pet. App. A4. No other court of appeals has considered that argument; a fortiori, there is no conflict among the circuits on the issue. 2. On the merits, petitioner's contention (Pet. 21-23) that income and resources are not "available" within the meaning of the Medicaid statute if they are not "on hand" is unpersuasive. The Secretary has exceptionally broad authority to determine the amount of income available to Medicaid applicants. 42 U.S.C. 1396a(a)(17)(B); Herweg, 455 U.S. at 270, 274-75; Gray Panthers, 453 U.S. at 34. In the Gray Panthers case, cited by petitioner in support of her argument, this Court held that "the Secretary's definition of the term 'available' is 'entitled to more than mere deference or weight.'" Rather, his definition of "available" is entitled to "'legislative effect' because * * * 'Congress entrusts to the Secretary, rather than to the courts, the primary responsibility for interpreting the statutory term.'" 453 U.S. at 44 (quoting Batterton v. Francis, 432 U.S. 416, 425-426 (1977)). Review of the Secretary's definition of "available" is limited to ensuring that the regulation is not arbitrary or capricious. 453 U.S. at 44. The Secretary's determination that a nonrecurring lump sum payment is available for purposes of Medicaid eligibility is not arbitrary or capricious. This Court recognized in the Gray Panthers case that income or resources may be "available" even if they are no longer "in hand." 453 U.S. at 48. Although the lump sum did not remain "in hand" for the entire period of ineligibility in this case -- because it was spent -- petitioner actually received the funds, and they were actually available to meet the needs of her family when the eligibility decision was made. In enacting the lump sum rule, Congress intended that a nonrecurring lump sum payment such as an inheritance, lottery prize, or personal injury award "be considered available as income in the month it is received and also in future months." H.R. Conf. Rep. No. 208, 97th Cong., 1st Sess. 979 (1981) (emphasis added). The same considerations apply to Medicaid eligibility. Although the district court may be correct that medical expenses are less predictable than other living expenses, that does not make it "illogical" to require recipients to budget lump sums so that they may be applied to such medical expenses as may arise during the period of ineligibility. Any unfairness that may result from allocating the lump sum to non-medical living expenses that would otherwise have been covered by AFDC benefits arises not from application of the lump sum rule but from the underlying determination by Congress that persons with incomes too large to qualify for AFDC are not "categorically needy." Indeed, petitioner herself appears to concede that if she had received a series of smaller monthly payments rather than a single lump sum, she would not have been eligible for Medicaid. Reply Br. 3. In short, nothing in the Medicaid Act requires income to be considered "available" only in the month in which it is received. Thus, the Secretary's determination that nonrecurring lump sum payments may constitute available income over a number of months for purposes of determining eligibility for Medicaid benefits is well within his broad authority under the Medicaid Act. /5/ CONCLUSION The petition for writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General STUART M. GERSON Assistant Attorney General ROBERT S. GREENSPAN SANDRA WIEN SIMON Attorneys SEPTEMBER 1990 /1/ The Commonwealth of Virginia has elected to provide Medicaid benefits to "medically needy" children, but not to their caretakers. See Va. Br. in Opp. 2 & n.3. /2/ The district court dismissed petitioner Proffit from this action because her claim is time-barred. Pet. App. A7. The petition does not challenge this ruling. Consequently, petitioner Proffit is not properly before this Court. /3/ Pursuant to Virginia's policy described in note 1, supra, Ms. Arwood's daughter, but not Ms. Arwood herself, became eligible for Medicaid once the lump sum had been spent. /4/ See Malloy v. Eichler, 860 F.2d 1179 (3d Cir. 1988); Sundberg v. Mansour, 847 F.2d 1210 (6th Cir. 1988); Georgia Dep't of Medical Assistance v. Bowen, 846 F.2d 708 (11th Cir. 1988); Childress v. Bowen, 833 F.2d 231 (10th Cir. 1987); Olson v. Norman, 830 F.2d 811 (8th Cir. 1987); Reed v. Blinzinger, 816 F.2d 296 (7th Cir. 1987); Vance v. Hegstrom, 793 F.2d 1018 (9th Cir. 1986). Cf. Massachusetts Ass'n of Older Americans v. Sharp, 700 F.2d 749 (1st Cir. 1983). The Fourth Circuit recently decided this issue in accordance with these other circuits. Mitchell v. Lipscomb, 851 F.2d 734 (4th Cir. 1988). "Deeming" allows the state agency to treat income as available to an applicant, regardless of whether the income is actually contributed to that individual. Herweg, 455 U.S. at 267; Gray Panthers, 453 U.S. at 36. /5/ Petitioner incorrectly asserts (Reply Br. 4-6) that the Secretary informed Congress in 1981 that the lump sum rule would not apply to the Medicaid program. In support of this assertion, petitioner relies on a chart reporting as "N.A." the "Medicaid Savings" expected to result from a package of AFDC proposals, including the lump sum rule. Reply Br. 5 (quoting Staff of House Comm. on Ways and Means, 97th Cong., 1st Sess., Description of the Administration's Recommendations Under the Jurisdiction of the Ways and Means Committee 41 (Comm. Print 1981)). Petitioner interprets the notation "N.A." to mean that the lump sum rule would have "no affect" (sic) on Medicaid, and contends that the chart "expressly disclaimed any impact on Medicaid." Reply Br. 5, 6. In fact, the notation "N.A." was used in the Committee Print to denote "information not available." See, e.g., Comm. Print 1-2. Thus, "N.A." meant only that the Secretary did not know the effect of the lump sum rule on Medicaid, not that the effect would be zero. Elsewhere in the Committee Print, the notation "Negligible Savings" is used to denote little or no economic impact. See, e.g., id. at 4-5.