A proposed rule change could affect what Medicaid takes from your estate after you die. Public comment closes May 8.

Most Vermonters use the words Medicare and Medicaid interchangeably. They’re not the same program. Medicare is the federal health insurance program you pay into your entire working life through payroll taxes — it’s on every pay stub you’ve ever gotten. Medicaid is different. It’s a needs-based program funded by federal and state general tax revenue — your income taxes, sales taxes, and various provider assessments. There’s no personal account, no premium, no running balance with your name on it. When Medicaid covers your long-term care, it’s drawing from the general fund, not from money you personally put aside.

That distinction matters because it’s the legal basis for what happens next. When a Vermonter on Medicaid dies, the state can file a claim against their estate to recover what it spent on long-term care. From the state’s perspective it’s less like an insurance payout and more like a debt owed back to taxpayers. That’s federal law and it isn’t going anywhere. What is changing is how Vermont administers that recovery — and the Agency of Human Services filed a proposed rule rewrite on March 4th that most Vermonters haven’t heard about.

The rule, listed as 26P006 in the Secretary of State’s rulemaking system, consolidates estate recovery provisions previously scattered across Medicaid Covered Services Rule 7108 into a new standalone rule, 4.108. The state’s own filing describes it as a net positive for families. Looking at what actually changes, some of that holds up. Some of it is more complicated.

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What Gets Better

The most straightforward improvement is the hardship floor. Under the old rule, Medicaid wouldn’t pursue an estate consisting only of personal property — furniture, clothes, household goods — worth less than $2,000. The new rule raises that to a $7,500 total estate floor. If everything combined is worth less than $7,500, Medicaid walks away entirely. For the smallest, most modest estates, that’s a cleaner and more protective standard.

An estate worth $7,501 — a used car, a small savings account, a few possessions — clears that floor. At that point Medicaid can file as a creditor against whatever is there.

The new rule also adds a definitions section that didn’t exist before, bringing clarity to terms like “lineal heir,” “family income,” and “income-producing asset.” Having them defined at all is an improvement over leaving interpretation to a case by case basis.

The lineal heir retention exemption — protecting up to $250,000 in homestead value for qualifying direct descendants — is also structured more explicitly than before, giving families a clearer documented path to claim that protection.

What Gets More Complicated

The homestead exemption is where families with multiple heirs need to pay attention. Under the new rule, the $250,000 exemption applies heir by heir. If a home passes to three siblings and one doesn’t qualify — because their gross family income exceeds 300 percent of the federal poverty level, roughly $45,000 for a single person, or because they didn’t provide qualifying caregiving — their proportional share of the home is subject to Medicaid recovery. The other heirs can still be protected. That one share is not.

The income test is gross family income with zero deductions allowed. For Vermont farmers and small business owners that’s a meaningful distinction. A farm generating $50,000 in gross receipts with $40,000 in operating costs looks like a $50,000 earner on paper. A side business running at a loss still counts as income at the gross level. The rule makes no allowance for the gap between what comes in and what it costs to operate.

The new definition of income-producing asset goes a step further, explicitly including properties generating negative net cash flow. A rental property or farm operating at a loss still qualifies as an income-producing asset for purposes of the hardship exemption calculation. In a state with a lot of working farms and small landlords, that’s not a theoretical edge case.

What’s Been Removed

Two provisions from the old rule don’t appear in the new one.

The Long-Term Care Insurance Partnership exemption previously shielded estate assets dollar-for-dollar equal to LTC insurance benefits paid out. It was a meaningful protection for Vermonters who purchased qualifying long-term care insurance policies — in some cases specifically because that exemption existed. The proposed rule removes it entirely with no replacement language.

The caregiver exemption for children who lived in the home also previously came with specific benchmarks — care had to meet Level III residential care home standards, averaging at least three times per week. The new rule keeps the general requirement that a child “provided care that allowed the decedent to remain at home” but removes those benchmarks. How that standard gets applied is now a state determination without defined criteria for families to point to.

Public Hearing and Comment Information

The public comment period runs through May 8, 2026. A public hearing is scheduled for April 27, 2026 at 1:00 PM, available both in person and virtually.

In person: Waterbury State Office Complex, Ash 49, Room A213, 280 State Drive, Waterbury

Virtual: https://teams.microsoft.com/meet/28696159835382?p0SFSG11h5qdoFpOKP5

Written comments: Beth Quill, Department of Vermont Health Access Beth.Quill@vermont.gov | 802-585-5415

Full proposed rule documents:

The clean version shows the rule as it would read if adopted: https://humanservices.vermont.gov/sites/ahsnew/files/documents/ProposedEstateRecoveryClean.pdf

The annotated version shows exactly what’s being added and deleted from the existing rule — new language is underlined, removed language is struck through: https://humanservices.vermont.gov/sites/ahsnew/files/documents/ProposedRuleEstateRecoveryAnnotated.pdf

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Dave Soulia | FYIVT

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