The Illinois Supreme Court held unanimously that the spousal income protection provisions of the Medicare Catastrophic Coverage Act (MCCA) of 1988 do not preempt a state statute which authorizes recovery of community spouse income to pay for the institutionalized spouse's nursing home care. The court held that MCCA's "deeming" provisions are intended to exclude community spouse income for the purpose of determining eligibility only, and therefore do not conflict with state law permitting recovery of spousal income. As a preliminary matter, the court held that plaintiffs are not required to exhaust administrative remedies before bringing a facial preemption challenge to state statutes. Poindexter v. Dept. of Human Services, --- N.E.2d ---, 2008 WL 879408 (Ill. Apr. 3, 2008) (No. 104853).



The Illinois statute provides that community spouses must reimburse the state's Medicaid nursing home expenditures if their income exceeds the minimum monthly maintenance needs allowance (MMMNA), set forth in federal Medicaid eligibility law. At the time of the litigation, the MMMNA in Illinois was $2,378. The Illinois law sought to recover 1% of the community spouse's gross annual earned income above $7,000.



In response to administrative action to recover this income, the community spouses filed a suit alleging that the Illinois statute was preempted by MCCA. The court rejected the state's argument that the plaintiffs had to exhaust their administrative remedies prior to bringing a preemption challenge. The court held that the case "falls squarely within an exception to the exhaustion requirement," because it was a facial challenge. The court noted that facial challenges are focused on legal questions, not the agency record, and that "there is virtually no chance the aggrieved party will succeed before an agency where the issue is the agency's own assertion of its authority." The court also held that it was immaterial that some of the plaintiffs had not yet received final administrative orders, since the case presented no factual disputes and required only a decision on preemption issues. The court did not address (presumably because it was not raised by the defendants) the issue of the cause of action in the case.



The court noted that if the state law conflicted with the federal Medicaid statute, then the state law would be preempted. But turning to the merits, the court found that the state law was not preempted. The court concluded that the spousal impoverishment provisions of MCCA regarding protected community spouse income apply only to the eligibility determination process and do not restrict a state's ability to recover that income



The court noted that in the MCCA provisions dealing with institutionalized spouses, the introductory provision begins with the phrase, "In determining the eligibility for medical assistance of the institutionalized spouseŠ" 42 U.S.C. § 1396r-5(a)(1). The court also emphasized the use of the phrase, "no income of the community spouse shall be deemed available." Id. at § 1396r-5(b)(1). The court observed that "deemed available" is a term of art relating to eligibility determinations. It noted that "prior courts have only construed this language in terms of its effect on the institutionalized spouse's eligibility," not the community spouse's liability for support. The court did not address or cite the contrary decision of the Wisconsin Court of Appeals in Chippewa County Dept. of Human Services v. Bush, 738 N.W.2d 562 (Wis. App. 2002).



Because it viewed MCCA as applying only to the eligibility determination process, the court held that the state law's recovery provisions were not preempted by § 1396r-5(b)(2) and (d), which provides for the allocation of a part of the institutionalized spouse's income to prevent impoverishment of the community spouse. These provisions, said the court, are "not directed at spousal support laws Š where the community spouse may be required to reimburse the state for some of the cost of care provided to the institutionalized spouse." Additionally, the court held that other MCCA provisions, including provision for a fair hearing to raise the monthly amount allocated to a community spouse, are not addressed to spousal support laws. "Thus," it concluded, "the community spouse's income becomes an issue only when he or she does not receive sufficient income to cover the basic costs of living."



The court relied heavily upon the Supreme Court's finding in Wisconsin Department of Health & Family Services v. Blumer, 534 U.S. 473, 480 (2002), that a primary goal of the MCCA was "preventing financially secure couples from obtaining Medicaid assistance." For a critique of Blumer see Bobroff, Judicial Deference to Federal Government Erodes Medicaid Protections for Elderly Spouses Impoverished by the High Costs of Nursing Home Care, 29 William Mitchell L. Rev. 159 (2002). The Illinois Supreme Court noted that the plaintiffs did not even allege that they would be impoverished by the state's recovery of their income.