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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Pfeifer v. State, Dept. of Health & Social Services, Div. of Public Assistance (9/23/2011) sp-6604
Notice: This opinion is subject to correction before publication in the PACIFIC REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
JOHN PFEIFER, Personal ) Supreme Court No. S-13913
Representative of the Estate )
of SARAH PFEIFER, on behalf ) Superior Court No. 3AN-09-06596 CI
of SARAH PFEIFER, )
) O P I N I O N
Appellant, )
) No. 6604 - September 23, 2011
v. )
)
STATE OF ALASKA, )
DEPARTMENT OF HEALTH & )
SOCIAL SERVICES, DIVISION OF )
PUBLIC ASSISTANCE, )
)
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, Patrick J. McKay, Judge.
Appearances: John W. Pfeifer, pro se, Kenai, Appellant.
Dario Borghesan, Assistant Attorney General, Anchorage,
and John J. Burns, Attorney General, Juneau, for Appellee.
Before: Carpeneti, Chief Justice, Fabe, Winfree, Christen,
and Stowers, Justices.
CARPENETI, Chief Justice.
I. INTRODUCTION
An elderly woman requiring long-term medical care gave $120,000 to her
son in February 2007. The mother believed that the gift would not prevent her from
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receiving Medicaid coverage if she lived long enough to exhaust her remaining assets.
She relied on a provision in Alaska's Medicaid eligibility manual that suggested
prospective Medicaid beneficiaries could give away a portion of their assets while
retaining sufficient assets to pay for their medical care during the period of ineligibility
that Medicaid imposes as a penalty for such gifts. But by the time the mother applied for
Medicaid in September 2008, the Alaska legislature had enacted legislation with the
retroactive effect of preventing the kind of estate planning the mother had attempted
through her gift. The State temporarily denied the mother's application. The son appeals
pro se on behalf of his mother, who died in 2009.
We recognize the frustration that can result when the State provides
information that leads to inaccurate expectations in a matter as inherently difficult and
painful as planning for a dying parent's estate and end-of-life care. But the Alaska
legislature's retroactive change to the Medicaid eligibility rules was valid. We thus
affirm the State's temporary denial of the mother's application.
II. FACTS, LEGISLATIVE HISTORY, AND PROCEEDINGS
A. Facts And Legislative History
On February 8, 2006, President George W. Bush signed the Deficit
Reduction Act of 2005 (DRA).1 He stated that the bill "tightens the loopholes that
allowed people to game the system by transferring assets to their children so they can
qualify for Medicaid benefits."2 Even before the enactment of the DRA, federal
Medicaid law imposed a period of ineligibility on a person who transferred assets for less
1 Pub. L. No. 109-171, 120 Stat. 4 (2006).
2 Julia M. Hargraves, Note, Financing Long-Term Care in Missouri: Limits
and Changes in the Wake of the Deficit Reduction Act of 2005, 73 MO.L. REV . 839, 846
(2008) (quoting Remarks on Signing the Deficit Reduction Act of 2005, WEEKLY COMP.
PRES. DOC. 213, 214 (Feb. 8, 2006)).
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than fair market value before applying for benefits.3 The penalty period lasted
approximately for the number of months that the applicant could have paid for her own
health care using the transferred assets if the transfer had not been made.4
But the law contained a provision allowing prospective Medicaid
beneficiaries to engage in so-called "half-a-loaf" planning, according to which the
prospective beneficiary "makes a gift of a portion of [her] assets while retaining
sufficient assets to pay for [her] nursing home care during the period of ineligibility that
results from the gifts."5 Because the penalty period began running roughly at the time
of the asset transfer,6 prospective beneficiaries were able to "calculat[e] how long they
3 42 U.S.C. § 1396p(c) (2005) (amended 2006).
4 More precisely:
[T]he number of months of ineligibility under this
subparagraph for an individual shall be equal to -
(I) the total, cumulative uncompensated value of all assets
transferred by the individual (or individual's spouse) on or
after the look-back date specified in subparagraph (B)(i),
divided by
(II) the average monthly cost to a private patient of nursing
facility services in the State (or, at the option of the State, in
the community in which the individual is institutionalized) at
the time of application.
42 U.S.C. § 1396p(c)(1)(E)(i) (2005) (amended 2006).
5 Hargraves, supra note 2, at 841-42 & n.17 (quoting Andrew H. Hook,
Durable Powers of Attorney: They Are Not Forms!, 2000 NAT 'L ACAD. OF ELDER LAW
ATTORNEYS SYMPOSIUM 26-1 n.42).
6 More specifically, the penalty period began "the first day of the first month
during or after which assets have been transferred for less than fair market value." 42
U.S.C. § 1396p(c)(1)(D) (2005) (amended 2006).
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----------------------- Page 4-----------------------
would be ineligible for Medicaid benefits after a transfer and reserv[e] enough personal
assets to pay for their care until the penalty period had run."7
The Deficit Reduction Act eliminated the possibility of this estate planning
strategy by changing the start date for the asset transfer penalty period. The DRA states
that for asset transfers made after February 8, 2006, the penalty period begins on
the first day of a month during or after which assets have
been transferred for less than fair market value, or the date on
which the individual is eligible for medical assistance under
the State plan and would otherwise be receiving institutional
level care . . . but for the application of the penalty period,
whichever is later.[8]
This rule makes it practically impossible for a potential Medicaid
beneficiary to cover her own medical expenses while waiting out the asset transfer
penalty period: The period will not start until her remaining assets are gone.
On July 31, 2006, Alaska Governor Frank Murkowski signed House Bill
(H.B.) 426, legislation that was intended to amend the Alaska Statutes to reflect the
DRA's change to the penalty period start date.9 The legislation added a subsection (m)
to AS 47.07.020 that stated: "Except as provided in (g) of this section, the department
shall impose a penalty period of ineligibility for the transfer of an asset for less than fair
market value by an applicant or an applicant's spouse consistent with 42 U.S.C.
1396p(c)(1)."10 Because 42 U.S.C. § 1396p(c)(1) codified the DRA's new asset transfer
penalty period start date, AS 47.07.020(m) would have eliminated the possibility of a
7 Hargraves, supra note 2, at 841-42.
8 Pub. L. No. 109-171, § 6011, 120 Stat. 4, 61-62 (2006) (codified at 42
U.S.C. § 1396p(c)(1)(D)(ii) (2010)).
9 Ch. 96, SLA 2006.
10 Ch. 96, § 7, SLA 2006 (codified at AS 47.07.020(m)).
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prospective beneficiary qualifying for Medicaid coverage by transferring some assets to
a family member and then waiting out the penalty period using her remaining assets.
But the legislature stated that AS 47.07.020(m) would only become
effective "July 1, 2006, or on the date of notification under sec. 13 of this Act of federal
approval of a revised state plan for medical assistance coverage incorporating the
changes made by secs. 1-7 and 9 of this Act, whichever is later."11 This language proved
problematic, because federal approval of the state plan did not arrive as anticipated in a
single, all-encompassing gesture, with notification on a single date.12 As a result, "there
was a great deal of uncertainty about the effective date of the effective clauses."13 In
order to resolve any uncertainty, Senate Bill (S.B.) 259 would eventually be passed in
2008 to eliminate the conditional language in AS 47.07.020(m) and give it retroactive
effect to October 1, 2006.14
While the preceding legislative changes took place through 2006, Sarah
Pfeifer was living in Wichita, Kansas. Sarah was born in 1914. In 2005, her husband,
Warren Pfeifer, was diagnosed with terminal cancer. He died in September 2006. After
Warren's death, Sarah moved to Alaska, where her only son, John Pfeifer, lived with his
wife.15 According to John's testimony, his mother and father had said they wanted to
give most of the proceeds of the sale of their house in Kansas to John and his wife as a
11 Ch. 96, § 16, SLA 2006 (repealed by ch. 39, § 3, SLA 2008).
12 See generally Minutes, Sen. Fin. Comm. Hearing on S.B. 259, 25th Leg.,
2d Sess. (Mar. 24, 2008) (testimony of Karen Kurtz, Assistant Revisor, Legal Services).
13 Id.
14
Id.; ch. 39, § 2(a), SLA 2008 (codified at AS 47.07.020 ("Retroactivity")).
15 We refer to appellant throughout this opinion as "John," with the
understanding that John appears on behalf of his late mother, Sarah Pfeifer.
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gift. "[T]he money remaining in the bank account, my parents' bank account," John
testified, "could be used to take care of my mom during the remaining months of her
life."
But before making the gift, Sarah and John "wanted to make sure [they]
were complying with all the applicable laws, especially those relating to Medicaid."
John "didn't want to do anything that would jeopardize [his] mother's future medical
care."
In November 2006, John met with an attorney specializing in "elder law
and Medicaid eligibility." The attorney told John that his parents' contemplated gift of
roughly half of their assets "should not cause a problem" under the state regulations then
in effect. According to John, the attorney suggested that if the asset transfer led to a
penalty under Medicaid, Sarah would still have enough money in her bank account to
pay for her care until the penalty period ended and she became eligible for coverage.
In other words, the attorney advised John that half-a-loaf planning remained
a viable estate planning strategy in Alaska. The attorney's advice was consistent with
the most recent edition of the State's Aged, Disabled, and Long Term Care Medicaid
Eligibility Manual (the Medicaid eligibility manual), released by the Division of Public
Assistance (the Division). This manual was originally introduced in 2004 and has been
updated on several occasions since then. Section 554 of the manual contains the rules
governing the effect of asset transfers on Medicaid eligibility.
The most recent version of the Medicaid eligibility manual available in
November 2006, when John first met with the attorney, was the October 2006 edition.
Though the record does not contain a copy of section 554 from the October 2006 edition,
it is uncontested that this version of section 554 continued to feature the pre-DRA asset
transfer penalty start date, according to which "[t]he penalty period begins the month
after the . . . transfer" of assets. Thus the Medicaid eligibility manual continued to
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----------------------- Page 7-----------------------
suggest in November 2006 that half-a-loaf planning remained viable in Alaska, despite
the passage of the DRA and AS 47.07.020(m). The manual would not be revised to
reflect the DRA's prevention of the half-a-loaf planning strategy until July 2007.16
On February 27, 2007, the day that Sarah's house in Kansas sold, John
spoke again with the attorney and confirmed that the relevant rules had not changed since
their last consultation in November 2006. Sarah then signed a letter formalizing the
transfer of $120,000 to John and his wife. The parties agree that for legal purposes, the
transfer took place on February 27.17
In July 2007, after Sarah's gift and before her application for Medicaid,
Alaska changed its regulations in a way that reflected the new penalty start date in the
DRA. Before this time, the main regulation dealing with asset transfer penalties, 7
Alaska Administrative Code (AAC) 40.295, only laid out the length of the penalty
16 On the other hand, the State argued that "the agency began informing
attorneys offering trust services in November of 2006 [that] changes to the Medicaid
waiver program were being reviewed and most especially the transfer of asset category.
Attorneys were advised to not recommend any transfers until regulations and the effects
were clearly outlined." A CLE presentation cited by John supports the State's
contention. See Andy Harrington, Medicaid and Long-Term Care: Legislative Changes
in the Deficit Reduction Act and related State Legislation (PPT), in MEDICAID & ESTATE
PLANNING : ISSUES & STRATEGIES 1, 15-22 (Alaska Bar Assoc. ed., 2007), available at
https://www.alaskabar.org./servlet/download?id=152. Harrington's presentation states
that the effective date for the post-DRA changes is "[u]nfortunately, not entirely clear."
Id. at 16. Harrington notes that "[t]he Centers for Medicare and Medicaid Services
(CMS) may read the DRA as requiring the State to try to apply the changes
retrospectively to Feb. 8, 2006, with respect to . . . [t]he starting point of the penalty
period." Id. at 17.
17 Technically, it was not until February 28 that John made out the check to
himself from an account in both his and Sarah's names.
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period, and was silent regarding the penalty period's start date.18 Effective July 20, 2007,
a new regulation at 7 AAC 100.510(g) provided:
The penalty period [for a transfer of an asset for less than fair
market value that occurs on or after February 8, 2006] begins
on the first day of the following month, whichever is later:
(1) the month immediately after the month the transfer
occurred;
(2) the month that the department determines the
recipient is eligible to receive long-term care services.
Also in July 2007, the Division released a revised version of its Medicaid
eligibility manual that for the first time contained the post-DRA penalty start date.
Finally, as noted above, in May 2008 the Alaska legislature passed S.B.
259, revising AS 47.07.020(m) to make it retroactive to October 1, 2006.19
On August 19, 2008, Sarah, through John, applied for Medicaid long-term
care services. She had been living by then for over a year in a nursing home in Soldotna.
The Division temporarily denied her application after concluding that the $120,000 gift
triggered a "transfer of asset penalty" that began on September 1, 2008 and prevented
18 7 AAC 40.295(d) (2006), which has remained unamended through the
present day, states:
The division will establish the period for which assistance is
denied [based on a voluntary assignment or transfer of a
resource in order to qualify for assistance] by determining the
uncompensated value of the resource disposed of and
dividing that amount by the amount of maximum monthly
assistance payable under 7 AAC 40.370(c). The resulting
quotient, rounded, in case of a fraction, to the nearest whole
number, represents the number of months for which the
applicant is ineligible for assistance, up to a maximum of 36
months.
19 Ch. 39, § 2(a), SLA 2008.
-8- 6604
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her application from being granted prior to July 15, 2009. The Division's decision cited
no law other than stating that it is supported by "Medicaid Manual Section 554,"
apparently a reference to the July 2007 Medicaid eligibility manual discussed above.
B. Proceedings
John promptly filed a "fair hearing" request on Sarah's behalf to contest the
denial of her application.20 The request stated that John disagreed with the Division's
application of the transfer of asset penalty period.
Before the fair hearing, a representative of the Division presented a brief
position statement arguing that section 554 of the Medicaid eligibility manual and the
Alaska Administrative Code supported the Division's denial of the application. The
Division submitted a copy of section 554 of the Medicaid eligibility manual from July
2007 stating that "[f]or asset transfers made on or after February 8, 2006, the penalty
begins the month the individual is eligible for Medicaid and would be receiving
institutional level of care services, except for the imposition of a transfer of asset
penalty." This language from the July 2007 manual was apparently the language relied
on by the Division in denying Sarah's application in 2008. The Division also submitted
an undated version of 7 AAC 100.510 stating in section (g) that the penalty period
"begins on the first day of the following month, whichever is later: (1) the month
immediately after the month the transfer occurred; (2) the month that the department
determines the recipient is eligible to receive long-term care services." As noted above,
this version of 7 AAC 100.510 came into effect on July 20, 2007.
20 Federal Medicaid law requires "granting an opportunity for a fair hearing
before the State agency to any individual whose claim for medical assistance under the
plan is denied or is not acted upon with reasonable promptness." 42 U.S.C.
§ 1396a(a)(3) (2008).
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At the fair hearing, the Division's representative briefly summarized the
Division's position. The remainder of the hearing was largely dedicated to John's
presentation of arguments on Sarah's behalf. He stated that "the argument we're making
is primarily legal" and noted no factual disputes between the parties. John emphasized
that he was not taking issue with the imposition of a penalty period, but with the
Division's calculation of the period's start date. He argued that based on the version of
the Medicaid eligibility manual in effect at the time of the gift, Sarah's period of
ineligibility should have begun March 1, 2007, the first day of the month after she
transferred the assets to her son, not September 1, 2008, as the Division concluded based
on the July 2007 version of the manual. If the March 1, 2007 starting date had been
applied, Sarah's ten-and-a-half-month penalty period would have ended in January 2008,
long before she applied for Medicaid in August 2008. John also advanced state
constitutional arguments on his mother's behalf.
The hearing officer ruled in favor of the Division. He concluded that he
lacked jurisdiction to adjudicate John's constitutional arguments. The premises of his
decision were that there were no disputed issues of material fact, that the sole issue for
determination was the start date of Sarah's penalty period, and that the Division based
its decision on 7 AAC 100.510(g). The hearing officer noted that AS 44.62.240 states
that "legislative" regulations (as opposed to "interpretive" ones) have "prospective effect
only."21 Reasoning that .510 is a "legislative" rather than an "interpretive" regulation,
21 AS 44.62.240 reads in its entirety:
If a regulation adopted by an agency under this chapter is
primarily legislative, the regulation has prospective effect
only. A regulation adopted under this chapter that is
primarily an "interpretative regulation" has retroactive effect
only if the agency adopting it has adopted no earlier
(continued...)
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the hearing officer concluded that .510 must be prospective only. It "can properly be
applied only to asset transfers occurring after its effective date of July 20, 2007," even
though the regulation states that it applies to asset transfers "on or after February 8,
2006."22 Thus, "the Division erred by retroactively applying 7 AAC 100.510(g) to
calculate the penalty period start date" for Sarah's application.
Nevertheless, the hearing officer upheld the Division's application of a
September 1, 2008 penalty start date. The hearing officer reasoned that in the absence
of a valid state regulation establishing a penalty start date, the start date contained in the
federal Medicaid statute at 42 U.S.C. § 1396p, effective for gifts made after February 8,
2006, "applies by default." Because this start date is functionally identical to the one in
7 AAC 100.510(g), the Division's calculations were correct, and Sarah's penalty period
began on September 1, 2008.
John appealed the fair hearing decision to the director of the Division. In
his appeal, John agreed that 7 AAC 100.510 is invalid, but argued that there was no need
to look to federal law, because 7 AAC 40.295 gave the Division authority to establish
a penalty start date on its own, and the Division did so through its Medicaid eligibility
manual. He also repeated his argument that the Division should be equitably estopped
from imposing a penalty start date different than the one contained in the edition of the
manual available at the time of Sarah's gift.
21 (...continued)
inconsistent regulation and has followed no earlier course of
conduct inconsistent with the regulation. Silence or failure to
follow any course of conduct is considered earlier
inconsistent conduct.
22 7 AAC 100.510(e) (2007).
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The director upheld the fair hearing decision, concluding that the hearing
officer "correctly interpreted the applicable federal law . . . when making its decision."
The director noted that the fair hearing decision was also supported by "[s]tate law
existing at the time of the asset transfer," specifically AS 47.07.020, which as noted
above was amended on July 31, 2006, to state: "Except as provided in (g) of this section,
the department shall impose a penalty period of ineligibility for the transfer of an asset
for less than fair market value by an applicant or an applicant's spouse consistent with
42 U.S.C. 1396p(c)(1)."23 While John's appeal indicated "there was some confusion as
to the effective date of this section," this issue was resolved on May 22, 2008, with the
passage of S.B. 259, which clearly established an effective date for AS 47.07.020(m) of
October 1, 2006.
John appealed the director's decision to the superior court. The superior
court affirmed the Division's decision, concluding that under the Supremacy Clause of
the U.S. Constitution, 42 U.S.C. § 1396p(c) preempted any conflicting penalty start date
in state law. The superior court also rejected John's equitable estoppel, due process, and
equal protection arguments. Finally, the superior court rejected John's argument that the
Division's retroactive application of federal law and AS 47.07.020(m) constituted an
unconstitutional ex post facto law under article I, § 15 of the Alaska Constitution.
John appeals the superior court's affirmation of the Division's decision.
23 AS 47.07.020(m) (2006).
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III. STANDARD OF REVIEW
"In an appeal from a judgment of a superior court acting as an intermediate
court of appeal, we independently review the agency decision, giving no deference to the
superior court decision."24
The parties agree that all issues on appeal in this case concern questions of
law that do not involve agency expertise. "On questions . . . such as these, we substitute
our judgment for that of the administrative agency, reviewing the legal issues de novo."25
"In substituting our judgment for that of the agency, we have a duty to 'adopt the rule of
law that is most persuasive in light of precedent, reason, and policy.' "26
IV. DISCUSSION
A. Because AS 47.07.020(m) Is A Valid Retroactive Statute, We Affirm
The Division's Temporary Denial Of Benefits.
As noted in the legislative history above, AS 47.07.020(m) states that "the
department shall impose a penalty period of ineligibility for the transfer of an asset for
less than fair market value by an applicant or an applicant's spouse consistent with 42
U.S.C. 1396p(c)(1)." The latter federal statute consists of a rule concerning the start date
for asset transfer penalty periods.27 This rule would establish September 1, 2008, as the
24 Allen v. State, Dep't of Health & Soc. Servs., Div. of Pub. Assistance, 203
P.3d 1155, 1160 (Alaska 2009) (citing Cook Inlet Pipe Line Co. v. Alaska Pub. Utils.
Comm'n, 836 P.2d 343, 348 (Alaska 1992)).
25 Id. (citing Lopez v. Adm'r, Pub. Emps. Ret. Sys., 20 P.3d 568, 570 (Alaska
2001)).
26 Id. (citing Cook Inlet, 836 P.2d at 348).
27 See supra text accompanying note 4 (quoting 42 U.S.C. § 1396p(c)(1) at
length).
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----------------------- Page 14-----------------------
penalty start date for Sarah's gift, just as the Division concluded in its temporary denial
of her application for Medicaid.
When AS 47.07.020(m) was originally signed in July 2006, it was
accompanied by a problematic conditional effective date based on the assumption that
the federal government would approve Alaska's revised Medicaid plan in its entirety on
a single occasion.28 This never came to pass. In May 2008, the legislature passed S.B.
259, which repealed the conditional effective date and replaced it with a retroactive
effective date of October 1, 2006.29 This retroactive effective date preceded Sarah's
February 2007 transfer of assets, and the passage into law of S.B. 259 preceded her
September 2008 application for Medicaid. The State argues that the Division "correctly
applied 47.07.020(m)" to this case.30 We agree.
Alaska Statute 01.10.090 states: "No statute is retrospective unless
expressly declared therein." We have explained "retroactivity" as follows:
28 See ch. 96, § 16, SLA 2006 (making AS 47.07.020(m) and other provisions
effective "July 1, 2006, or on the date of notification under sec. 13 of this Act of federal
approval of a revised state plan . . . , whichever is later"); ch. 96, § 13, SLA 2006
(requiring DHSS to apply for federal approval of "a revised state plan" and report "the
federal approval of the revised state plan," (emphases added) implying a single plan and
a single approval).
29 Ch. 39, §§ 2-3, SLA 2008 (making AS 47.07.020(m) retroactive to October
2006, and repealing ch. 96, § 16, SLA 2006).
30 As discussed above, there is no indication in the record that the Division's
temporary denial of Sarah's application was based on AS 47.07.020(m). But the
Division's director noted in her decision upholding the temporary denial that
AS 47.07.020(m) provided support. Furthermore, we "may affirm the agency's decision
on any ground supported by the record." Rubey v. Alaska Comm'n on Postsecondary
Educ., 217 P.3d 413, 415 (Alaska 2009) (citing Benavides v. State, 151 P.3d 332, 334
(Alaska 2006)).
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A statute will be considered retroactive insofar as it gives to
pre-enactment conduct a different legal effect from that
which it would have had without passage of the statute. A
statute creates this different legal effect if it would impair
rights a party had when he acted, increase a party's liability
for past conduct, or impose new duties with respect to
transactions already completed.[31]
John acknowledges that AS 01.10.090 allows statutes to have retroactive
effect if they expressly declare their retroactivity, as is the case with the post-May 2008
version of AS 47.07.020(m).32 But he argues that the retroactive application of
AS 47.07.020(m) to Sarah's asset transfer would constitute "an unlawful taking" and be
"an unconstitutional ex post facto law under the Alaska and U.S. Constitutions."
On the first point, John specifically argues that the retroactive application
of AS 47.07.020(m) to his mother's gift would violate the takings clauses of the Alaska
and U.S. Constitutions. Article I, section 18 of the Alaska Constitution states: "Private
property shall not be taken or damaged for public use without just compensation." The
31 Rush v. State, Dep't of Natural Res., 98 P.3d 551, 555 (Alaska 2004)
(internal quotation marks, brackets, and footnotes omitted); see also State, Dep't of
Natural Res. v. Alaska Riverways, Inc., 232 P.3d 1203, 1218 (Alaska 2010); Norton v.
Alcoholic Beverage Control Bd., 695 P.2d 1090, 1093 (Alaska 1985) ("[R]etrospective
legislation is not in and of itself unconstitutional.").
Alaska Const. art. II, § 18 states: "Laws passed by the legislature become
effective ninety days after enactment. The legislature may, by concurrence of two-thirds
of the membership of each house, provide for another effective date." Neither party
raises the issue of whether this provision applies to an amendment making a statute
retroactive, as in the May 2008 amendment to AS 47.07.020. But over two-thirds of
each house concurred in the passage of S.B. 259. See 2008 Senate Journal 2412
(recording 19 yeas, 0 nays, 1 excused, 0 absent for S.B. 259); 2008 House Journal 2931
(recording 36 yeas, 0 nays, 2 excused, 2 absent).
32 Ch. 39, § 2, SLA 2008 ("RETROACTIVITY. (a) . . . AS 47.07.020 . . . (m)
. . . [is] retroactive to October 1, 2006.").
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Fifth Amendment to the U.S. Constitution similarly provides that private property shall
not "be taken for public use, without just compensation."33
We address two initial questions in determining whether an unconstitutional
taking has occurred: (1) whether the claimant has a property interest protected by the
takings clause; and (2) if so, whether the government action in question effected a taking
of that property without just compensation.34 John's argument fails based on the first
prong. In order to determine whether a claimant has a property interest protected by the
takings clause, we examine whether the claimant's right or property interest has
"vested."35 Because Sarah had not applied for or been granted Medicaid benefits prior
to the retroactivity amendment in May 2008, any interest she had in such benefits had
not vested prior to May 2008.36 Thus the retroactivity amendment affecting
AS 47.07.020(m) could not have constituted a taking.
33 See State, Dep't of Natural Res. v. Arctic Slope Reg'l Corp., 834 P.2d 134,
137-38 (Alaska 1991) (noting similarity between state and federal takings clauses and
adopting approach of U.S. Supreme Court in Ruckelshaus v. Monsanto Co., 467 U.S.
986, 1000 (1984)).
34 See Hageland Aviation Servs., Inc. v. Harms, 210 P.3d 444, 449 (Alaska
2009) (citing Arctic Slope, 834 P.2d at 138).
35 Id.; Underwood v. State, 881 P.2d 322, 327 (Alaska 1994) (citing Norton,
695 P.2d at 1092).
36 See Jones v. Reagan, 748 F.2d 1331, 1338-39 (9th Cir. 1984) (stating that
noncontractual government benefits such as hospital care provided to seamen clearly do
"not constitute 'property' protected from governmental alteration or abolition" (citing
U.S. R.R. Ret. Bd. v. Fritz, 449 U.S. 166, 174, 101 S. Ct. 453, 459, 66 L. Ed. 2d 368
(1980))).
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Our decision in Underwood v. State37 provides a close precedent. There,
we considered the constitutional claims of a family that timed its move to Alaska in
reliance on eligibility rules for the Permanent Fund Dividend (PFD) that the legislature
changed after the family's arrival, rendering the family ineligible for the 1993 PFD.38
We held that because the family "possessed nothing more than an inchoate expectancy
of a 1993 PFD that is not afforded constitutional protection,"39 the family "had no
property right whatsoever in a 1993 PFD,"40 and thus "they had no property that could
have been the subject of a taking in violation of the Fifth Amendment of the Federal
Constitution and Article I, section 18 of the Alaska Constitution."41
Similarly, when Sarah made her gift to John in February 2007, she had
nothing more than an inchoate expectancy of eventually being eligible for Medicaid
benefits based on her estate planning strategy. She had no vested right in receiving such
benefits by virtue of that strategy. Thus she had no property that could have formed the
subject of a taking in violation of either the Alaska or U.S. Constitutions.42
37 881 P.2d 322.
38 Id. at 323-24.
39 Id. at 327 (citing Norton, 695 P.2d at 1092 n.4) (property rights must be
vested to receive due process protection against state action under the Alaska and U.S.
Constitutions); Bidwell v. Scheele, 355 P.2d 584, 586 (Alaska 1960) (same).
40 Id.
41 Id. at 327 n.5.
42 John analogizes the present case to A. Gallo & Co. v. McCarthy, 51 Conn.
Supp. 425 (Conn. Super. Ct. 2010), where the Connecticut Superior Court struck down
as an unconstitutional taking a retroactive portion of a bill that required bottle distributors
to return to the state unclaimed refund money from special accounts established by the
state. Id. at 447-51. But Gallo is easily distinguished from the present case, and from
(continued...)
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John defends Sarah's claim by arguing that the "taking" in question was not
the taking of her Medicaid benefits, but the taking of her "vested right to dispose of her
property as she sees fit." This argument conflicts with the uncontested facts of the case.
The government did not confiscate Sarah's $120,000 gift to John. It is not the case that
the State of Alaska "revoked a monetary gift" or "revoked a completed transaction"
when it temporarily denied Sarah's application. The State simply refused to grant her
low-income medical assistance so long as a close family member controlled assets that
had been hers a short while before and would have been sufficient to pay for her care.
John's second constitutional argument against the retroactive application
of AS 47.07.020(m) to Sarah's Medicaid application is that such an application violates
the prohibition against ex post facto laws in article I, section 15 of the Alaska
Constitution. But the prohibition against ex post facto laws concerns the retroactive
application of penal statutes,43 and is thus unrelated to the facts of this case.
42 (...continued)
Underwood. In Gallo, the state attempted through retroactive legislation to recover
monies that it had already paid out. Id. In the present case and Underwood, by contrast,
no money had been paid prior to the enactment of the retroactive legislation. See
Underwood, 881 P.2d at 323-24. Sarah could not have had a vested property right in a
merely anticipated benefit.
43 See Doe v. State, 189 P.3d 999, 1003 (Alaska 2008) (noting that Alaska and
U.S. constitutional prohibitions on ex post facto laws apply only to penal statutes). Ex
post facto prohibitions
bar the legislature from enacting any law that "punishes as a
crime an act previously committed, which was innocent when
done; which makes more burdensome the punishment for a
crime, after its commission; or which deprives one charged
with a crime of any defense available according to law at the
time when the act was committed."
(continued...)
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Finally, John introduces several arguments on appeal that we deem waived.
He argues in his reply brief that AS 47.07.020(m) is not controlling because "it is merely
enabling legislation," and implies that it cannot withstand a "fairness and
reasonableness" review. The former argument is briefed in cursory fashion without
citation to legal authority,44 the latter argument is little more than implied, and both
arguments are introduced for the first time in John's reply brief. As such, they are
waived.45
43 (...continued)
Id. (quoting State v. Anthony, 816 P.2d 1377, 1378 (Alaska 1991)).
44 See A.H. v. W.P., 896 P.2d 240, 243 (Alaska 1995) (concluding that claims
by a pro se appellant may be waived due to cursory briefing (citing Adamson v. Univ. of
Alaska , 819 P.2d 886, 889 n.3 (Alaska 1991))). Even if John's argument were not
waived, we note that AS 47.07.020(m) is accompanied by no language indicating that
it would not be effective in the absence of enabling legislation. John points to testimony
before the House Finance Committee in support of this theory, but the testimony only
establishes that the Division expected it would not be able to obtain the full fiscal
benefits of H.B. 426 as a whole until after regulations were adopted, not that
AS 47.07.020(m) required the adoption of regulations in order to become legally
effective.
45 See Diaz v. State, Dep't of Corr., 239 P.3d 723, 730 n.30 (Alaska 2010)
(issues raised for first time in reply brief deemed waived (citing Maines v. Kenworth
Alaska, Inc., 155 P.3d 318, 326 (Alaska 2007))). Another issue introduced for the first
time in John's reply brief, and thus waived, is John's argument that the May 2008
retroactivity amendment to AS 47.07.020 is "illegal" and "in violation of AS 01.10.090"
because it is "not permitted" for "curative acts" such as the May 2008 amendment to also
make "substantive changes" to a bill. Even if this argument were not waived, we note
that there is no legal prohibition on the enactment of legislation that both (1) cures a
defect in prior legislation through a retroactive provision and (2) substantively alters the
prior legislation. Similarly, we note that there is no legal authority for John's suggestion
that a bill passed "as a revisor's bill under the authority" of AS 01.05.036 may not also
make substantive changes to a prior statute. AS 01.05.036 describes the process of
(continued...)
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B. The Superior Court Correctly Held That The Division Was Not
Equitably Estopped From Temporarily Denying Sarah Pfeifer's
Application.
John argues that the Division should be equitably estopped from
temporarily denying Sarah's application based on her asset transfer, because the
Division's most recent Medicaid eligibility manual before the transfer indicated that the
penalty period for the transfer should have expired by the time of her application for
Medicaid. The State counters that granting equitable estoppel would force the State to
contravene federal law, and thus that estoppel should not be granted. The State also
argues that John cannot satisfy the four elements of equitable estoppel.
We have said:
Equitable estoppel applies against the government in favor of
a private party if four elements are present in a case: (1) the
governmental body asserts a position by conduct or words;
(2) the private party acts in reasonable reliance thereon; (3)
the private party suffers resulting prejudice; and (4) the
estoppel serves the interest of justice so as to limit public
injury.[46]
We do not need to decide whether Sarah's reliance on the Medicaid
eligibility manual in February 2007 was reasonable in light of the DRA's requirement
- in effect since February 2006 - that states adopt the new penalty period start date.
In any event, granting estoppel in this case would not serve the interest of justice. John
45 (...continued)
developing "for submission to the legislature legislation for the correction or removal of
the deficiencies, conflicts, or obsolete provisions, or to otherwise improve the form or
substance of any portion of the statute law of this state." (Emphasis added.)
46 Allen v. State, Dep't of Health & Soc. Servs., Div. of Pub. Assistance, 203
P.3d 1155, 1164 (Alaska 2009) (citing Crum v. Stalnaker, 936 P.2d 1254, 1256 (Alaska
1997);Municipality of Anchorage v. Schneider, 685 P.2d 94, 97 (Alaska 1984)).
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----------------------- Page 21-----------------------
asks us to estop the State from applying to Sarah the termination of a policy that allowed
higher-income Alaskans to benefit from a program intended to provide needed medical
care to low-income Alaskans. Equity does not demand such a result. The State must
have the flexibility to apportion its resources to those who are most in need, even when
doing so deprives others of an expected benefit that had not yet vested. We sympathize
with the frustration that results whenever the State provides informational materials that
lead to inaccurate expectations, as happened in this case. But we will not second-guess
the equities of the legislature's policy decision to apply AS 47.07.020(m) retroactively
to October 1, 2006.
C. The Superior Court Correctly Held That The State Did Not Violate
Sarah Pfeifer's Equal Protection Or Due Process Rights By
Temporarily Denying Her Application.
John argues that the application of the post-DRA penalty period start date
to his mother's application violated the equal protection clause of the Alaska
Constitution.47 His argument is based on the premise that someone who engaged in an
asset transfer and applied for Medicaid benefits before August 1, 2007, would be treated
differently than someone who applied after that date. Even if it is assumed for the sake
of argument that the Division did not start applying the post-DRA penalty start date until
after August 1, 2007, and even if John's clarification that he is not making a "selective
enforcement" argument is accepted, John's equal protection argument does not succeed.
Article I, section 1 of the Alaska Constitution provides that all persons are
"entitled to equal rights, opportunities, and protection under the law." As we recently
explained, in a case involving equal protection:
Under the Alaska Constitution, the "legitimate reason
test" is the standard level of scrutiny . . . in equal protection
47 Alaska Const. art. I, § 1.
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cases, and we apply it to laws that do not employ
classifications based on suspect factors or infringe on
fundamental rights. Under this test, a law will survive as
long as a legitimate reason for the disparate treatment exists
and the law creating the classification bears a fair and
substantial relationship to that reason.[48]
The Division's choice of an effective date will thus survive this analysis if it bore a
rational relationship to a legitimate objective.49
The crux of John's argument is that the August 1, 2007 effective date for
the retroactive application of the new penalty start date is "arbitrar[y]," and thus bears
no fair and substantial relationship to any legitimate reason for disparate treatment. But
there will often be a degree of arbitrariness in the setting of effective dates for new
policies, and this line-drawing will often result in otherwise similarly situated individuals
being treated differently based on their relation to the more or less arbitrary dividing
line.50 This does not mean that the policies are unconstitutional, or that every state
48 Griswold v. City of Homer, 252 P.3d 1020, 1030 (Alaska 2011) (footnotes
and some internal quotation marks omitted).
49 Id. at 1030 (citing Glover v. State, Dep't of Transp., Alaska Marine
Highway Sys., 175 P.3d 1240, 1257 (Alaska 2008)).
50 The U.S. Supreme Court has stated in the context of the federal equal
protection clause:
In the area of economics and social welfare, a State does not
violate the Equal Protection Clause merely because the
classifications made by its laws are imperfect. If the
classification has some reasonable basis, it does not offend
the Constitution simply because the classification is not made
with mathematical nicety or because in practice it results in
some inequality. The problems of government are practical
ones and may justify, if they do not require, rough
(continued...)
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----------------------- Page 23-----------------------
agency must refrain from enacting new policies until some special date having a natural
or necessary relation to the policy can be identified. The Division's choice of August 1,
2007, as the effective date for the new rule - assuming for the sake of argument, as
noted above, that such a choice was made - withstands John's equal protection
challenge: The chosen date has a rational relation to the government's goal in
implementing the post-DRA penalty start date as soon as practicably possible.
John also argues that the temporary denial of Sarah's Medicaid application
violated her procedural and substantive due process rights under both the Alaska and
U.S. Constitutions. His arguments here also do not succeed.
"For a law to violate substantive due process, it must have 'no reasonable
relationship to a legitimate governmental purpose.' "51 Because the temporary denial of
Sarah's Medicaid application did not violate equal protection for the reasons stated
above, and because "a statute that meets the higher equal protection standard will always
satisfy the demands of substantive due process," the temporary denial of Sarah's
application did not violate substantive due process.52
50 (...continued)
accommodations - illogical, it may be, and unscientific.
Dandridge v. Williams, 397 U.S. 471, 485 (1970) (citations and internal quotation marks
omitted); see also Black v. Sec'y of Dep't of Health & Human Servs., 33 Fed. Cl. 546,
555 (Fed. Cl. 1995) (upholding against equal protection challenge a cut-off for
participation in a government program, where the cut-off was "no more arbitrary than
most statutes of limitations").
51 Schiel v. Union Oil Co. of Cal., 219 P.3d 1025, 1036 (Alaska 2009)
(quoting Premera Blue Cross v. State, Dep't of Commerce, Comty. & Econ. Dev., Div.
of Ins., 171 P.3d 1110, 1124 (Alaska 2007)).
52 Id. at 1036 n.70 (summarizing Premera, 171 P.3d at 1124-25).
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----------------------- Page 24-----------------------
With regard to procedural due process, John states that Sarah's argument
"is not about the fair hearing process, it is about a lack of notice and opportunity to be
heard before [the Division] deprived her of an important property right to give a gift."
Procedural due process "requires that benefit recipients be given timely and adequate
notice detailing the reasons for a proposed termination, and an effective opportunity to
defend before their benefits are reduced or terminated, in order to afford them protection
from agency error and arbitrariness."53 Because Sarah received notice and an
opportunity to be heard through the fair hearing process, we reject John's procedural due
process claim.
D. We Decline To Reach The Issue Of Preemption.
Finally, because we find no constitutional or other infirmity in the
retroactive application of AS 47.07.020(m) to Sarah's gift, it is unnecessary for us to
reach the question of preemption addressed by the superior court. Whether or not the
DRA would have preempted a conflicting state law, no preemption exists in this case
because there is no conflict between federal and state law: The asset transfer penalty rule
applied in the denial of Sarah's application was precisely the asset transfer penalty rule
contained in the DRA.54
V. CONCLUSION
Because the Alaska legislature's retroactive change to the Medicaid
eligibility rules was valid, because the State was not equitably estopped from applying
those rules, and because their application did not violate Sarah Pfeifer's constitutional
53 Heitz v. State, Dep't of Health & Soc. Servs., 215 P.3d 302, 306 (Alaska
2009) (quoting Allen v. State, Dep't of Health & Soc. Servs., Div. of Pub. Assistance, 203
P.3d 1155, 1167 (Alaska 2009)) (internal quotation marks omitted).
54 See AS 47.07.020(m) (incorporating by reference 42 U.S.C. § 1396p(c)(1)).
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rights, we AFFIRM the superior court's upholding of the State's temporary denial of her
Medicaid application.
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