Case: Kelley v. California Department of Health Care Services

Prior to 1988, Medicaid eligibility for married individuals was determined by assessing the value of assets held jointly by the couple. Because of this, when one spouse required care and was unable to work ("institutionalized spouse"), the eligibility mechanism often depleted the assets and income of the other ("community spouse"). This is known as spousal impoverishment. Congress consequently enacted the Medicaid Catastrophic Coverage Act in 1988, which sought to provide protections against spousal impoverishment by allowing the community spouse to retain some assets while not disqualifying the institutionalized spouse from Medicaid.

However, these protections only applied if the institutionalized spouse actually went to live in an institutional setting and did not cover "institutionalized spouses" who opted for home- or community-based services. Congress addressed this issue with the passage of the Affordable Care Act (ACA) in 2010 by expanding the definition of an "institutionalized spouse" to include persons who required a "nursing facility level of care" but could do so from home. The ACA became effective on January 1, 2014.

On July 6, 2017, two married individuals with medical disabilities brought this class action suit against the California Department of Health Care Services (DHCS) in the California Superior Court for the Central District of Los Angeles. The plaintiffs sued on behalf of all individuals with a common need for home- and community-based care. Despite changes to Medicaid eligibility determination, the plaintiffs alleged that the DHCS had not adopted the changes and thus were unlawfully denying them access to health services. Additionally, the plaintiffs argued that DHCS's policy discriminated on the basis of disability because it de facto segregated disabled individuals from their spouses. The plaintiffs sought declaratory and injunctive relief as well as attorney's fees. The case was assigned to Judge James C. Chalfant.

On July 19, 2017, the DHCS released guidance that expanded the state's definition of "institutionalized spouse" to comport with the federal definition under the ACA. More than a year later, the DHCS supplied additional guidance to counties on the expanded definition in August of 2018.

In light of the DHCS's policy changes and following numerous amended complaints that are unavailable to the Clearinghouse, the plaintiffs filed a fourth amended complaint on May 16, 2019. In it, the plaintiffs maintained a desire for declaratory and injunctive relief. The plaintiffs alleged that, despite DHCS's change in policy and guidance, it had still fallen short of its responsibilities in providing health services. Specifically, the plaintiffs claimed that the DHCS failed to adequately (1) identify eligible individuals (2) notify eligible individuals (3) enforce the expanded spousal impoverishment protections by supervising counties (4) create a process to retroactively determine eligibility and (5) provide for retroactive compensation for individuals who would have qualified for the program beginning in 2014. Thus, while the plaintiffs had voluntarily dismissed their class allegations on March 27, 2018, the lawsuit still carried class-wide implications because injunctive relief would require the DHCS to identify, notify, and retroactively compensate all eligible persons.

On November 8, 2019, the plaintiffs petitioned for a writ of traditional mandamus. On January 14, 2020, the court granted the plaintiffs' petition in part. Specifically, the court reasoned that DHCS did not cause unreasonable delay in providing health services because it did provide guidance to counties on the expanded spousal impoverishment protections. However, the court agreed with the plaintiffs that the DHCS failed to properly notify all potentially eligible individuals and provide for a process to retroactively compensate individuals who were eligible for, but did not receive, Medicaid services.

In that ruling, the court ordered the plaintiffs to prepare a proposed judgment and writ, serve the proposal upon the DHCS, confer about any issues, and then declare whether there are or are not unresolved objections. On March 9, 2020, the parties declared that there were no remaining unresolved objections in the agreement, though the exact details of the agreement are unknown to the Clearinghouse. The parties additionally reached a settlement agreement regarding attorney's fees on January 26, 2021.