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By Michael T. Lahti
The Rhode Island Reinventing Medicaid Act of 2015 (the “Act”) contains legislation that could have a profound effect upon residents in Rhode Island. The legislation appears to be hastily drafted and, frankly, contains parts that are more restrictive than federal law provides, which might lead to parts being pulled from the legislation or if passed, struck down. In a nutshell, the legislation is attempting to turn Rhode Island into a very “unfriendly” state for seniors who need nursing home care. Here is a quick listing of some of the key points of the legislation.
Notable Change #1. The legislation provides that any transfer of assets, whether through purchasing an annuity or making a loan with a promissory note, results in the imposition of a penalty. This provision conflicts with federal law. If passed, it would be very harmful to the community spouse (“healthy” spouse), when one spouse in a married couple has to go to a nursing home. Traditionally, we have been able to help these healthy spouses avoid massive “spend-downs” at the nursing by retaining assets through the use of annuities and promissory notes. Clearly Rhode Island is trying to take this away.
Notable Change #2. Rhode Island wants to go after “non-probate” assets to collect assets. This would include assets traditionally protected in Rhode Island such as IRAs, 401(k)s, jointly held assets, life-estates, etc. There are serious conflicts with federal law here too, as well as “taking” issues (for instance, taking away other “grandfathered” protections that people may have engaged in). Of note is the fact that Massachusetts tried to make a similar change years ago, but such changes were quickly scrapped.
Notable Change #3. The legislation would require Medicaid recipients to pay 12% interest on any debt for medical assistance reimbursement. Currently Rhode Island is permitted to collect upon death amounts paid without collecting interest. This legislation appears to be attempting to turn government assistance into a loan.
Notable Change #4. All gifts are “presumed” to be made for nursing home purposes, and would require “clear and convincing” evidence to rebut the presumption. This would be damaging to seniors who make gifts and then suffer an unexpected illness, such as a stroke. This change would at the very least make qualifying for benefits more difficult, as one would have a higher burden to prove that gifts were made for reasons other than for applying for nursing home purposes.
Notable Change #5. Partial cures for gifts made will not reduce the penalty. This is best explained with an example. Assume a grandparent gifts $14,000 to a grandchild, and then unexpectedly needs nursing home care. The gift at this point would need to be returned from the grandchild to the grandparent. But what if the grandchild has spent one-half of the money, and cannot return it? The new Rhode Island legislation would penalize the grandparent on the whole transfer, and the grandparent would not get credit (to reduce the penalty) for amounts returned from the grandchild. This seems patently unfair.
In summary, this legislation appears to be very (too) far-reaching, and was not drafted with precision. It will almost certainly be revised to remove the more severe provisions. Alternatively, if it passes unscathed it will almost certainly be challenged in court. Rhode Island has shown its hand in that it wants to tighten its rules. All this means that seniors will be forced to do traditional type planning sooner.
We will continue to report on this as changes are made. For more contemporaneous reporting, we suggest checking our blog on our website.