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HAZARD v. SULLIVAN

July 21, 1993

Sharon HAZARD et al., Plaintiffs,
v.
Dr. Louis SULLIVAN et al., Defendants.



The opinion of the court was delivered by: THOMAS A. WISEMAN, JR.

 At issue here is the validity of certain state and federal regulations administering the Aid to Families with Dependent Children and Medicaid programs. Eligibility in these programs is contingent on the amount of resources a family possesses. Federal and state regulations allow a family to exclude from this calculation of family resources up to $ 1,500 for an automobile. Plaintiffs contend that this automobile exclusion limit lacks a rational basis; Defendants contend that it falls well within the bounds of discretion granted to administering agencies to set substantive policy. Both Plaintiffs and Defendants have filed summary judgment motions. For the reasons stated below, Plaintiffs' motion is granted. Furthermore, this Court's earlier preliminary injunction against further application of this exclusion limit is now made permanent. *fn1"

  I

 Legal and Factual Background

 The present controversy is a direct result of the budgeting dilemmas of the past two decades. At core is the extent to which the federal government may circumscribe one of its means-tested programs in order to save funds and still maintain a rational relation to the purpose of the program. The facts of this case illustrate one constraint on this rational relation: although budget demands may be served by an agency's refusal to amend its regulations to account for inflation, such failure may render the stated purpose of the regulation meaningless and thus the regulation itself arbitrary and capricious.

 The means-tested programs at issue are the Aid to Families with Dependent Children ("AFDC") and Medicaid programs. The AFDC program is designed to "encourage the care of dependent children in their own homes or in the homes of relatives" by providing financial assistance

 
to needy dependent children and the parents or relatives with whom they are living to help maintain and strengthen family life and to help such parents and relatives to attain or retain capability for the maximum self-support and personal independence consistent with the maintenance of continuing parental care and protection. . . .

 42 U.S.C.A. § 601 (West 1991). The Medicaid program is designed,

 
as far as practicable, to furnish (1) medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence or self-care. . . .

 42 U.S.C.A. 1396 (West 1992). These programs, therefore, are intended to create an atmosphere that fosters self-sufficiency, and are not meant to engender full reliance on the program.

 The states administer these programs, and the federal government provides matching funds for approved state plans. The Secretary of Health and Human Services ("the Secretary") will grant approval to a state plan if it satisfies statutory requirements, see 42 U.S.C. § 602, and concomitant federal regulations.

 In 1981, Congress passed the Omnibus Budget and Reconciliation Act ("OBRA"). Pub. L. 97-35, 95 Stat. 357 (1981). This act was designed to cut costs in response to severe budget constraints, and one of the programs under the knife was AFDC. See Dickenson v. Petit, 692 F.2d 177, 179 (1st Cir. 1982) (OBRA amended § 602 "to reduce the size of the AFDC grant."). To reduce the number of AFDC recipients, the amount of resources a family could possess and remain eligible for AFDC benefits was cut in half, from $ 2,000 to $ 1,000. See 42 U.S.C.A. § 602(7)(B) (West Supp. 1993). Certain resources were to be excluded from this eligibility calculation, however, including "so much of of the family member's ownership interest in one automobile as does not exceed such amount as the Secretary [of Health and Human Services] may prescribe." Id. § 602(7)(B)(i). As directed, the Secretary proposed and eventually prescribed a $ 1,500 limit on the automobile exclusion. *fn2" See 45 C.F.R. § 233.20(a)(3)(i)(B)(2) (1991).

 The state of Tennessee adopted this automobile exclusion limit and applies it to its AFDC program through Tenn. Admin. Comp. Rule 1240-1-4-.10(2)(b). Tennessee also utilizes this regulation in the administration of one segment of its Medicaid program. Applicants for Medicaid under the "Medically Needy Children and Caretakers" provision (also know as "Category 6 applicants") may only possess an automobile of $ 1,500 in value before their eligibility is affected. Tenn. Admin. Comp. Rule 1240-3-3-.05(2)(a).


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