What Governor Walker’s Proposed Change to Promissory Notes Means

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Governor Walker’s 2015-2017 budget proposal contains a change to one particular area of Medicaid planning involving the use of promissory notes. While this is relatively minor compared to the chaos of the 2013-15 budget, it is worth a passing comment.

The proposed change adds language in two areas of the Medicaid law, and the revised language would prevent the use of promissory notes in Medicaid planning.

A promissory note is a loan. Under Federal law, a loan will be considered a “divestment” (see my explanation of divestments here) unless it:

(i) has a repayment term that is actuarially sound (as determined in accordance with actuarial publications of the Office of the Chief Actuary of the Social Security Administration);

(ii) provides for payments to be made in equal amounts during the term of the loan, with no deferral and no balloon payments made; and

(iii) prohibits the cancellation of the balance upon the death of the lender.

Governor Walker’s proposal adds a fourth requirement: the loan may not be non-negotiable, non-assignable, or contain terms preventing its sale.

Then, the new budget proposal states, in another section, that a loan that is assignable and negotiable is a countable resource to the individual.

So….under the proposed new law, if you use a promissory note, it  will either be an available resource or it will be a divestment.

This proposal is illegal. A state cannot have rules that are more restrictive than federal law.

And, it is really a waste. As I explain to my clients, promissory notes are really just a stop gap measure to help curtail the bleeding of the private pay nursing home rate, over $10,000 per month in my area of the state. Promissory notes can reduce a person’s assets so that they qualify for Medicaid, and can purchase care at a much lower rate.   But the law requires that those notes be paid back, so when a payment comes in there are very limited options as to what a person, especially a single person, can do – many of my clients use the loan repayment to make a payback to estate recovery. The interest on the loan counts as income that must go to the nursing home as a cost share. Also, if the person dies before the loan is repaid, the outstanding balance may be available for estate recovery.

So the state is not really creating much of a benefit by curtailing the use of promissory notes, and is setting itself up for a legal battle. I wonder why this pettiness is such a priority for Governor Walker. He attacked promissory notes the  last time around and the provision ultimately did not remain. It’s BAAAACCCCKKK. (Well, he is going about it in a new way this time.)

Even if it passes, it  won’t prevent people from becoming eligible for Medicaid. An annuity meeting federal requirements would have the same benefit that a promissory note provides now.

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