In STATE OF WEST VIRGINIA v. THOMPSON, West Virginia appealed a decision by the Secretary of Health and Human Services denying approval of an amendment to West Virginia's Medicaid Plan. Federal law requires that states participating in Medicaid recoup some costs by recovering funds from the estates of recipients of Medicaid-funded long-term care. It also requires that states establish procedures to waive recoveries that "would work an undue hardship as determined on the basis of criteria established by the Secretary." West Virginia sought to exempt more than $50,000 of every homestead from recovery, through an exemption for home equity up to the statewide mean appraised value of a home. The Secretary disapproved this exemption as too broad to constitute an "undue hardship" exception.
Giving the agency interpretation Chevron deference, the Fourth Circuit affirmed. The panel found nothing arbitrary or capricious about the Secretary's conclusion that West Virginia's waiver was so broad that it would serve not as an exception to estate recovery for hardship cases but as a means of unraveling the estate recovery mandate itself: "What has been represented as a hardship exemption for 'homesteads of modest value' would apply to every homestead, regardless of value, and without any means-testing of the recipients. It was not a clear error of judgment for the Secretary to conclude that a provision this broad sweeps beyond cases of 'undue hardship' and sets threshold levels for the market value of a homestead of modest value so as to negate the intent of the estate recovery program that Congress enacted."