MEMORANDUM OF DECISION

BLUMENFELD, District Judge.

I. Facts

The facts of this case have been stipulated by the parties and may be simply stated. Plaintiff Wilczynski is a 75 year old woman in poor health who has for some time been a recipient of medical assistance under the provisions of Title XIX of the Social Security Act, 42 U.S.C. § 1396-1396g. (Sometimes hereinafter referred to as "Title XIX assistance" or "Medicaid.") Her sole source of income is social security, from which she receives $85.90 per month. Her sole assets are two life insurance policies with a combined face value of $1,000.00 and cash surrender value of about $700.00. Plaintiff Watson is a 36 year old woman who is permanently and totally disabled. Like Mrs. Wilczynski, she has been receiving Title XIX medical assistance for several years. Similarly her sole source of income ($149.00 per month) is social security, and her sole asset is an insurance policy of $1,000.00 face value and approximately $230.00 cash surrender value.

Both plaintiffs have been notified by the defendant that by reason of a change in the resource limitation for Connecticut's Medicaid program, they will no longer be eligible to receive medical assistance unless and until they use up their resources in excess of the new limitation. They brought this class action to challenge on both constitutional and statutory grounds, the validity of the Connecticut Welfare Department regulation (1 Conn.Welfare Man. § D-244.1 (1970)) promulgating that new limitation. The regulation is set out in the margin. Plaintiffs seek by this action a declaration of its invalidity and an injunction against its enforcement.

II Jurisdiction

Plaintiffs rely on their constitutional claim to support jurisdiction in the federal court. That claim can be briefly stated. The challenged regulation (sometimes hereinafter referred to as "§ 244.1") excepts from inclusion in the sum of an applicant's total resources "real property used as a home, * * * an automobile essential for transportation, or United States Government Veterans' life insurance." Plaintiffs claim this provision of the regulation creates an arbitrary distinction between two classes of Medicaid applicants on grounds wholly irrelevant to eligibility for medical assistance. Specifically, they contend, the regulation renders them ineligible, while others, with equal or greater assets, may, provided they have invested their resources in the right kind of assets, remain eligible. For purposes of eligibility for Medicaid, plaintiffs argue, no rational distinction can be drawn between the two classes; and consequently plaintiffs are by application of the regulation denied equal protection of the laws. Plaintiffs allege that this suit is authorized by the Civil Rights Act, 42 U.S.C. § 1983, and that a jurisdictional basis is provided by 28 U.S.C. § 1343(3).

The hitherto troublesome problems of fitting all welfare cases within § 1343(3)'s judicial limitation to cases where "the right or immunity [allegedly infringed] is one of personal liberty, not dependent for its existence upon the infringement of property rights," Hague v. CIO, 307 U.S. 496, 531, 59 S.Ct. 954, 971, 83 L.Ed. 1423 (1939) (opinion of Mr. Justice Stone); Eisen v. Eastman, 421 F.2d 560 (2d Cir. 1969); see, e.g., Campagnuolo v. Harder, 319 F. Supp. 414 (D.Conn. 1970); McClellan v. Shapiro, 315 F. Supp. 484 (D.Conn. 1970) (three-judge district court), have now been resolved for the district courts in this circuit. In Johnson v. Harder, 438 F.2d 7, (2d Cir. 1971), rev'g 318 F. Supp. 1274 (D.Conn. 1970), the court analyzed the recent Supreme Court welfare cases and concluded they were reconcilable with the Stone formula on the following grounds:

"Since welfare cases by their very nature involve people at a bare subsistence level, disputes over the correct amounts payable are treated not merely as involving property rights, but some sort of right to exist in society, a personal right under the Stone formula." Id. at 12.

The court held that in welfare cases of this type, "so long as a colorable constitutional claim has been raised, jurisdiction will properly lie." Id. at 12.

Plaintiffs' constitutional claim before this court is at least colorable. It is not "obviously without merit" nor does "its unsoundness so clearly result from the previous decisions of [the Supreme Court] as to foreclose the subject." California Water Serv. Co. v. City of Redding, 304 U.S. 252, 255, 58 S.Ct. 865, 867, 82 L.Ed. 1323 (1938). Cf. Dandridge v. Williams, supra, 397 U.S. 471, 90 S.Ct. 1153, 25 L.Ed.2d 491; Rosado v. Wyman, supra, 397 U.S. 397, 90 S.Ct. 1207, 25 L.Ed.2d 442; Johnson v. Harder, supra, 438 F.2d at 12. Because plaintiffs seek an injunction against the enforcement of a regulation of statewide application, on constitutional grounds that are not unsubstantial, a three-judge district court was convened pursuant to 28 U.S.C. § 2281 to hear and decide the issues presented.

III. Statutory Claims

In addition to their equal protection claim, plaintiffs contend that the state regulation is invalid because antithetical to the Social Security Act and regulations promulgated thereunder. Having jurisdiction over plaintiffs' constitutional claim, this court may also exercise pendent jurisdiction over the statutory claims. Wyman v. Rothstein, 398 U.S. 275, 90 S.Ct. 1582, 26 L.Ed.2d 218 (1970); Rosado v. Wyman, supra, 397 U.S. at 402, 90 S.Ct. 1207; King v. Smith, supra, 392 U.S. at 312 n. 3, 88 S.Ct. 2128. Rothstein requires the court to consider the statutory claims for relief prior to reaching the constitutional issues.

A. The Federal Statutory Scheme — Eligibility Provisions

A brief description of the relevant statutory scheme for Medicaid will serve to provide a context within which to later consider the specific conflicts alleged. The Medicaid program cuts across the four categorical public assistance programs to meet a special need common to all. There are three different classes of eligible recipients provided for by Title XIX:

(1) The first class is composed of those receiving aid under any of the four categorical assistance programs, viz, the programs for assistance to the aged (OAA), the blind (AB), the disabled (AD), and families with dependent children (AFDC). 42 U.S.C. § 1396a(a) (10). HPAA, Supp. D, § D-4020(1)(a). Neither plaintiff being a beneficiary under any of these programs, eligibility is not claimed under this section.

(2) Secondly, the state must provide assistance to persons who would be eligible for aid under one of the categorical programs listed in (1) above but for state eligibility requirements applicable to those programs which are at the same time specifically prohibited as eligibility requirements for Title XIX assistance. HPAA, Supp. D, §§ D-4020(c), D-4030(b). Persons in these first two classes are called "categorically needy." HPAA, Supp. D, § D-4020. Plaintiff Wilczynski claims eligibility for Medicaid as a categorically needy person because she would be eligible for OAA but for her refusal to assign her life insurance to the Welfare Commissioner — an eligibility requirement for OAA but prohibited as an eligibility requirement for Medicaid. See 42 U.S.C. § 1396a(a) (17) (D) and (a) (18). HPAA, Supp. D, §§ D-4000(1)(c), D-4020(1)(c), and D-5700.

(3) Thirdly, the state may (and Connecticut does — Conn.Welfare Man.Supp. D, § D-230; Conn.Regs. § 17-134d-1) provide medical assistance to those who are related to the categorical programs (i.e., by being old, or disabled, or blind, or having dependent children) but whose incomes and/or assets exceed the eligibility limits of the appropriate category. 42 U.S.C. § 1396a(a) (10) (B). HPAA, Supp. D, §§ D-4000(A)(2)(b)(1), D-4020.2(b). When their income and/or assets are nevertheless not adequate to pay for their medical care, they may qualify for assistance as "medically needy" persons. It is in this third class that plaintiff Watson claims to be because she is permanently and totally disabled and her income slightly exceeds that for AD assistance, but is insufficient to meet her medical needs.

Under Title XIX, the state may determine the income and asset limitations for eligibility so long as the limits are reasonable. HPAA, Supp. D, § D-4240(A)(5). The state may not consider income or assets not actually available to the applicant, 42 U.S.C. § 1396a(a) (17) (B), assets must be reasonably evaluated, 42 U.S.C. § 1396a(a) (17) (C), and the limitation must at a minimum be at the most liberal level used in any money payment program in the state on or after January 1, 1966. 45 C.F.R. § 248.21(a) (1) (iv).

B. Connecticut's Eligibility Limits for Medicaid — 1 Conn. Welfare Manual § 244.1 (1970)

Section 244.1 sets out the income and resource limitations for eligibility for Medicaid in Connecticut. See n. 4, supra. A single beneficiary may have up to $250.00 liquid assets and in addition thereto the "categorically needy" and "medically needy" may retain up to $600.00 in a burial reserve. The latter may be in the form of a prepaid funeral contract with a funeral director, a trust fund for burial with someone other than the commissioner, or an insurance policy of not more than $600.00 face value payable to the insured's estate or a funeral director. A recipient may also have, without limitation as to value, a home, a car, United States Government Veterans life insurance, and reasonable personal and household effects.

C. Claims of Statutory Conflict

1. The Lien Prohibition

The federal statute prohibits the state from imposing as a condition of eligibility for Medicaid any "lien * * * against the property of an individual prior to his death on account of medical assistance paid or to be paid on his behalf under the plan * * *." 42 U.S.C. § 1396a(a) (18). Plaintiffs contend that the burial reserve provision of § 244.1 applicable to a limit of $600.00 of assets in excess of $250.00 is just such a lien and, therefore, an impermissible condition of eligibility.

There is no question but that the disputed burial reserve is a lien as defined by the federal regulations. See HPAA, Supp. D, § D-5730 ("all encumbrances * * * made during his lifetime * * * which would prevent an individual from freely transferring or otherwise disposing of his property"). The critical question is whether it is imposed "on account of medical assistance paid or to be paid on his behalf under the plan." We think not.

Although the meaning of the phrase "on account of" as used in the statute is not entirely free from doubt, it would seem to us that the most obvious meaning is to prohibit state provisions designed to recoup state money spent on medical payments made pursuant to the plan, not those designed to protect the state against other kinds of expense such as that for the burial of paupers. The same sentence in the statute which imposes the lien prohibition also prohibits any "adjustment or recovery (with some exceptions not here relevant) of any medical assistance correctly paid on behalf of [any] individual under the plan." 42 U.S.C. § 1396a(a) (18). This strengthens the view that the concern of Congress was with state efforts (either by lien on the recipient's property or direct action against him) to require the recipient, where possible, to make restitution of moneys spent on his behalf under the Title XIX program. See also, HPAA, Supp. D, § D-5720, and Conn.Regs. § 17-134d-4 (which explain that the statute prohibits liens imposed "because of" medical payments made under the plan) and HPAA, Supp. D, § D-5730 (which explains that the prohibition does not apply where a recipient voluntarily initiates and makes repayment for medical assistance provided under the plan).

By providing that eligibility is not impaired if assets above $250.00 and up to $850.00 are earmarked for burial, Connecticut has not imposed a lien designed to recoup moneys spent for medical assistance. Rather this provision operates to protect the state against costs for burial of paupers. See Conn.Gen.Stats. § 17-286 (which requires the appropriate public official to provide an indigent person with "a proper burial," the cost of which is not to exceed $600.00). Accordingly, we find the burial reserve requirement outside the scope of the federal lien prohibition and not in conflict with it.

2. Reasonable Evaluation of Assets Actually Available

Plaintiffs contend that the state's valuation of their insurance policies at face value rather than cash surrender value conflicts with the federal requirement that in determining eligibility for Medicaid the state must reasonably evaluate an applicant's assets and consider only those actually available to him. 42 U.S.C. § 1396a(a) (17) (B) and (C). They reason that nothing above the current cash value of their policies can be applied by them to meet their medical and other needs.

The Supreme Court has three times struck down state attempts to attribute to applicants for public assistance income or resources not shown to be actually available to them. Lewis v. Martin, supra, 397 U.S. 552, 90 S.Ct. 1282, 25 L.Ed.2d 561; Solman v. Shapiro, supra, 300 F. Supp. 409 (D.Conn.), aff'd, 396 U.S. 5, 90 S.Ct. 25, 24 L.Ed.2d 5 (1969); King v. Smith, supra, 392 U.S. 309, 88 S.Ct. 2128, 20 L.Ed.2d 1118. In each case, the state requirement was found to conflict with federal statutes and/or regulations. In the instant case, plaintiffs do not contend that their insurance policies are not available assets, only that they are not worth as much to them for purposes of meeting their present needs as the state contends. Hence they are not reasonably evaluated as required by the federal statute.

Plaintiffs' position is demonstrably correct. Reasonable evaluation of available assets in the context of eligibility for public assistance must have reference to evaluation for purposes of meeting those present needs for which assistance would otherwise be provided. See HPAA, Supp. D, § D-4230.4 (to be available, resources must be "in hand" or "under the control of the individual"). Any other measurement of value, e.g., the future value to a recipient's estate of a life insurance policy, is irrelevant to whether a recipient can meet out of his own assets his present subsistence needs. We conclude, therefore, that § 244.1, insofar as it requires evaluation of life insurance policies at face value, conflicts with the federal statute and is, therefore, invalid. The value of plaintiffs' insurance policies, for purposes of Title XIX eligibility, is their cash surrender value.

3. Minimum and Reasonable Asset Limitation

Plaintiffs' final statutory argument is that Connecticut's asset limitation on Medicaid eligibility, as set by § 244.1, is not, as required by 45 C.F.R. § 248.21(a) (1) (iv), "at the most liberal level used in any money payment program in the State on or after January 1, 1966." The parties agree that the standard against which to measure § 244.1 in this respect is § 323 of the Connecticut Welfare Manual, specifically the resource limitations it sets for eligibility for participation in the OAA, AB, and AD programs. They do not agree, however, on how to interpret that section.

Section 323 is not an easily understandable regulation. We find however that the most liberal level of assets allowed by its terms is not more than that allowed by § 244.1; that is, $250.00 liquid assets and an additional $600.00 burial reserve. Accordingly, we find that § 244.1 conforms to federal standards in that regard. We are not persuaded by plaintiffs' argument that § 323 permits retention of unencumbered life insurance having a cash value up to $1300.00. Retention of an insurance policy carrying that cash value is conditioned by § 323 upon its prior assignment to the Welfare Commissioner. Arguing that under Title XIX that requirement would be regarded as a prohibited lien, plaintiffs claim that for purposes of determining the minimum asset limitation for Medicaid the state is forced to accept § 323's provision for $1300.00 of life insurance without its accompanying assignment requirement. This reasoning of course is patently fallacious. Requiring the state to allow Medicaid recipients to retain at least $1300.00 in life insurance without encumbrance would be to require it to set a resource limit for Title XIX eligibility far more liberal than that used in the most liberal money payment program in the state. That is not required by 45 C.F.R. § 248.21(a) (1) (iv).

4. Summary

Connecticut's eligibility provision for Medicaid, § 244.1 of the Connecticut Welfare Manual, to the extent it is challenged by these plaintiffs, does not conflict with the federal statute or regulations except insofar as it requires the defendant to value insurance policies at face value. We hold the federal statute, 42 U.S.C. § 1396a(a) (17) (C), requires the defendant to consider the cash surrender value of life insurance policies as their value for purposes of Medicaid eligibility.

As a consequence of that holding, it is apparent first that Mrs. Watson, whose only asset is her insurance policy with a cash value of less than $250.00, is entitled to retain that policy free and clear of any encumbrance and remain eligible for medical assistance. Mrs. Wilczynski presents a different situation. The value of her two life insurance policies exceeds $250.00 but not $850.00. Accordingly, while she may retain those assets, the state may require a burial reserve on the amount in excess of $250.00. The mechanics of accomplishing that result we leave to the parties.

Mrs. Wilczynski, of course, might be afforded more complete relief if her constitutional claim were sustained by the court. Consequently, we next consider the merits of that claim.

D. The Constitutional Claim

As noted earlier, plaintiffs' constitutional claim is that Connecticut's eligibility standards, as expressed in § 244.1, violate their fourteenth amendment right to equal protection of the laws. Specifically they challenge the permitted exemptions from resources taken into account in determining eligibility. Exemptions are allowed for the recipients' home and car, of any value, and United States Government life insurance. See n. 4, supra. Plaintiffs argue that those exemption provisions create two distinct classes of Medicaid recipients based on the kind of assets they hold, and discriminates against those who do not have enough to invest in the exempted class of assets.

Initially, we note that the traditional equal protection test, requiring only that the legislative classifications to be valid have some "reasonable basis," is applicable in this case. Dandridge v. Williams, supra, 397 U.S. at 484-486, 90 S.Ct. 1153, 25 L.Ed.2d 491; McClellan v. Shapiro, supra, 315 F. Supp. at 490-491. The traditional test was recently stated by the Court in McDonald v. Board of Election Comm'rs, 394 U.S. 802, 809, 89 S.Ct. 1404, 1408, 22 L.Ed.2d 739 (1969):

"The distinctions drawn * * * must bear some rational relationship to a legitimate state end and will be set aside as violative of the Equal Protection Clause only if based on reasons totally unrelated to the pursuit of that goal."

The state contends in its brief that the end to be served by the challenged legislation is "to conserve the finite resources of the State of Connecticut and spread them amongst the greatest number of potentially eligible beneficiaries * * *." (Defendant's brief at 7). In discharging "the difficult responsibility of allocating limited public welfare funds among the myriad of potential recipients," Dandridge v. Williams, supra, 397 U.S. at 487, 90 S.Ct. at 1163, the state "has a valid interest in preserving the fiscal integrity of its programs," Shapiro v. Thompson, 394 U.S. 618, 633, 89 S.Ct. 1322, 1330, 22 L.Ed.2d 600 (1969), and "may legitimately attempt to limit its expenditures * * * for public assistance." Id. There is no doubt then that § 244.1 setting resource limitations for Title XIX eligibility is designed to achieve a legitimate state end. The next question is whether the specific means chosen to attain that end are rationally related to its attainment. "The saving of welfare costs cannot justify an otherwise invidious classification." Id. (footnote omitted).

The state advances no specific justifications for the exemptions allowed by § 244.1. Nevertheless, we are not foreclosed from ascertaining their purpose from the terms and context of the regulation and the legal and practical objectives which can reasonably be imputed to it. Cf. Flemming v. Nestor, 363 U.S. 603, 617, 80 S.Ct. 1367, 4 L.Ed. 2d 1435 (1960); Goesaert v. Cleary, 335 U.S. 464, 466-467, 69 S.Ct. 198, 93 L.Ed. 163 (1948). From that perspective, it is apparent that a rational basis does exist for the exemptions of "real property used as a home * * * [and] an automobile essential for transportation." It is certainly rational for a state, whose goal is fair allocation of limited welfare funds, to allow those public assistance applicants who already have provision for shelter to retain it, rather than require its divestiture and thrust upon the state the added burden of providing substitute housing. The state in other words may rationally conclude that in most instances it is less costly to allow those otherwise eligible for assistance to keep their own homes, if they have them.

Similarly, while transportation may not be regarded as a bare necessity, its availability will in all likelihood greatly increase opportunities for employment. It is reasonable to assume, therefore, that the availability of transportation is reasonably related to the state's proper purpose of encouraging dependent citizens to become self-supportive. Cf. McClellan v. Shapiro, supra, 315 F. Supp. at 494.

We need not explore all possible justifications for the classifications created by the regulation; it is enough that one rational purpose is served. Dandridge v. Williams, supra, 397 U.S. at 486, 90 S.Ct. 1153. Nor do we pass on the wisdom of the challenged provision, or decide whether it "best fulfills the relevant social and economic objectives that [Connecticut] might ideally espouse * * *." Id. at 487, 90 S.Ct. at 1162. The absence of any limit on the value of a home or car which may be retained causes us some concern but we cannot say that failure to set any limit renders the exemptions unreasonable in light of the purposes for which they were created.

The provision exempting United States Government Veteran's life insurance stands on a somewhat different footing. The state contends that because insurance policies of that type are specifically made nonassignable except to certain specified members of the insured's family, see 38 C.F.R. §§ 6.62, 8.59, it cannot compel holders of those policies to comply with the burial reserve provisions of § 244.1. Accordingly, the state adopted the solution of wholly exempting those policies. While we entertain some doubt about the state's conclusion that government insurance policyholders could not comply with the burial reserve provision applicable to assets in excess of $250.00, see 38 C.F.R. §§ 6.56, 6.60, 8.46, 8.47, there is an independent ground for upholding the classification.

United States Government life insurance for veterans was designed "to protect from financial hardship the surviving families of those who had served under the nation's flag." United States v. Henning, 344 U.S. 66, 71, 73 S.Ct. 114, 117, 97 L.Ed. 101 (1952). The enacting legislation was "plainly adopted for humane and patriotic reasons." Philippine Nat'l Bank v. United States, 112 U.S.App.D.C. 126, 300 F.2d 718, 720 (D.C. Cir. 1962). Insurance of that kind belonging to a veteran or his family is, therefore, of a decidedly different quality than ordinary life insurance. Veteran's life insurance is in the nature of a gift and is designed to confer a benefit and to recompense the veteran for his sacrifices in service to the country. See In re McCormick's Estate, 169 Misc. 672, 8 N.Y.S.2d 179, 183 (1938). In determining, therefore, what assets may be exempted from the accounting of an applicant's resources in judging eligibility for public assistance, there is a reasonable basis for treating this particular insurance differently from ordinary life insurance. Veterans and their families may constitute a particular class from whom it is permissible to distinguish others in many respects. See, e.g., Bateman v. Marsh, 188 Misc. 189, 64 N.Y.S.2d 678, 683-685, aff'd 271 App. Div. 813, 66 N.Y.S.2d 411 (1946), aff'd, 296 N.Y. 849, 72 N.E.2d 30, 31 (1947). Consequently, we cannot say that the exemption of veteran's life insurance "rests on grounds wholly irrelevant to the achievement of the State's objective" or that no "state of facts reasonably may be conceived to justify it." McGowan v. Maryland, 366 U.S. 420, 425-426, 81 S.Ct. 1101, 1105, 6 L.Ed.2d 393 (1961).

In conclusion, therefore, we find that § 244.1, to the extent it is challenged by these plaintiffs, meets the strictures of the equal protection clause. Accordingly, plaintiffs are entitled only to the relief required to rectify the state's improper valuation of their insurance policies. In all other respects, relief is denied.

* * * * *

" Maximum Resource Levels Size Family Resources One person $250 Two persons $500 (a married couple or an adult and a dependent child under 21) Each additional dependent family member in the home $100