In Lamle ex rel. Lamle v. Shropshire (W.D. Oklahoma 5/29/2024), a United States District Court upheld a denial of benefits where three Medicaid applicants refused to answer questions about promissory notes. Penelope Lamle, Marilyn Garrison and Maxine Houston each loaned money to others in exchange for a promissory note. Lamle and Garrison made loans to children and Houston made a loan to a limited liability company. Oklahoma’s Medicaid agency asked each applicant the following questions:
“whether: (1) [the applicant] was in the business of lending money or selling property, (2) the borrower offered collateral to secure the promissory note to [the applicant], (3) the borrower did anything with the assets after purchasing them from [the applicant], (4) [the applicant] transferred the promissory note to a trust or similar device, and (5) there had been a pattern of lending and repayment between [the applicant] and the borrower.”
The applicants refused to answer the questions and Medicaid denied their applications for benefits. The applicants filed suit alleging the questions were unnecessary for determining their Medicaid eligibility, citing 42 C.F.R. § 435.907(e). The Medicaid agency moved to dismiss the suit and the District Court granted the agency’s motion.
The Court considered the SSI eligibility rules because Oklahoma is required to “extend Medicaid eligibility at least as far as eligibility for Supplemental Security Income.” The Court found that the SSI rules use two methods for determining whether resources count toward eligibility: the regular method and the trust method. Under the regular method, an asset is a “resource” “[i]f the individual has the right, authority, or power to liquidate the property,” whereas “[t]he trust method creates an exception for trusts and trust-like devices, which count as resources even when they cannot be liquidated.”
Under POMS SI § 1120.220 a promissory note is not a resource if it is a bona fide informal loan. “An informal loan (oral or written) is bona fide if it meets” these requirements:
- Enforceable under State law
- Loan agreement in effect at time of transaction
- Acknowledgement of an obligation to repay
- Plan for repayment
- Repayment plan must be feasible.
The reviewing agency’s authority to request information is not absolute. 42 C.F.R. § 435.907(e) provides that the agency may only require information necessary to make an eligibility determination or to determine eligibility for other insurance or other benefit programs.
The Court found that Oklahoma Medicaid’s inquiries were relevant. Addressing each question in turn, the Court found”
The first question, whether Plaintiffs were in the business of lending money or selling property, goes straight to the heart of whether the promissory note was from a loan between individuals who are not in the business of lending money or providing credit. The second question, whether Plaintiffs were provided with collateral, addresses whether repayment of the loan was feasible. If the borrowers provided Plaintiffs with valuable collateral, it supports a finding that the borrowers would be able to repay the loan by either actually paying back the loan or by Plaintiffs selling the collateral to recoup the sum of the loan. Similarly, the third question, asking what was done with the assets, goes to feasibility of repayment. If assets conveyed to the borrowers were invested, saved, sold, etc., this goes towards whether they would have sufficient money to repay the loan. The fourth question, whether the promissory notes had been transferred to a trust or similar device, addresses whether the note should be considered a resource under the trust method for characterizing resources. The fifth question, whether there had been a pattern of lending between the borrowers and Plaintiffs, sheds light on whether the loan was informal—similar to the first question.
After finding that the questions were relevant and that the applicant’s failed to answer them, the Court held that denial of eligibiity was due to the applicants’s failure to cooperate with the agency. Accordingly, the applicant’s standard of promptness complaint was irrelevant and the applicants were properly denied. The agency’s motion to dismiss was granted.
