EDWARDS v. Eddy Tanaka, etc., Defendant and Respondent.

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Court of Appeal, Second District, Division 3, California.

Katherine EDWARDS, Plaintiff and Respondent, v. Beverlee MYERS, etc., et al., Defendants and Appellants; Eddy Tanaka, etc., Defendant and Respondent.

Civ. B001083.

Decided: September 28, 1984

John K. Van de Kamp, Atty. Gen., Thomas E. Warriner, Asst. Atty. Gen., Anne S. Pressman and Richard J. Magasin, Deputy Attys. Gen., for defendants and appellants. Marilyn Kaplan, Byron J. Gross, Los Angeles, and Bruce Iwasaki, Pacoima, for plaintiff and respondent.

The plaintiff Katherine Edwards (“Edwards”) is one of a number of California residents whose Aid to Families with Dependent Children (“AFDC”) and Medi-Cal benefits have been terminated because of a change in the law under which AFDC benefits are provided.   Edwards sought and obtained a preliminary injunction restraining the Department of Health Services, the Department of Finance, and the Director of each department (“State”), as well as the Director of the Los Angeles County Department of Public Social Services, from terminating payment of Medi-Cal benefits for a period of four months following termination of AFDC benefits, pursuant to the provisions of 42 U.S.C. section 1396a(e)(1), and, in any event, until redetermination of Medi-Cal eligibility under provisions unrelated to AFDC eligibility.   The State appeals from the order granting the preliminary injunction.


Recipients of AFDC benefits are termed “categorically needy”, and automatically receive Medicaid benefits, which are termed Medi-Cal benefits in California.  (42 U.S.C. § 1396a(a)(10)(A)(i);  see Welf. & Inst.Code, § 14000 et seq.)   In California, and in some other states, persons who are not eligible for AFDC benefits may still qualify for Medicaid if they are determined to be “medically needy.”

In 1981, Congress limited the use of an exclusion, or “disregard”, used in calculating a recipient's income for purposes of AFDC eligibility.   Prior to 1981, recipients could exclude $30.00 plus one-third of their earnings from their income for AFDC eligibility purposes.   This “30 + 1/313 disregard” was designed to encourage AFDC recipients to work by removing the disincentive of termination of benefits.   In 1981, as part of the Omnibus Budget Reconciliation Act (“OBRA”), Congress amended this provision to limit application of the “30 + 1/313 disregard” to a period of only four months.   (42 U.S.C. § 602(a)(8)(B)(ii)(II).)

As implemented in California, OBRA resulted in loss of the “30 + 1/313 disregard” on April 1, 1982, to persons who had been receiving AFDC benefits on its effective date.   Loss of this disregard rendered Edwards, and other similarly situated recipients, ineligible for AFDC benefits as of April 1, 1982.   These persons were also no longer considered “categorically needy,” and were therefore no longer automatically eligible for Medi-Cal benefits.

Under 42 U.S.C. section 1396a(e)(1), when AFDC benefits are terminated because of “increased hours of, or increased income from, employment,” recipients are entitled to receive Medicaid for four additional months without a determination that they are “medically needy.”   The trial court determined that the term “income”, as used in section 1396a(e)(1), refers to “countable income”, i.e., net income after deduction of all disregards permitted in calculating AFDC eligibility;  therefore, the increase in a recipient's countable income resulting from elimination of the “30 + 1/313 disregard” constitutes “increased income from employment.”   The court issued a preliminary injunction restraining the State from failing to continue payment of Medi-Cal benefits for an additional four months to those recipients who are discontinued from the AFDC program due to loss of the “30 + 1/313 disregard”.   The State was also enjoined from failing to continue disbursement of Medi-Cal benefits to such recipients pending redetermination of their eligibility under Medi-Cal criteria other than AFDC eligibility.


The State contends:

I. The trial court erred in holding that the State is required to provide an additional four months of Medi-Cal benefits to AFDC recipients discontinued due to elimination of the “30 + 1/313 disregard.”

II. The court erred in requiring the State to provide to all discontinued AFDC recipients uninterrupted Medi-Cal benefits pending determination of their eligibility under non-AFDC related criteria.

III. The Court abused its discretion in granting a preliminary injunction because Edwards failed to establish irreparable harm.

Edwards refutes each of the State's contentions.


42 U.S.C. Section 1396a(e)(1) Does not Apply

The parties cite no California authority directly in point, and we find none.

Edwards directs our attention to the decision in Phillips v. Noot, 728 F.2d 1175 (8th Cir.1984), which is consistent with the trial court's decision in this case.   In that case, the court found 42 U.S.C. section 1396a(e)(1) “somewhat ambiguous” in its reference to “increased income from employment.”   (P. 1177.)   The court looked to the legislative history of the section for assistance in resolving the perceived ambiguity, and found that the committee reports indicate Congress had a two-fold purpose in enacting the section:  (1) removal of a work disincentive, and (2) prevention of sudden loss of medical care.  (Ibid.)  The court found that application of section 1396a(e)(1) to recipients terminated from AFDC because of the four-month limitation upon the “30 + 1/313 disregard” was “consistent with Congress's intention of reducing disincentives to work.”  (Ibid.)  The court found, further, that “[t]he four-month buffer would give the now-ineligible recipient time to arrange private insurance if possible, or to apply for Medicaid under some other statutory provision.”  (Id., at p. 1178.)

The State points to the decision in Jones v. Petit, 473 A.2d 879 (Me.1984), as supportive of its position.   There, the Supreme Judicial Court of Maine considered the question whether section 1396a(e)(1) applied to recipients terminated from AFDC because they failed to meet a new threshold eligibility test established by OBRA.   Prior to OBRA, a claimant's gross income was reduced by various deductions and disregards to reach “countable” income, which was then compared to a state payment standard.   If the claimant's countable income fell below the standard, the claimant would be entitled to AFDC benefits.   Under OBRA, the claimant's gross income is first compared to a standard of need established for a family of like size.   If the income exceeds 150% of that standard, AFDC eligibility is denied without further inquiry as to the claimant's countable income.  (Id., at p. 881.)   The plaintiffs qualified for AFDC benefits under the old formula, but failed to meet the threshold test established by OBRA, resulting in termination of their AFDC eligibility.   If this termination of the plaintiffs' AFDC benefits could reasonably be imputed to “increased income from employment,” they would be entitled to four additional months of Medicaid benefits pursuant to section 1396a(e)(1).

The court in Jones v. Petit, supra, 473 A.2d 1984, was of the opinion that “the legislative intent behind section 1396a(e)(1) seems to disfavor the plaintiffs' position.”  (Id., at p. 881.)   However, inasmuch as the court found the statutory language “plain and unambiguous on its face,” it declined to look behind the language to the legislative history.   Rather, the court held that “[t]he word ‘income’ in the phrase ‘income from employment,’ without a qualifying adjective, should be accorded its ordinary meaning [citations], i.e., money in exchange for services, or wages.”  (Id., at pp. 881–882.)

 We also perceive no ambiguity in the term “income from employment” appearing in section 1396a(e)(1).   We therefore accord the language its plain meaning (Code Civ.Proc., § 1858;  Civ.Code, § 13), and hold that the section does not apply to AFDC recipients terminated by reason of OBRA's limitation of the “30 + 1/313 disregard.”   Here, as in Jones v. Petit, supra, 473 A.2d 1984, Edwards' “loss of eligibility for AFDC payments did not result from any real increase in income, but from a reformulation under OBRA of the eligibility standard.”  (Id., at p. 882.)   As the court there noted, section 1396a(e)(1) was not intended to apply to all instances where AFDC benefits are cut off.   We would have to disregard the statutory language to hold that it applies here.

The Trial Court Abused Its Discretion In Ordering Continuation Of Medi-Cal Benefits Pending Redetermination Of Eligibility

 The terms of the preliminary injunction require the defendants, when giving the required advance 10-day notice of termination of AFDC benefits (42 C.F.R. § 431.211), in all cases in which eligibility for medically needy Medi-Cal benefits is not immediately determined and the recipients so notified, to inform recipients that their Medi-Cal benefits will continue for the following month and that they will receive a separate notice regarding further continuation of their benefits.   Recipients must thereafter be informed of their right to have Medi-Cal continue despite termination of AFDC benefits.   They must also be instructed as to the method of application therefor, and provided with application forms.   They must be given no less than 20 days to respond and their eligibility for other Medi-Cal categories must then be redetermined.   The state was ordered to continue providing Medi-Cal coverage until completion of this redetermination, and to give adequate notice if the recipient is found ineligible for further Medi-Cal benefits.   Recipients who do not respond to the notice may be sent a 10-day notice of cessation of benefits for failure to complete the application form.

The State objects to the requirement that Medi-Cal benefits be furnished to terminated AFDC recipients pending determination of their entitlement to Medi-Cal benefits based on other than AFDC eligibility criteria.   The state relies on the decision in Crippen v. Dempsey, 549 F.Supp. 643 (W.D.Mich.1982) (appeal pending 741 F.2d 102 [Sixth Cir.1984] ), where the court considered the question “[w]hether the State may automatically terminate the Medicaid benefits of categorically needy recipients whose entitlement to such benefits was based on their status as SSI [Supplemental Security Income] recipients, when SSI eligibility is terminated, even though the recipient may still qualify as a medically needy recipient of Medicaid.”   (P. 646.)   The court concluded that as long as the requirements of adequate notice and an opportunity for a hearing were followed, the regulations did not prohibit, and the rights of the recipients were not infringed upon by, such termination.  (Id., at pp. 646–647, 652.)

Edwards argues that categorical Medi-Cal and medically needy Medi-Cal are part of but one Medi-Cal program with various eligibility criteria.   She points out that the regulations require the state to “promptly redetermine eligibility” when a recipient's circumstances have changed (42 C.F.R. § 435.916(c)), and to continue to furnish Medicaid “to all eligible persons until they are found to be ineligible” (42 C.F.R. § 435.930(b)), and argues that these regulations, taken together, require the state, upon receiving notice of disqualification of a categorically needy recipient, to continue to furnish benefits until it determines that the recipient is ineligible therefor under all other possible methods of qualification.

Edwards relies on the decisions in Stenson v. Blum, 476 F.Supp. 1331 (S.D.N.Y.1979) (aff'd without opinion, 628 F.2d 1345 (2d Circ.) cert. den. 449 U.S. 885, 101 S.Ct. 239, 66 L.Ed.2d 111 (1980)), and Massachusetts Ass'n. of Older Americans v. Sharp, 700 F.2d 749 (1st Cir.1983).   In Stenson, the state terminated payment of Medicaid benefits to recently terminated SSI recipients without notice and without an opportunity for a hearing.   These former recipients were granted an injunction requiring the state to restore their Medicaid benefits until the agency made an ex parte determination of eligibility for such benefits on a ground other than categorical eligibility, until the recipients were given timely and adequate notice of the proposed termination of their Medicaid benefits, and until they were accorded the opportunity for a hearing.  (Stenson v. Blum, supra, 476 F.Supp. 1331, 1343.)   In Massachusetts Ass'n of Older Americans v. Sharp, supra, 700 F.2d 749, the court held that the state was obligated to continue payment of Medicaid benefits to families with stepchildren, whose AFDC benefits had been terminated as a result of a recent stepparent liability provision, until the state had determined that the recipients were not eligible for medically needy Medicaid.   The court noted, at page 753, that “the regulations suggest that the applicants are still ‘categorically needy’, since the reason for their disqualification (stepparent income deeming) is expressly made irrelevant to Medicaid eligibility.   See 42 U.S.C. § 1396(a)(17)(D);  42 C.F.R. § 435.113.”

The present case is distinguishable from Massachusetts Ass'n of Older Americans v. Sharp, supra, 700 F.2d 749, in that there is nothing here to suggest the terminated AFDC recipients remain “categorically needy” for Medi-Cal eligibility purposes.   Moreover, unlike the situation in Stenson v. Blum, supra, 476 F.Supp. 1331, the trial court's order here provides for ex parte determination of eligibility in those cases where agency records are sufficient to permit immediate redetermination, and for the giving of adequate notice to the remaining recipients of their right to apply for Medi-Cal under other provisions, as well as the availability of assistance in so doing.   Given this notice, the state's obligation to promptly redetermine eligibility (42 C.F.R. § 435.916(c)), as well as to make that eligibility effective three months prior to the month of the application if the recipient was eligible for that period (42 C.F.R. § 435.914), we believe the trial court abused its discretion in commanding the State to continue payment of Medi-Cal benefits pending redetermination of eligibility.


We have met the State's substantive objections to the terms of the preliminary injunction.   The State has raised no contention with respect to those provisions of the preliminary injunction specifying the notice to be given recipients who are to be terminated from the AFDC and Medi-Cal programs due to expiration of the “30 + 1/313 disregard,” or the assistance to be accorded such recipients in reapplying for Medi-Cal benefits unrelated to AFDC eligibility.   The preliminary injunction must be modified in such a manner as to preserve these directions while eliminating the directions to continue payment of Medi-Cal benefits for four months following termination of AFDC benefits pursuant to the provisions of 42 U.S.C. section 1396a(e)(1), and until redetermination of eligibility.


The matter is remanded to the trial court, which is directed to modify the terms of the preliminary injunction in accordance with the views expressed herein.

DANIELSON, Associate Justice.

KLEIN, P.J., and LUI, J., concur.

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