Attorney General's Opinion
Attorney General Richard Blumenthal
March 10, 1994
Honorable Audrey Rowe
State of Connecticut
Department of Social Services
110 Bartholomew Avenue
Hartford, Connecticut 06106
Dear Commissioner Rowe:
We are writing in response to your request for a legal opinion regarding the "accessibility" of income and assets of the Hutterian Brethren in Connecticut, Inc., a Connecticut nonstock corporation, to its individual members. You report that many Hutterians (including families, the elderly, pregnant woman, and young children) are currently receiving medical assistance benefits under the state's Title XIX Medicaid Program from the Department of Social Services (DSS). Specifically you ask:
1. What amount of income of the Brethren is available to its individual members?
2. What amount of assets of the Brethren is available to its individual members?
3. What legal obligation does the Brethren have to financially support its members?
4. What legal obligation does the Brethren have to meet the medical needs of its individual members?
The questions that you have posed concern first the eligibility of individual Hutterians for assistance and, second, assuming eligibility, whether a third party resource is available and must be taken into account in determining the medical assistance benefit to be paid on behalf of the recipient of assistance.
Generally, only the income and assets that are "available" to an individual may be counted in determining that person's eligibility for medical assistance, 42 U.S.C. 1396a(a)(17). Therefore, an individual's eligibility depends, in part, upon whether the income and assets of the non-stock corporation, Hutterian Brethren in Connecticut, Inc., are "available" to the individual Brethren.
Recipients of medical assistance are frequently also "covered" by a third party which is liable to pay part or all of the medical expenses incurred by the individual. In that case, even though the individual is eligible for medical assistance from your Department, the Department must take the availability of the third party resource into account in determining the dollar amount of payment to particular medical expenses. 42 U.S.C. 1396a(a)(25); 42 C.F.R. 433.135-143.154.
The questions that you have posed can only be answered by a careful analysis of the affairs of the Hutterian Brethren. The Department has supplied us with considerable information concerning the Hutterian Brethren, which information has been supplemented by inquiries made by the Office of the Attorney General. However, the information received to date does not allow us to definitively answer the questions that you have posed. A declaratory ruling procedure conducted pursuant to Conn.Gen.Stat. 4-176 after notice to the Hutterian Brethren in Connecticut, Inc., is the appropriate procedure to be followed in order to elicit the necessary facts. Our Office would be prepared to assist you in conducting the suggested declaratory ruling procedure.
The balance of this advice will discuss the factual background of the Hutterian Brethren, based upon the preliminary information now available, and the applicable law for determining whether income/assets are "available" and may be counted in determining eligibility for assistance. We will also identify areas where additional fact finding should be conducted. Preliminary Factual Background
You report that the Hutterian Brethren is a small religious community located in Norfolk, Connecticut. Residents, members and dependents number approximately 383. Members consider themselves part of the Hutterite Church, a religious movement that originated during the 16th century "to further the faith and mission of Jesus Christ and his apostles and to spread this truth and way of life." One of the basic tenants of their religion is communal living. Under the Brethren's Certificate of Incorporation membership is open to "any person who accepts the purposes of the HBE [Hutterian Brethren (EAST) ] as his/her aims and purposes and has demonstrated in a trial period that his/her decision is reliable". Membership is granted by unanimous vote of all members present at a members' meeting. A condition of membership is that an individual irrevocably gift all of their possessions to the Hutterian Corporation. The Certificate of Incorporation expressly states "neither the property itself nor its value in any other form will be returned, under any circumstances."
By letter ruling dated March 14, 1961 the United States Internal Revenue Service granted the Hutterian Brethren of Connecticut, Inc. 501d filing status. Accordingly, the corporation itself does not pay any federal income taxes, but rather the net income (or loss) of the corporation passes down to the individual members and becomes a part of their individual gross income (or loss) for federal income tax purposes. In a letter dated November 30, 1991, to Marc Paletsky of your office, the Hutterian Brethren represent that the formula utilized to determine the allocation of income (or loss) to the individual "is approximately one share each for the first five family members and thereafter approximately one half share each." The Brethren state that "this is because the relative cost in terms of maintenance and shelter for larger families will be less per family member". They go on to represent that "single people and those over 65 receive a slightly larger share because of greater needs in terms of space and maintenance." This income allocation does not represent cash to the individual, but instead the value of simple maintenance (food, clothes, housing and other needs) provided by the Brethren. You indicate that the amount of income allocated to individual members by the corporation is usually low enough to meet the eligibility standards for Medicaid.
With regard to assets, as indicated above, members are required to irrevocably give all their assets to the Brethren. Article five of the Certificate of Incorporation provides in part that the "property ... of the corporation ... shall be permanently devoted to the purposes of the society." It goes on to provide that:
[i]n the event of the dissolution of the corporation there remains, after the satisfaction of all its debts, any property whatever, the same shall in no case be paid to or distributed among the members of the Society, but shall be handed over to all or any of the other communities then in existence of the Society of Brothers ... wherever situated and, if none of them is able to accept such property, then to some other religious community living in the same spirit and having purposes similar to those of the Society, such community or communities to be determined by the members of the Society at or before the time of dissolution, or, in the event said members fail to take such action, by judgment of the Superior Court for the County of Litchfield, to corporations of the State of Connecticut whose property and assets are devoted to purposes similar to those of the Society.
The Statutory and Regulatory Framework
The Medicaid program, established in 1965 as Title XIX of the Social Security Act, as amended, 42 U.S.C. 1396 et seq. "provid[es] federal financial assistance to states that choose to reimburse certain costs of medical treatment for needy persons" Harris v. McRae, 448 U.S. 297, 301 (1980). Under this cooperative federal-state program "[e]ach participating state develops a plan containing 'reasonable standards ... for determining eligibility for and the extent of medical assistance.' 42 U.S.C. 1396a(a)(17)." Schweiker v. Gray Panthers, 453 U.S. 34, 36; 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981). A state's Medicaid plan must comply with the requirements imposed both by the Act itself and by the Secretary of Health and Human Services. Id. p. 37. In determining eligibility for Medicaid, an evaluation of the applicant's income and resources is undertaken. A state can consider only "such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient." Title 42 U.S.C. 1396a(a)(17)(B) (emphasis added). See also, Clark v. Commissioner, 209 Conn. 390, 403 (1988) and Heckler v. Turner, 470 U.S. 184, 200, 105 S.Ct. 1138, 84 L.Ed.2d 138 (1985) (discussing meaning of "available" under federal law.)
In Connecticut, the Title XIX Medicaid program is administered by the Commissioner of Social Services, pursuant to Conn.Gen.Stat. 17-134a through 17-134e, and implementing regulations promulgated in accordance with the terms of the Uniform Administrative Procedures Act, Chapter 54 of the Connecticut General Statutes. The implementing regulations are maintained by the agency in manual form, denominated as the Uniform Policy Manual. Reg.Conn.Agencies (Income Maintenance) 17-3f-1 (Uniform Policy Manual) (hereinafter U.P.M.).
Under the U.P.M. an "asset" is defined as "cash or any item of value which a person can use or legally convert to cash for support and maintenance." U.P.M. 4000.01. An "available asset" is "an asset which someone owns and can readily convert to cash." Id. An "inaccessible asset" is "an asset which someone owns but, for some reason beyond his or her control, cannot readily convert to cash." Id. The U.P.M. defines "available income" as "all income from which the assistance unit is considered to benefit, either through actual receipt or by having the income deemed to exist for its benefit." U.P.M. 5000.01. The U.P.M. 5005 goes on to provide that income is considered available if it is:
1. received directly by the assistance unit; or
2. received by someone else on behalf of the assistance unit and the unit fails to prove that it is inaccessible; or
3. deemed by the Department to benefit the assistance unit.
Third Party Resource
As noted, supra, the federal Medicaid Act requires the Department to "take all reasonable measures to ascertain the legal liability of third parties (including health insurers) to pay for care and services available under the plan ..." 42 U.S.C. 1396a(a)(25). The most common third party resource is a health insurer; however, the term "third party resource" is defined broadly and could include the Hutterian Brethren of Connecticut, Inc., if such entity is liable to its members for the cost of their medical care. Specifically, a "third party" is defined in 42 C.F.R. 433.136 as being "any individual, entity or program that is or may be liable to pay all or part of the expenditures for medical assistance furnished under a State plan." The term "third party" has been held to include tort feasors who are liable for the cost of services under negligence principles, Gooch v. Edelman, 398 F.Supp. 723 (D.Ill.1974), Hedgebeth v. Medford, 74 N.J. 360, 378 A.2d 226 (1977), unwed fathers who are liable for necessary medical expenses as legally liable relatives, Steaben County Department of Social Services v. Deats, 560 N.Y.S.2d 404, 76 N.Y.2d 451, 560 N.E.2d 760 (1990), and the Secretary of the United States Department of Health and Human Services who may be liable for medical expenses on behalf of an individual dually eligible for both Medicaid and Medicare as a result of her administration of the Title XVIII Medicare program. New York State Department of Social Service v. Bowen, 846 F.2d 129 (2d Cir.1988).
Consideration of Income
The first issue raised in your inquiry is what amount of income of the Brethren is available to its individual members. As noted above, the net income of the corporation is currently being allocated by the corporation to the individual members and becomes that individual's gross income for federal and state income tax purposes. DIM currently counts this income allocation as being available when evaluating an application for Medicaid benefits. As long as this income allocation is low enough to meet the eligibility standards for Medicaid, the individual members are being granted assistance.
This methodology actually attributes the corporation's income to its individual members. Since this methodology is employed by the Brethren themselves for tax purposes, it appears reasonable for the Department to employ the same methodology in determining the client's income.
The corporation's methodology for allocating income to its members appears, from its own description, to be "loose" with variation in allocated shares of income being reported by the Brethren based upon a number of factors. Additional fact finding is necessary in order to discover any written guidelines on income allocation and in order to determine whether the Brethren have fairly and consistently allocated shares of the corporate income to each individual member.
Consideration of Assets
The next issue raised in your request is whether an applicant for benefits who is a member of the Hutterian Brethren of Connecticut, Inc. owns available assets in excess of the applicable $1,600.00 limit.1 Stated another way, "Are the assets of the corporation owned by, or available to, its individual members?"2 As noted, supra, federal law sets limits on the ability of the states to impute income or assets to an applicant for assistance, i.e., the income or asset must be "available" to the applicant in order to be counted. However, federal law does not define whether an applicant has a property interest in an asset or in a stream of income. Property interests are defined by state law. Therefore, it is necessary to define the applicant's interest in property by reference to state law before applying the federal availability test that is superimposed upon state property law by the Medicaid Act. State of Washington v. Bowen, 815 F.2d 549, 557 (9th. Cir.1987). The question then is whether the individual members of the Brethren have a property interest under state law in the property of the corporation.3
Under the state law of corporations, as prescribed by statute and the common law, title to corporate property is vested in the corporation and not in the owner of corporate stock or in the member of a nonstock, nonprofit corporation. "However, because of the separate legal existence of a corporation, the corporate property is vested in the corporation itself and not in the stockholders.... Stated another way, when a corporation owns property, the ownership of such property cannot be attributed to the shareholders individually without assailing the validity of the corporation directly ... they (shareholders) are not the owners in any legal sense of any part of the corporation's property.... Shareholders may not transfer or assign the properties or assets of the corporation, nor apply corporate funds to personal debts." 18A Am.Jur.2d, Corporations, 749. In accord, Banchard v. Commonwealth Oil Co., 294 F.2d 834 (5th Cir.); DuPont v. DuPont, 42 Del.Ch. 246, 208 A.2d 509 (1969), Duncan v. Jones, 450 N.E.2d 1019 (Ind.App.1983).
A member of a nonstock corporation similarly has no personal ownership interest in the assets of a nonstock corporation. 18A Am.Jur.2d, Corporations 752. "However, a member of such an organization acquires not a severable right to any of its property or funds, but merely a right to the joint use and enjoyment thereof so long as he continues to be a member." Id. In accord, Raulston v. Everett, 561 S.W. 635 (Tex.App.1978).4
The rights of a member of a nonstock, nonprofit corporation, as result of being a member of such a corporation, are defined in the corporation's certificate of incorporation and its bylaws, which terms become the basis for the relationship between the corporation and its members, provided that the terms of the certificate or the bylaws are not inconsistent with the requirements of state law. 18A Am.Jur.2d, Corporation, 741. As a condition for membership in the Hutterian Brethren, individuals are required to irrevocably gift all their assets to the corporation. The certificate of incorporation further provides that even in the event of dissolution, the assets of the corporation are not to be distributed to the individual members, but rather handed over to other corporations of similar purposes. We have identified no statutory or common law provision that precludes the terms of the certificate adopted by the Hutterian Brethren of Connecticut, Inc.
Our research into this issue has uncovered only one case which has dealt with a similar situation. In Simmons v. Van Alstyne, 410 NYS2d 400 (Nov. 16, 1978), the New York State Department of Social Services denied or terminated Medicaid benefits to residents of a community known as the Abode of Message, located in New Lebanon, New York, on the grounds that the applicants had "communal resources which are in excess of the allowable level." Id. at 402. Following a Fair Hearing, the New York Commissioner of Social Services upheld the denial and termination determinations. He did so on the grounds that the petitioners failed to sufficiently verify their income, not because they had assets in excess of the allowable limits. Id. The New York Supreme Court, Appellate Division, reversed the administrative hearing determinations stating, "They were predicated upon the failure of the petitioners to sufficiently verify their income, a ground not set forth in the notices of denial and termination." Id. at 403. In discussing the "availability of resources" issue the Court remarked, "that in order for a resource to be considered available, it must be actually available'...." Id.5
Further fact finding is appropriate on whether the assets of the corporation have ever been distributed to its members. As noted, supra, the members do not appear to have any legal claim on the corporation's assets by reference to the Certificate of Incorporation. It may be useful to inquire, however, whether any distribution of corporate assets have ever been made to members.
Third Party Resources
It is our understanding that your Department has not identified the corporate Hutterian Brethren in Connecticut, Inc., as a third party resource which is potentially liable for payment of necessary medical expenses for its members.
The commercial successes of the Hutterian Brethren were reported in the December 7, 1992 Business Weekly section of the Hartford Courant. The Business Weekly article reported, at p. 11, that, "The community doesn't provide benefits the way a traditional employer would; a doctor lives on the grounds, and hospital costs are borne by the community." This article suggests that the Brethren have assumed the obligation of providing medical care for its members/employees which is analogous to the health care benefits commonly provided by traditional employers. Presumably, the Brethren were the source for this newspaper report. The certificate of incorporation does not discuss the provision of health care benefits to members/employees of the Hutterian Brethren. However, other express or implied agreements may exist obligating the Brethren to provide for the health care needs of its members. For example it is possible that the Brethren may have expressly or impliedly promised to provide for the health care needs of its members as a term of employment. In such a case, the obligation to provide for the health care needs of its members would arise out of the express or implied contractual employment relationship and not out of the membership interest of individual Hutterians in the nonstock corporation. As noted supra, members turn over their worldly assets to the corporation upon admission and then work for the community receiving in return only an allotment for food, shelter and necessary expenses. Given this factual setting, it would be reasonable to expect that the Brethren may have agreed to meet the health care needs of its members. Further fact finding is required to determine whether or not the Brethren provide health care to its members/employees and whether there is a legally enforceable obligation for the Brethren to do so.
It is recommended that further fact finding be conducted pursuant to the declaratory ruling procedure established by the Uniform Administrative Procedures Act before any determination of general applicability is made concerning the eligibility of individual members of the Hutterian Brethren in Connecticut, Inc., for assistance under the Title XIX Medicaid program, or of the availability of the Hutterian Brethren in Connecticut, Inc., as third party resource which is, or may be, liable for the cost of medical services.
Very truly yours,
Assistant Attorney General
1 The sixteen hundred dollar asset limit for eligibility for State Supplement to SSI under Conn.Gen.Stat. 17-82d(c) is incorporated into the Medicaid program by Conn.Gen.Stat. 17-134e.
2 For purposes of this opinion the assumption is made that there has not been an improper transfer of assets within the time limits described in Conn.Gen.Stat. 17-134d, i.e., it is assumed that the individual joined the Brethren and transferred assets to the corporation more than thirty months prior to applying for assistance.
3 If the individual members have a property interest in the corporation's property under state law the question then would be whether such interest is "available" for the support of the applicant such that it may be counted in the eligibility determination under the terms of the federal act.
4 Connecticut statutes recognize the power of both stock and nonstock corporations to hold title to property. Conn.Gen.Stat. 33-291(e), 33-428(e). No Connecticut authority has been discovered discussing the interest of individual shareholders/members in property held by a corporation. In order to give effect to the separate corporate existence of corporations, Connecticut courts would most likely follow the authority from other jurisdictions to the effect that shareholders/members do not have any specific interest in the assets held by the corporation.
5 Also see the attached informal opinion of the Secretary of the United States Department of Health and Human Services.