The federal law passed statute that makes it a crime for a lawyer to advise a client to give away assets to get Medicaid coverage of nursing home costs will not be enforced by the Justice Department, Attorney General Janet Reno has announcedUNDERSTANDING THE MEDICAID FIASCO CREATED BY CONGRESS
According to a March 8, 1998 letter from Attorney General Janet Reno to House Speaker Newt Gingrich, the Justice Department will not enforce a federal law passed by Congress which makes it a crime for lawyers to advise a clients to give away assets to get Medicaid coverage for nursing home costs. According to Reno, the law which forced lawyers to decide whether to commit a federal crime by telling their clients about Medicaid or to commit malpractice by failing to tell them was both unenforceable and unconstitutional.
Although the law is still on the books, a United States District Court in New York recently issued an injunction prohibiting the Justice Department from enforcing the law.
HISTORY
Originally, Congress passed the "Granny Goes to Jail Law" as part of the 1996 Kennedy-Kassebaum health care bill which became effective on January 1, 1997. This law made it a crime for a person to transfer assets in order to qualify for Medicaid, but did not place any direct liability on lawyers. When the law became the target of criticism, most members of Congress denied knowledge of the law, saying that it was slipped in at the last moment by Congressional staffers.
Despite the fact that most members of Congress denied knowledge of the law, efforts to repeal it were met with opposition. The compromise was a new version of the law that placed the lawyer, rather than the client, on the hook. In so doing, people were again allowed to gift assets without being held criminally responsible, but those who advised them could be criminally responsible.
Called the "Granny's Lawyer Goes to Jail Law," this new law became effective in August 1997 and was immediately attacked as unconstitutional by the New York State Bar Association.
Generally, if a person gifts assets and applies for Medicaid within three years, the person is penalized with a period of ineligibility which is computed by determining the number of months in a nursing home the person could have paid for with the assets had the gift not been made. The period of ineligibility begins to run from the date the gift was made.
THE TEXT OF JANET RENO'S LETTER
Office of the Attorney General
Washington, DC 20530
Honorable Newt Gingrich
Speaker of the House
United States House of Representatives
Washington, DC 20510
Dear Mr. Speaker:
I am writing to you regarding Section 1128B(a)(6) of the Social Security Act, as amended by Section 4734 of the Balanced Budget Act of 1997, which was signed into law on August 5, 1997. As amended by Section 4734, Section 1128B(a)(6) of the Social Security Act, to be codified at 42 U.S.C. Sect. 1320a-7b(a)(6), provides that whoever for a fee knowingly and willfully counsels or assists an individual to dispose of assets in order for the individual to become eligible for medical assistance under a State plan under Title XIX, if disposing of the assets results in the imposition of a period of ineligibility for such assistance under section 1917(c), shall...(ii) in the case of such a...provision of counsel or assistance by any other person, be guilty of a misdemeanor and upon conviction thereof fined not more than $10,000 or imprisoned for not more than one year, or both.
Pub. L. No. 105-33, 111 Stat. 522-23, Section 1128B(a)(6) is the subject of constitutional challenges in New York State Bar Association v. Reno, 97-CV-1768-TJM-DRH, in the District Court for the Northern District of New York, and Magee v. United States, 9B-CA-073, in the District of Rhode Island.
This is to respectfully inform you that, after close and careful scrutiny of the matter, the Department of Justice will not defend the constitutionality of Section 1128B(a)(6) because the counseling prohibition in that provision is plainly unconstitutional under the First Amendment and because the assistance prohibition is not severable from the counseling prohibition.
Notably, Section 4734 of the Balanced Budget Act of 1997 repealed the prior Section 1128B(a)(6) of the Social Security Act, which had been added by Section 217 of the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, 110 Stat. 2008, and which was codified at 42 U.S.C. Sect. 1320a-7b(a)(6) (Supp. II 1996). The prior Section 1128B(a)(6) of the Social Security Act made it unlawful for any person to "knowingly and willfully dispose [] of assets (including by any transfer in trust) in order for an individual to become eligible for medical assistance under a State plan under Title XIX, if disposing of the assets results in the imposition of a period of ineligibility for such assistance under Section 1917(c)."
Because Section 4734 repealed the provision just quoted, the new Section 1128B(a)(6) of the Social Security Act would prohibit attorneys and other professional advisors from "counsel[ing]" their clients to engage in an estate-planning strategy that itself is lawful. Under these unique circumstances, and in light of the fact that, pursuant to this provision, professional advisors such as attorneys would be prohibited from providing truthful, non-misleading advice to their clients about lawful behavior, we are unable to identify a governmental interest that would justify this restriction on protected speech. Accordingly, we believe that the "counseling" prohibition in Section 1128B(a)(6) of the Social Security Act plainly is unconstitutional under the First Amendment, and cannot survive judicial scrutiny.
The amended Section 1128B(a)(6) of the Social Security Act also would prohibit attorneys and other professionals from "assist[ing]" an individual "to dispose of assets in order for the individual to become eligible for medical assistance," if disposing of the assets results in the imposition of a period of ineligibility for Medicaid nursing home benefits under Section 1917(c). Congress may enjoy greater authority under the Constitution to restrict professional "assist[ance]" that is distinct from "counsel[ing]," since such assistance need not necessarily take the form of protected speech. However, we do not believe that Congress would have intended to impose an assistance prohibition in the absence of a concomitant prohibition either on the underlying conduct (the disposal of assets itself) or on the counseling to engage in such conduct. Accordingly, we have concluded that the assistance prohibition is not severable from the counseling prohibition.
Therefore, in accordance with the practice of the Department, I am hereby informing the Congress that the Department of Justice will not defend the constitutionality of the counseling prohibition in Section 1128B(a)(6) of the Social Security Act. Consistent with my determination on the constitutional and severability questions, I also am hereby informing the Congress that the Department of Justice will not bring any criminal prosecutions under the current version of that section.
Finally, I would like to stress that the Department of Justice is available to assist Congress, if it so desires, in attempting to draft new legislation that would address the concerns of Congress in a manner that comports with contemporary First Amendment jurisprudence and that meets other policy objectives of the Congress and the Executive Branch.
Sincerely,
Janet Reno
© 1998, Flying Solo®
