               IN THE COURT OF APPEALS OF NORTH CAROLINA

                                   No. COA16-393

                              Filed: 15 November 2016

Sampson County, No. 14 CVS 843

PHOEBE WILLIFORD, Petitioner,

              v.

NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, and
NORTH CAROLINA DIVISION OF MEDICAL ASSISTANCE, Respondents.


        Appeal by petitioner from order entered 8 February 2016 by Judge Charles H.

Henry in Sampson County Superior Court. Heard in the Court of Appeals 6 October

2016.


        Kathleen G. Sumner for petitioner-appellant.

        Attorney General Roy Cooper, by Assistant Attorney General Kimberly S.
        Murrell, for respondents-appellees.


        ZACHARY, Judge.


        Phoebe Williford (petitioner) appeals from an order by the trial court that

affirmed the final agency decision of the North Carolina Department of Health and

Human Services (“DHHS”) and DHHS’ Division of Medical Assistance (“DMA”)

(collectively, respondents), that terminated petitioner’s entitlement to medical

assistance benefits (“Medicaid”). On appeal, petitioner argues that the trial court

erred by finding and concluding that the funds in petitioner’s Workers Compensation
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                                   Opinion of the Court



Set-Aside Account were a countable resource for purposes of determining petitioner’s

eligibility for Medicaid. For the reasons that follow, we agree.

                           I. Factual and Procedural Background

      Petitioner was born on 8 November 1948, and is now a 68 year old widow. On

25 November 2005, petitioner suffered a workplace injury to her left arm and right

knee; plaintiff has not been employed since she was injured. Petitioner sought and

obtained workers’ compensation medical and disability benefits from her employer.

Petitioner became eligible for Medicare on 8 November 2009, when she reached 65

years of age. Petitioner received medical treatments for her injury, which were paid

for with workers’ compensation medical benefits. After several years of medical

treatment, petitioner and her employer disagreed about the degree of permanent

impairment of petitioner’s left arm and right knee, and about the likelihood that

petitioner’s workplace injuries would require further medical treatment. The parties

engaged in mediation and reached an agreement resolving the contested issues

related to petitioner’s workers’ compensation claim.

      On 19 April 2011, the Industrial Commission entered an order pursuant to

N.C. Gen. Stat. § 97-17, that incorporated the parties’ settlement agreement. In its

order, the Commission concluded that the settlement agreement was “fair and just”

and properly addressed the interests of all parties. The terms of the settlement




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agreement included a provision awarding petitioner a lump sum1 for workers’

compensation disability payments and attorney’s fees. The agreement also provided

that petitioner’s employer would contribute $46,484.12 to fund a Workers’

Compensation Medicare Set-Aside Account (WCMSA), which represented the parties’

settlement of all future workers’ compensation medical benefits for which petitioner’s

employer would be liable and that would otherwise be paid by Medicare.

       When petitioner reached 65 years of age, she applied for and received

assistance with her medical expenses pursuant to Medicaid for the Aged. Medicaid,

a state and federal program discussed in detail below, provides funds for the medical

expenses of applicants who meet various requirements and whose income and

financial resources are below a specified amount. The requirement that is relevant

to this appeal is that an applicant who is single and is over 65 years old may have no

more than $2000 in liquid assets, such as bank accounts. The dispositive issue in this

case is whether respondents properly classified the funds in petitioner’s WCMSA as

a financial resource for purposes of determining petitioner’s eligibility for Medicaid.

       On 27 December 2013, a local hearing officer for the Sampson County

Department of Social Services (DSS) issued a decision terminating petitioner’s

eligibility for Medicaid, on the grounds that the funds in petitioner’s WCMSA, which

were then approximately $46,630, were a countable resource. Inclusion of petitioner’s


       1  The dollar amount of the settlement payment for disability and attorney’s fees is blacked out
in the copy of the agreement contained in the record.

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WCMSA in the calculation of her liquid assets resulted in respondents’ conclusion

that petitioner had more than $48,000 in countable resources. Petitioner appealed

the decision of the local hearing officer to DHHS. On 10 June 2014, DHHS issued a

“tentative decision” concluding that petitioner’s WCMSA was a countable resource,

and affirming the decision by DSS to terminate petitioner’s Medicaid benefits. DHHS

issued its final agency decision on 11 July 2014, in which it affirmed the tentative

decision. On 30 July 2014, petitioner filed a petition for judicial review, and on 31

August 2015 the trial court conducted a hearing on this matter. On 8 February 2016,

the trial court entered an order denying petitioner’s petition for judicial relief and

affirming DHHS’s ruling that the funds in petitioner’s WCMSA were a countable

resource for purposes of determining her eligibility for Medicaid. Petitioner noted a

timely appeal to this Court from the trial court’s order.

                                   II. Standard of Review

      Respondent DHHS is a North Carolina State agency. The standard of review

of an administrative agency’s decision is set out in N.C. Gen. Stat. § 150B-51 (2015),

which “governs both trial and appellate court review of administrative agency

decisions.” N. C. Dept. of Correction v. Myers, 120 N.C. App. 437, 440, 462 S.E.2d 824,

826 (1995), aff’d per curiam, 344 N.C. 626, 476 S.E.2d 364 (1996). N.C. Gen. Stat. §

150B-51 provides that:

             (b) The court reviewing a final decision may affirm the
             decision or remand the case for further proceedings. It


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             may also reverse or modify the decision if the substantial
             rights of the petitioners may have been prejudiced because
             the findings, inferences, conclusions, or decisions are:
             (1) In violation of constitutional provisions;
             (2) In excess of the statutory authority or jurisdiction of
             the agency or administrative law judge;
             (3) Made upon unlawful procedure;
             (4) Affected by other error of law;
             (5) Unsupported by substantial evidence admissible under
             G.S. 150B-29(a), 150B-30, or 150B-31 in view of the entire
             record as submitted; or
             (6) Arbitrary, capricious, or an abuse of discretion.

             (c) . . . With regard to asserted errors pursuant to
             subdivisions (1) through (4) of subsection (b) of this
             section, the court shall conduct its review of the final
             decision using the de novo standard of review. With regard
             to asserted errors pursuant to subdivisions (5) and (6) of
             subsection (b) of this section, the court shall conduct its
             review of the final decision using the whole record
             standard of review.

      “Under the whole record test, the reviewing court must examine all competent

evidence to determine if there is substantial evidence to support the administrative

agency’s findings and conclusions.” Henderson v. N.C. Dep't of Human Resources, 91

N.C. App. 527, 530, 372 S.E.2d 887, 889 (1988). “Where the petitioner alleges that

the agency decision was based on error of law, the reviewing court must examine the

record de novo[.] . . . Under a de novo review, the court considers the matter anew and

freely substitutes its own judgment for that of the [trial court].” Blackburn v. N.C.

Dep’t of Public Safety, __ N.C. App. __, __, 784 S.E.2d 509, 518 (internal quotations

omitted), disc. review denied, __ N.C. __, 786 S.E.2d 915 (2016). In the present case,



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the facts are largely undisputed and we will apply a de novo standard of review to the

legal issues raised in this appeal.

                        III. Eligibility for Medicaid: Legal Principles

                                          A. Introduction

      “The Medicaid program was established by Congress in 1965 to provide federal

assistance to states which chose to pay for some of the medical costs for the needy.

Whether a state participates in the program is entirely optional. ‘However, once an

election is made to participate, the state must comply with the requirements of

federal law.’ ” Correll v. Division of Social Services, 332 N.C. 141, 143, 418 S.E.2d

232, 234 (1992) (quoting Lackey v. N.C. Dept. of Human Resources, 306 N.C. 231, 235,

293 S.E.2d 171, 175 (1982)) (other citation omitted). Accordingly, N.C. Gen. Stat. §

108A-56 (2015) states in relevant part that “[a]ll of the provisions of the federal Social

Security Act providing grants to the states for medical assistance are accepted and

adopted, and the provisions of this Part shall be liberally construed in relation to such

act so that the intent to comply with it shall be made effectual.”

                             B. Eligibility for Medicaid Benefits

      “North Carolina’s Medicaid program is supervised and administered by

Respondent Division of Medical Assistance (DMA), an agency within the Department

of Health and Human Services (DHHS).” Ass’n for Home & Hospice Care, Inc. v. Div.

of Med. Assistance, 214 N.C. App. 522, 523, 715 S.E.2d 285, 287 (2011). DMA is



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“authorized to adopt . . . rules to implement or define the federal laws and regulations,

the North Carolina State Plan of Medical Assistance . . . [and] the terms and

conditions of eligibility for applicants and recipients of the Medical Assistance

Program[.]” N.C. Gen. Stat. § 108A-51.1B(a) (2015). These rules are set out in the

North Carolina Administrative Code (NCAC) and include, as relevant to this appeal,

the following:

             10A NCAC 23A .0102.

                    (57) “Reserve” means assets owned by members of
                    the budget unit and that have a market value.

             10A NCAC 23E .0202.

                    (a) North Carolina has contracted with the Social
                    Security Administration under Section 1634 of the
                    Social Security Act to provide Medicaid to all SSI
                    recipients. Resource eligibility for individuals
                    under any Aged, Blind, and Disabled coverage
                    group shall be determined based on standards and
                    methodologies in Title XVI of the Social Security
                    Act[.] . . .

                                          ...

                    (i) The limitation of resources held for reserve for
                    the budget unit shall be as follows: . . . (2) for aged,
                    blind, and disabled cases, two thousand dollars
                    ($2000.00) for a budget unit of one[.]

             10A NCAC 23E .0207 RESERVE

                    (d) For all aged, blind, and disabled cases, the
                    resource limit, financial responsibility, and
                    countable and non-countable assets are based on


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                    standards and methodology in Title XVI of the
                    Social Security Act[.]

      These rules establish that in North Carolina eligibility for Medicaid is

determined    utilizing   the   federal   standard    for   determining    eligibility   for

Supplemental Security Income (SSI). Therefore, we next review the federal statutes

and standards that are relevant to determining whether the WCMSA is an asset that

should be included in calculating petitioner’s financial reserves.

      In the Code of Federal Regulations (“C.F.R.”), 20 C.F.R. § 416.1205 states that

an “aged, blind, or disabled” applicant for SSI must, in addition to meeting all other

eligibility requirements, have no more than $2000 in “nonexcludable resources.”

Thus, respondents and petitioner are in agreement that petitioner may have no more

than $2000 in countable assets. 20 C.F.R. 416.1201 defines “resources” in relevant

part as follows:

             § 416.1201. Resources; general.

             (a) Resources; defined. . . . [R]esources means cash or other
             liquid assets . . . that an individual . . . owns and could
             convert to cash to be used for his or her support and
             maintenance.

             (1) If the individual has the right, authority or power to
             liquidate the property . . . it is considered a resource. . . .

      The Social Security Administration (SSA) also issues a Program Operations

Manual System, known as POMS, that instructs SSA employees on the SSA’s

interpretation of eligibility standards for SSI. “The POMS represent the ‘publicly


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available operating instructions for processing Social Security claims.’ The Supreme

Court has stated that ‘[w]hile these administrative interpretations are not products

of formal rulemaking, they nevertheless warrant respect.’ ” Kelley v. Comm’r of Soc.

Sec., 566 F.3d 347, 351 n.7 (3rd Cir. 2009) (quoting Wash. State Dep’t of Soc. & Health

Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371, 385, 154 L. Ed. 2d 972 (2003)).

       Several POMS sections are relevant to the issues raised in this case. POMS

SI 01110.100B. provides that “resources” are “cash and any other personal property”

that an individual “owns; has the right, authority, or power to convert to cash [and];

is not legally restricted from using for [her] support and maintenance.” Similarly,

POMS SI 01120.010B.2. states in pertinent part that in order for an asset to be a

countable resource, an “individual must have a legal right to access property. Despite

having an ownership interest, property cannot be a resource if the owner lacks the

legal ability to access funds[.]”

       POMS SI 01120.010D gives several examples of assets that, although owned

by an applicant, are not countable resources. One of these is set out in POMS SI

01120.010D.2., and describes a situation in which a court order requires an applicant

to retain ownership of the house where his ex-wife resides with the applicant’s

children until the applicant’s children reach the age of majority.           POMS SI

01120.010D.2. states that in that situation the applicant “is legally barred from

converting [the house] to cash to be used for his own support and maintenance” and



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that as a result the house “is not his resource until . . . his younger son’s eighteenth

birthday.” Another example set out in POMS SI 01120.010 is the circumstance in

which an SSI recipient is awarded damages “to be used solely for medical expenses

related to the accident.”     POMS SI 01120.010D.5. states that in that situation,

“[a]lthough [the SSI recipient] owns the funds and has direct access to them, he is not

legally free to use them for his own support and maintenance. Therefore the award

funds are neither income nor resource.” Finally, POMS SI 01110.115A. states SSA’s

“general rule” that “[a]ssets of any kind are not resources if the individual does not

have . . . the legal right, authority, or power to liquidate them . . . or the legal right to

use the assets for [her] support and maintenance.”

       As discussed above, in North Carolina eligibility for Medicaid is determined by

reference to the standards applicable to eligibility for SSI. We conclude that these

federal standards clearly establish that, in order for a given asset to be a countable

resource, the asset must be legally available to the applicant without legal restriction

on the applicant’s authority to use the resource for support and maintenance. In

reaching this conclusion, we are aware that 20 C.F.R. 416.1201(a)(1) states that if an

applicant “has the right, authority or power to liquidate the property . . . it is

considered a resource,” while the POMS defines a countable resource as an asset that

an applicant “owns; has the right, authority, or power to convert to cash [and]; is not

legally restricted from using for [her] support and maintenance.” We easily conclude



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that the phrase “right, authority or power to liquidate” refers to the legal right or

authority to access funds:

              The [appellants] rely on . . . a federal regulation defining
              “resources” for purposes of an eligibility determination.
              The regulation provides: “If the individual has the right,
              authority or power to liquidate the property or his or her
              share of the property, it is considered a resource.” . . . 20
              C.F.R. § 416.1201(a)(1). Consistent with the agency’s
              interpretation, Social Security Administration, Program
              Operations Manual Systems § SI 01110.115.A, and the
              federal government’s litigating position . . . we think the
              regulation naturally refers to a “legal” right, authority, or
              power to liquidate. What other sort of “right” or “power”
              would be at issue? If the regulation merely referred to a
              raw power to liquidate -- even in breach of the contract or
              violation of law -- then it would impose virtually no
              limitation, for a pair of unscrupulous actors can reduce
              almost anything of value to a dollar amount.

Geston v. Anderson, 729 F.3d 1077, 1083 (8th Cir. N.D. 2013) (emphasis added).

      This conclusion is also supported by “the North Carolina Adult Medicaid

Manual, which is an ‘internal instructional reference for DHHS employees in the

application   of   DHHS      policy   and    interpretation   of   the   federal   Medicaid

requirements.’ ” Joyner v. N.C. HHS, 214 N.C. App. 278, 288, 715 S.E.2d 498, 505

(2011) (quoting Martin v. N.C. Dep’t. of Health and Human Servs., 194 N.C. App. 716,

720, 670 S.E.2d 629, 633 (2009)).         Medicaid Manual § 2230 I.A. states that for

purposes of determining an applicant’s eligibility for Medicaid, resources are

financial assets that an applicant “owns, or has the right, authority, or power to

convert to cash” and that are “legally available for the [applicant’s] support and


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maintenance.”    Medicaid Manual § 2230 IV.A.2. specifies that “[r]esources are

considered available unless the [applicant] shows evidence of legal restraints such as

judgments, estates, boundary disputes or legally binding agreements.”

                      C. Medicare Secondary Payer Act and WCMSAs

      The instant case also requires consideration of the Medicare Secondary Payer

Act. “Medicare is a federal program providing subsidized health insurance for the

aged and disabled. See 42 U.S.C. § 1395 et seq.” Almy v. Sebelius, 679 F.3d 297, 299

(4th Cir. Md. 2012), cert. denied, __ U.S. __, 184 L. Ed. 2d 653 (2013).

             For the first fifteen years, Medicare paid for medical
             services without regard to whether they were also covered
             by an employer group health plan. However, in 1980,
             Congress enacted a series of amendments, commonly
             referred to as the Medicare Secondary Payer (“MSP”)
             provisions, which were designed to make Medicare a
             “secondary payer” with respect to such a plan.

Wilson v. United States, 405 F.3d 1002, 1005 (Fed. Cir. 2005). One of these provisions

is 42 U.S.C. § 1395y(b)(2)(A)(ii) (2015), which states that Medicare coverage is not

available if “payment has been made or can reasonably be expected to be made under

a workmen’s compensation law[.]” In order to comply with the MSP statute, in

workers’ compensation cases, “CMS mandates the creation of a Medicare “set aside”

(“MSA”) account. 42 C.F.R. § 411. The purpose of a MSA is to allocate a portion of a

workers’ compensation award to pay potential future medical expenses resulting from

the work-related injury so that Medicare does not have to pay.” Aranki v. Burwell,



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151 F. Supp. 3d 1038, 1040 (D. Ariz. 2015). A WCMSA “is a financial agreement that

allocates a portion of a workers’ compensation settlement to pay for future medical

services related to the workers’ compensation injury[.] . . . These funds must be

depleted before Medicare will pay for treatment related to the workers’ compensation

injury[.]”   Workers’    Compensation       Medical      Set   Aside   Arrangements,

https://www.cms.gov. The funds in a WCMSA must be deposited into an interest-

bearing account, and the WCMSA may be administered by the workers’ compensation

claimant or by a professional administrator. The administrator must submit an

annual accounting of any expenditures from the WCMSA. If funds in a WCMSA are

used for any purpose other than medical expenses that arise from the claimant’s

compensable injury and would otherwise be payable by Medicare, then Medicare will

refuse to pay for any medical expenses that were intended to be covered by the

WCMSA until the claimant has replaced the funds and has then depleted them

according to the WCMSA. See WCMSA Reference Guide, https://www.cms.gov/.

                                       IV. Discussion

       Petitioner argues that the funds in the WCMSA are not a countable resource

for purposes of determining her eligibility for Medicaid, because her use of the funds

for her support and maintenance is subject to “legal restrictions” pursuant to a

“legally binding agreement.” We agree.




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      In this case, the Industrial Commission entered an order that incorporated the

settlement agreement reached by petitioner and her employer and stated that:

             After giving due consideration to all matters involved in
             this case in accordance with Chapter 97, G.S. 97-17 . . . the
             compromise settlement agreement is deemed by the
             Commission to be fair and just[.] . . . The agreement is
             incorporated herein by reference and is approved[.] . . .
             $46,484.12 shall be paid by Defendants to fund Plaintiff’s
             Medicare Set-Aside Account. . . . It is to be noted, however,
             that this Order does not purport to approve, resolve or
             address any issue or matter over which the Industrial
             Commission has no jurisdiction[.]

      The Settlement Agreement that was incorporated into the Commission’s order

provided, as relevant to this appeal, the following:

                                          ...

             The parties to this agreement hereby waive further
             hearings before the North Carolina Industrial
             Commission and, in presenting this Agreement for
             approval, represent that they have made available to the
             Commission with said Agreement all material medical
             and rehabilitation reports known to exist.


                                          ...

             Since the date on which [petitioner] sustained an injury
             by accident . . . [she] has not returned to a job or position
             at the same or greater average weekly wage as she had on
             that date.

                                          ...

             [Petitioner’s] Workers’ Compensation Claim has been
             accepted by Employer and Carrier.      [Petitioner] is


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receiving social security disability benefits. The parties
have agreed to settle [petitioner’s] workers’ compensation
claim for the lump sum of [amount is blacked out] subject
to the attribution set forth below.

                             ...

The defendants agree to fund a Medicare Set Aside
account in the amount of $46,484.12. These funds are for
future medical treatment related to [petitioner’s]
compens[able] injuries.

                            ....

The parties agree that the cost of future medical care is in
dispute. As a compromise, the Parties agree in addition to
the settlement amount listed above [amount blacked out],
[that] $46,484.12 (hereinafter referred to as “MSA Fund”)
shall be allocated to release [petitioner’s employer and
carrier from] all liability for future Medicare-covered
medical expenses[.]

                            ...

It is not the intention of the Employer or the Carrier to
shift responsibility [for] future medical benefits to the
Federal Government. The MSA Fund for future Medicare-
covered expenses is intended directly for payment of these
expenses. Upon receipt of tangible evidence that the
Medicare-covered expenses exceed the MSA Fund, those
expenses will be forwarded to Medicare for payment of
covered expenses with proper documentation, provided
[petitioner] satisfies all of the Medicare program
requirements at that time.

                             ...

[Petitioner] understands and agrees that she is
administering the Medicare Allocation as a self-
administered plan[.]


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                           ...

A. [Petitioner] shall open an interest bearing bank
account for the Medicare Allocation and shall disburse
only payments for Medicare-covered expenses which are
work related from said account.

B.   [Petitioner] shall not pay non-Medicare-covered
expenses from this account[.] . . .

C. [Petitioner] shall not pay any Medicare-covered
expenses from this account that are unrelated to the work
injury.

                            ...

F. If payments from this account are used to pay for
services that are not covered by Medicare, Medicare will
not pay injury-related claims until these funds are
restored to the set-aside account and then properly
exhausted. In this circumstance, [petitioner] is
responsible for restoring such funds to the account.

                            ...

I.    Even if [petitioner] is a Medicare Beneficiary,
[petitioner] understands that Medicare will not pay for
any expenses related to the work injury until, and unless,
the [petitioner] can provide documentation indicating that
the entire MSA account, including any accrued interest,
was properly expended on Medicare-covered treatments
and expenses related to the work injury covered by this
Settlement Agreement.

J. [Petitioner] must maintain accurate records of all
expenses made from the Medicare Allocation[.] . . .




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             K. [Petitioner] must prepare and submit an annual report
             to . . . include summaries of any transactions on, and
             status of, the MSA account.

      “Settlement agreements between the parties, approved by the Commission

pursuant to N.C.G.S. § 97-17, are binding on the parties and enforceable, if necessary,

by court decree.” Saunders v. Edenton Ob/Gyn Ctr., 352 N.C. 136, 139, 530 S.E.2d

62, 64 (2000) (citing Pruitt v. Publishing Co., 289 N.C. 254, 258, 221 S.E.2d 355, 358

(1976) (“ . . . [I]t has been uniformly held that an agreement for the payment of

compensation, when approved by the Commission, is as binding on the parties as an

order, decision or award of the Commission unappealed from, or an award of the

Commission affirmed upon appeal.”). “The Commission or any member or deputy

thereof shall have the same power as a judicial officer . . . to hold a person in civil

contempt . . . for failure to comply with an order of the Commission, Commission

member, or deputy.”     N.C. Gen. Stat. § 97-80(g) (2015).     We conclude that the

Commission’s order is a legally binding agreement.

      Petitioner produced evidence that, pursuant to the terms of a Settlement

Agreement that was incorporated into an order of the Industrial Commission, she

may only use the funds in the WCMSA for (1) medical expenses (2) arising from her

compensable injury (3) for which Medicare would otherwise be liable. If petitioner

uses the WCMSA funds for any other purpose, Medicare will not pay for treatment

for her compensable injury until she replaces the funds and then depletes them in



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accordance with the WCMSA. Specifically, petitioner may not use the funds in the

WCMSA for her general support and maintenance. In addition, petitioner could be

held in contempt of court for violating the terms of the Commission’s order which

incorporated the WCMSA. We hold that because petitioner established that the terms

of a “legally binding agreement” impose “legal restrictions” on her use of the WCMSA

funds, the trial court erred by affirming the agency decision of DHHS that treated

the WCMSA as a countable resource for purposes of determining petitioner’s

eligibility for Medicaid. In reaching this conclusion, we have carefully considered

respondents’ arguments for a contrary result, but do not find them persuasive.

      Respondents argue that the WCMSA is a countable resource on the grounds

that petitioner’s access to the WCMSA funds is not restricted by the bank in which

the funds are deposited. We conclude that this fact is not relevant to the

determination of whether petitioner’s use of the funds is restricted pursuant to a

legally binding agreement.

      Respondents also direct our attention to § 2330 of the North Carolina Adult

Medicaid Manual, which discusses the financial resources of an applicant for

Medicaid. As discussed above, § 2330 IV.A.2. states that the financial assets of an

applicant “are considered available unless the [applicant] . . . shows evidence of legal

restraints such as judgments, estates, boundary disputes, or legally binding

agreements.”   A settlement agreement that is incorporated into an order of the



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Industrial Commission is binding on the parties involved, and is an order that is

enforceable by court decree or contempt proceedings. Accordingly, the order, and the

WCMSA that is a part of the order, is by definition a “legally binding agreement.”

      Respondents do not dispute these facts; instead their argument is based on

language found in § 2330 IV.C. of the Medicaid Manual. § 2330 IV.C.2. states that

“[a]ssets may not be available if there is a pre-existing agreement in which the

[applicant] holds assets for another party but does not have an ownership interest.

The pre-existing agreement is called a ‘resulting trust’ or is sometimes referred to as

a ‘legally binding agreement.’ ” Respondents’ position is that because the Manual

includes the phrase “legally binding agreement” in its discussion of resulting trusts,

the only type of legally binding agreement that might impose legal restrictions upon

an applicant’s use of funds is a “resulting trust.” This argument is without merit, for

several reasons.

      First, it is not clear why respondents employed the phrase “legally binding

agreement” in conjunction with its discussion of a resulting trust.

             Trusts are classified in two main divisions: express trusts
             and trusts by operation of law. . . . [A]n express trust is
             based upon a direct declaration or expression of intention,
             usually embodied in a contract; whereas a trust by
             operation of law is raised by rule or presumption of law
             based on acts or conduct, rather than on direct expression
             of intention. . . . [T]he creation of a resulting trust involves
             the application of the doctrine that valuable consideration
             rather than legal title determines the equitable title
             resulting from a transaction[.]


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                                   Opinion of the Court




Bowen v. Darden, 241 N.C. 11, 13, 84 S.E.2d 289, 292 (1954) (emphasis added)

(citations omitted).    “A trust of this sort does not arise from or depend on any

agreement between the parties. It results from the fact that one man’s money has

been invested in land and the conveyance taken in the name of another.” Teachey v.

Gurley, 214 N.C. 288, 292, 199 S.E. 83, 86-87 (1938).

      Thus, a resulting trust is an equitable remedy that is applied in appropriate

factual circumstances notwithstanding the absence of any express or binding

agreement between the parties. Respondents do not cite any authority for their

position that “legally binding agreement” is a synonym for a “resulting trust,” and do

not explain their use of the phrase “legally binding agreement” in the discussion of

resulting trusts.      In addition, although respondents assert that “for Medicaid

purposes” a legally binding agreement must meet the definition of a resulting trust,

they do not contend that the Manual includes among its enumerated definitions a

definition of the phrase “legally binding agreement” that supports their position.

      Moreover, even assuming, arguendo, that respondents employ an internal

definition of the term “legally binding agreement” as being synonymous with

“resulting trust,” this would not change the outcome of this case.        Respondents

concede that in North Carolina an applicant’s eligibility for Medicaid is determined

in accordance with SSI regulations. As discussed above, both the federal and state

regulations provide that a financial asset is not a countable resource if an applicant’s


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                                  Opinion of the Court



use of funds for support and maintenance is subject to legal restrictions arising from

a legally binding agreement. In the event of a conflict between the Manual and

federal regulations, our decision would be governed by the SSI regulations:

             The principal authority upon which DHHS relied in
             concluding that [petitioner is not eligible for Medicaid
             benefits] was the North Carolina Adult Medicaid Manual,
             which is an “internal instructional reference for DHHS
             employees in the application of DHHS policy and
             interpretation of the federal Medicaid requirements.” . . .
             Although the provisions of the Medicaid Manual are
             clearly entitled to some consideration in attempts to
             understand the rules and regulations governing eligibility
             for Medicaid benefits, we have previously stated that the
             Medicaid Manual “merely explains the definitions that
             currently exist in federal and state statutes, rules and
             regulations” and that “[v]iolations of or failures to comply
             with the MAF [Medicaid] Manual [are] of no effect” unless
             the act or omission in question amounts to a “failure to
             meet the requirements set out in the federal and state
             statutes and regulations[.]”

Joyner, 214 N.C. App. at 288-89, 715 S.E.2d at 505-06 (quoting Martin, 194 N.C. App.

at 720, 670 S.E.2d at 633, and Okale v. N.C. Dept. of Health and Human Servs., 153

N.C. App. 475, 478-79, 570 S.E.2d 741, 743 (2002)) (other citations omitted). “[I]n the

event of a conflict between federal and state Medicaid statutes, the federal statutes

must be deemed controlling.” Joyner at 284, 715 S.E.2d at 503. Given that N.C. Gen.

Stat. § 108A-58.1(l)(1) explicitly states that “[t]his section shall be interpreted and

administered consistently with governing federal law” we will not adopt the




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                                  Opinion of the Court



interpretation of “legally binding agreement” proposed by respondents, as it would

place North Carolina out of compliance with the applicable federal regulations.

      Respondents also assert that the funds in the WCMSA are a countable resource

on the grounds that the Industrial Commission order is not “binding” upon

respondents and, as a result, does not constitute a legally binding agreement.

Respondents offer no basis for their suggestion that a binding agreement must be

“binding” upon DHHS. In addition, respondents emphasize that the order includes

language acknowledging that the determination of petitioner’s eligibility for needs-

based entitlement programs is not within the jurisdiction of the Industrial

Commission. We hold that the fact that the Industrial Commission’s order states,

accurately, that it does not purport to address issues outside its jurisdiction, has no

bearing on the issues of whether the settlement agreement was binding upon

petitioner, or upon whether it imposed legal restrictions on petitioner’s use of the

WCMSA funds.

      Respondents also maintain that the WCMSA “is clearly a type of Medical

Health Savings Account funded by Medicare.”

             When Congress enacted the Medicare Prescription Drug,
             Improvement, and Modernization Act in 2003, it created,
             among other things, a new type of tax-favored account --
             an HSA -- to help eligible individuals save for medical
             expenses. . . . An individual can make contributions to an
             HSA only if that individual is separately covered by a ‘high
             deductible health plan,’ which is a health plan that
             requires beneficiaries to pay a certain amount of out-of-


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                                   Opinion of the Court



               pocket expenses before the insurance plan begins picking
               up the tab.

Roup v. Commer. Research, LLC, 349 P.3d 273, __ (Colo. 2015), cert. denied, __ U.S.

__,, 193 L. Ed. 2d 723 (2016). Respondents fail to articulate any legal basis for their

argument that a WCMSA is “a type of” HSA, and we conclude that this argument

lacks merit.

      For the reasons discussed above, we conclude that the Industrial Commission’s

order was a legally binding agreement, and that the WCMSA, which was incorporated

into the order, barred petitioner from using the funds in the WCMSA for her support

or maintenance. We hold that petitioner established that her use of the WCMSA

funds was subject to legal restrictions arising from a legally binding agreement, and

that the trial court erred by affirming respondents’ ruling that the WCMSA was a

countable resource.     Having reached this conclusion, we find it unnecessary to

address certain issues raised by the parties on appeal, including the degree of

deference that should be accorded to a CMS memorandum, whether petitioner might

have chosen to create a special needs trust instead of a WCMSA, or whether the trial

court made its own findings of fact. We conclude that the WCMSA is not a countable

resource for purposes of determining petitioner’s eligibility for Medicaid, and that the

trial court’s order must be

      REVERSED.

      Judges STROUD and McCULLOUGH concur.


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