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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

Pfeifer v. State, Dept. of Health & Social Services, Div. of Public Assistance (9/23/2011) sp-6604, 260 P3d 1072

        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 

----------------------- Page 2-----------------------

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)). 

                                                  -2-                                             6604
 

----------------------- Page 3-----------------------

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). 

                                                  -3-                                            6604
 

----------------------- 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)). 

                                                   -4-                                             6604
 

----------------------- Page 5-----------------------

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. 

                                                   -5-                                             6604
 

----------------------- Page 6-----------------------

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 

                                                  -6-                                            6604
 

----------------------- 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. 

                                                   -7-                                            6604
 

----------------------- Page 8-----------------------

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
 

----------------------- Page 9-----------------------

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). 

                                                    -9-                                                 6604 

----------------------- Page 10-----------------------

                 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...) 

                                                     -10-                                               6604
 

----------------------- Page 11-----------------------

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). 

                                             -11-	                                        6604
 

----------------------- Page 12-----------------------

              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). 

                                            -12-                                        6604 

----------------------- Page 13-----------------------

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). 

                                            -13-	                                      6604
 

----------------------- 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)). 

                                               -14-                                          6604
 

----------------------- Page 15-----------------------

                 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."). 

                                                   -15-                                              6604
 

----------------------- Page 16-----------------------

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))). 

                                             -16-                                        6604
 

----------------------- Page 17-----------------------

                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...) 

                                                  -17-                                             6604
 

----------------------- Page 18-----------------------

                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...) 

                                                  -18-                                            6604
 

----------------------- Page 19-----------------------

                 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...) 

                                                   -19-                                              6604
 

----------------------- Page 20-----------------------

        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)). 

                                                   -20-	                                             6604
 

----------------------- 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. 

                                              -21-	                                          6604 

----------------------- Page 22-----------------------

                 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...) 

                                                    -22-                                              6604
 

----------------------- 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). 

                                                   -23-	                                            6604
 

----------------------- 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)). 

                                               -24-                                           6604 

----------------------- Page 25-----------------------

rights, we AFFIRM the superior court's upholding of the State's temporary denial of her 

Medicaid application. 

                                          -25-                                    6604
 
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