Medicare and Reverse Mortgages
One of the biggest concerns Reverse Mortgage applicants have is whether or not their government benefits will be affected. After all, with a Reverse Mortgage, the borrower’s home equity is tapped in order to receive cash, which can greatly increase their liquid assets and income. While this can be very helpful for older homeowners struggling to pay their bills, the benefits of a Reverse Mortgage can backfire for seniors if the increase in cash flow disqualifies them from receiving affordable healthcare.
Medicare is a Non-Means-Tested Benefit and is Not Affected by a Reverse Mortgage
Fortunately, when it comes to Medicare, a Reverse Mortgage will have no impact on a person’s eligibility or level of benefits. This is because Medicare is a non-means-tested entitlement program. In other words, the Medicare program does not test to see if a person is eligible based on their financial resources. Regular Social Security payments are also not affected by a Reverse Mortgage* because they, too, are non-means-tested benefits.
Medicaid is a Means-Tested Benefit and Can be Affected by a Reverse Mortgage
Since a Reverse Mortgage can alter a homeowner’s liquid assets (the amount of cash on hand or assets that can be easily converted into cash, like stocks, bonds, mutual funds, etc.), it can disqualify some homeowners from Medicaid eligibility. This is because Medicaid is a means-tested benefit program, where applicants’ eligibility is determined by their financial resources.
Medicaid is intended to help people who are not able to earn enough income to fully support their individual or family healthcare costs. It covers children, the elderly, and blind and/or disabled individuals. In some states, Medicaid covers all adults who earn below a certain income level. You can read more about Medicaid eligibility on the Health And Human Services website.
What if I’m on Medicaid or SSI and I Want to Get a Reverse Mortgage?
(Please note, the information in this post is subject to change. Check with a Medicaid/SSI expert for the most accurate information).
If you rely on Medicaid or Supplemental Security Income (SSI) and you are interested in getting a Reverse Mortgage, you should speak with a financial adviser, or a Medicaid/Social Security expert first. Determining Medicaid eligibility with a Reverse Mortgage can be quite complicated. Having a professional advise you can help you make a more informed decision.
If you do decide to move forward with getting a Reverse Mortgage and you want to keep your Medicaid/SSI benefits, you will need to be very careful about the timing of your spending as well as the method of distribution for your Reverse Mortgage proceeds. For example, if you choose to receive your Reverse Mortgage proceeds in a lump sum, you’ll most likely need to spend the money immediately. The reason being that Medicaid only allows individuals to have $2,000 or less in liquid assets at the end of every month ($3,000 for married couples).
Furthermore, for an individual to be eligible for Medicaid, he or she cannot have more than $623 in monthly income nor can he or she have more than $2,000 in resources (car, real estate, etc.). Since Reverse Mortgage proceeds are not counted as income, the $623/month limit should not be affected by a Reverse Mortgage; however, if you choose a lump sum and do not spend it all within the first month (as suggested above), the remaining proceeds would most likely be considered an asset after 30 days and would therefore be able to affect your eligibility.
Now you may be thinking, “I’ll just spend whatever’s leftover at the end of the month so it won’t affect my benefits.” This is a very risky way of handling Reverse Mortgage proceeds. Wastefully spending the money on things you don’t need simply to avoid losing your benefits can seriously backfire if you end up needing that money later on.
To recap, getting a lump sum and immediately spending it is usually an ill-advised strategy for using Reverse Mortgage proceeds; however, for some borrowers, it can make sense IF…
- you need to keep your Medicaid/SSI eligibility AND…
- the primary reason for getting a Reverse Mortgage is to pay off a single, large expense (home remodel, paying off credit card debt, purchasing another home, etc.) AND…
- you are prepared to spend the Reverse Mortgage proceeds in their entirety within the first 30 days.
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Other Payment Options
If the primary reason you’re getting a Reverse Mortgage is to supplement your income, increase monthly cash flow or generally have more money available in liquid assets, then you probably would not want to choose the lump sum option and you certainly would not want to spend it all at once. Instead, you may want to consider getting a line of credit, receiving monthly payments, or a combination of these.
*Supplemental Security Income (SSI) may be affected by a Reverse Mortgage. Talk to a Reverse Mortgage professional or your financial adviser for details.