If you’re a retiree contemplating a reverse mortgage loan and converting your home equity into cash, there are several important considerations you should make. First, in order to qualify for a home equity conversion mortgage (HECM), you must meet certain conditions such as owning your home, permanently living in your home, and being at least 62 years of age. If you are interested in seeing if you qualify, you can check the link below to start the process.
In addition to HECM qualifications, you should also consider how a reverse mortgage may affect your heirs, a non-borrowing spouse, and the government benefits you receive. If you’re one of 7.2 million seniors who receive Medicaid, a reverse mortgage might affect your coverage.
Keep reading to learn more about a reverse mortgage and Medicaid, or click a link below to navigate directly to the section related to your question.
What is Medicaid?
Medicaid is a state and federal joint program under the Social Security Act. It helps cover the costs of long term care and physician visits for individuals and families who meet certain qualifications. Medicaid covers most of our nation’s long term care needs and if you’re currently eligible for Medicaid benefits, you should consider how a reverse mortgage might affect your eligibility. This is especially true if you’re a senior planning your future health needs or those of your spouse. You may be perfectly healthy now, but you can’t predict what your medical needs and costs might be in the future.
The Medicaid program covers four basic types of medical expenses:
- Part A: Covers hospital stays
- Part B: Covers physician visits, labs, x-rays, medical devices, and outpatient services
- Part C: Medicare Advantage Plan (like an HMO or PPO) available from private health insurance companies that are approved by Medicare
- Part D: Helps with prescription drug costs
If you qualify for Medicaid, your income and assets must be put toward the costs of care, but you may retain some of that money for personal expenses.
The Medicaid program pays the difference for the cost of care directly to the facility, hospital, or provider. Medicaid’s coverage is vast, and it pays health care providers at a discounted rate to help seniors and low-income individuals receive necessary medical services they might not otherwise afford.
Note: The Affordable Care Act of 2010 gave states the ability to expand Medicaid coverage, which means that eligibility requirements vary state by state. It’s important to research how your location might affect your eligibility. For example, states may have different income limits, asset limits, and level of care required. These categories also differ based on whether the Medicaid applicant is single or married.
Will a reverse mortgage affect Medicaid benefits?
In order to be eligible for Medicaid, you must qualify based on your earnings, family size, and disability status – these are all factors that may vary by state. Eligibility is also affected by whether you’re single or married. For example, single, unmarried seniors with Medicaid coverage that covers long-term care can’t possess countable assets that go over a certain limit. Those same individuals are also restricted on a monthly basis for income.
By the same token, married seniors cannot possess countable income that goes over a certain number month to month. With that said, you are allowed to keep a specified amount of income per month which varies if you’re single or married.
A reverse mortgage may affect your Medicaid eligibility depending on what reverse mortgage payout method you choose. In most states, one of the Medicaid eligibility requirements states that the recipient must not have more than $2,000 in countable assets (or $3,000 between married couples).
What are typical Medicaid countable assets?
- Bank accounts
- Stocks and bonds
- Real estate (other than your main residence)
- Additional vehicles besides one
Assets Medicaid doesn’t count for eligibility may include:
- Your primary home
- Personal belongings
- One car
- Life insurance at under $1,500 face value
- $1,500 or less in savings set aside for funeral arrangement
Is a reverse mortgage considered income for Medicaid?
No, payments from a reverse mortgage are categorized as loan proceeds. This is also why reverse mortgages don’t impact your taxes.
Note: You can get your reverse mortgage payout in the form of a lump sum payment, a line of credit, monthly payments, or a combination of those options.
How does this apply to a HECM? A reverse mortgage doesn’t affect the Medicaid income eligibility requirement because the payout does not count as income; rather, they are loan proceeds. However, if you choose a lump sum disbursement for your payout, but do not spend all of the proceeds, any leftover funds are considered countable assets after 30 days. If you exceed your asset limit, you may be ineligible for Medicaid coverage.
How does this apply in real life?
Let’s say, for example, that you’re single and you have a Medicaid eligibility requirement of $2,000 in countable assets. You receive a lump sum of $5,000 from reverse mortgage proceeds but you only spend $3,000 of the funds during the month in which you received the payout. You put the remaining $2,000 in the bank. After 30 days, you would become ineligible for Medicaid because that money is then considered an asset.
Bottom line: A reverse mortgage payout doesn’t immediately disqualify your Medicaid benefits, but it’s important to be mindful of how you spend your loan proceeds within a given amount of time.
Keep in mind that when you moved out of the home, the reverse mortgage loan must be repaid. If you’re single and contemplating moving into an assisted living program in the near future, you might want to consider alternative financing methods. If you’re married and live at home, but have a spouse in long term care, a reverse mortgage may provide you with the necessary income to age in place and cover living expenses. These are scenarios you should take into account when considering a HECM loan.
What happens if my Medicaid is “incorrectly paid”?
If you elect to receive your reverse mortgage proceeds in the form of a lump sum and then exceed your countable asset limit, you may risk a Medicaid lien. If you receive Medicaid assistance while being ineligible for benefits, the Department of Social Services might place a lien on your property for repayment of health care costs. To avoid this, make sure you know exactly how your reverse mortgage proceeds will affect your benefits and choose a disbursement option that won’t affect your eligibility requirements.
What happens to a house with a reverse mortgage if I go into an assisted living facility or pass away?
If you pass away or live outside of your home for 12 consecutive months, both circumstances are considered “maturity events” at which time the loan becomes Due and Payable. Maturity events include:
- You sell the home
- You pass away
- You live outside the home for over 12 consecutive months
- You fail to keep up with property taxes and insurance premiums
- Fail to maintain your property according to the Federal Housing Administration (FHA) standards
After any of these maturity events, the reverse mortgage loan becomes Due and Payable. This means you’d have to repay your total loan balance along with any associated fees and interest.
GoodLife can help you make the most of your retirement
Learning how a reverse mortgage works and how it may affect your Medicaid benefits is an important step in planning for your retirement. In most cases, your reverse mortgage proceeds won’t affect your eligibility. However, you will have to be cognizant of how you’re receiving your proceeds so you don’t exceed your countable asset limit.
If you still have questions about reverse mortgages and Medicaid, GoodLife representatives are standing by to assist you with any questions you might have. Our team can help you determine how HECM proceeds might affect your government benefits like Medicaid and Social Security. With the right information, you can make an informed decision about whether or not a reverse mortgage loan is the right financing solution for your goals and circumstances. When you’re ready, GoodLife can help you with every part the reverse mortgage application process so you can find the peace of mind that you deserve in your retirement.