Partnership With States to Fund LTC Using a Reverse Mortgage?

Screen shot 2010-04-25 at 10.40.47 PM.pngHoward Gleckman, Senior Research Associate at the Urban Institute writes about using a reverse mortgage to help the aging population pay for long term care through the state.

According to Gleckman only about seven million Americans have private long-term care insurance and the average retiree has financial assets of less than $100,000. If a 65-year old turned that into steady monthly income, he d get less than $600, barely covering home health aide for seven hours a week.

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So here s a possible solution. What if your state, in effect, helped you turn unused home equity into cash to pay for the care you need when you become old and frail? To sweeten the deal, what if the state let you have easier access to Medicaid to supplement your own long-term care contributions?

You could use the money to make your home wheelchair accessible, or pay for a special van, or even for adult day care or that home health aide. You d have far more flexibility than with regular Medicaid. In return for this upfront cash, your heirs would repay the state with modest interest after you die, usually by selling your house. The state wins by saving the cost of caring for you in a nursing home. You win by easily accessing the equity that could allow you to stay at home.

This program would look a lot like a reverse mortgage. With those, if you are at least 62, you can take out a loan against the equity in your home. You get either a lump sum in cash, access to a line of credit, or a regular check each month. When you move or die, you or your heirs sell the house and repay the loan plus interest.

He adds that states could participate in a program allowing seniors to supplement their home equity with Medicaid and writes, “Several states already operate the Partnership Program that links long-term care insurance with Medicaid.”

Overall the idea is to reducing the financial burden on government-funded long-term care while giving people greater control over these services by encouraging them to use some home equity to pay for this assistance said Gleckman.

Public Reverse Mortgages and Long-Term Care: Can They Work Together?

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  • There is so little real information that one cannot tell what is really being advocated. The state program could be confiscatory. To blindly trust Mr. Gleckman's assessment seems very shaky. There is no mention if this program would be non-recourse or nothing more than a HECM. Would it be fixed rate or adjustable?

    Blind faith in a chair supporting the user is one thing but blind faith here is something else again. One question that is not answered in the article is if HUD supports this particular concept.

  • This isn’t the first state to try a partnership. In 2007 Minnesota’s Senate bill 196 “establishes several incentives to encourage elderly persons to use reverse mortgage proceeds to pay for long-term care services in their own homes as an alternative to nursing facility placement.”

    One section of the bill stated “… MHFA (Minnesota Housing Finance Agency), in cooperation with DHS (Department of Human Services), to establish a reverse mortgage incentive program to help individuals pay costs necessary to maintain them in their homes as an alternative to nursing facility placement. To qualify a person must: (1) be age 62 or older; (2) be eligible for Medical Assistance (MA) within 365 days of admission to a nursing facility; (3) not be eligible for MA or for the Elderly Waiver; (4) need services not paid for by government programs; (5) obtain a reverse mortgage on a home worth $156,000 or less; and (6) use substantially all of the mortgage proceeds for qualifying services. Program incentives for eligible persons include: (1) payment of up to $1,560 of the initial mortgage insurance premium, (2) payments to reduce reverse mortgage service fee set-asides, and (3) other incentives approved by MHFA.”

    This bill did not pass. Not sure how some of the incentives (i.e. MIP and service set aside) would have been implemented. The bill was not passed.

    Then in the 2009 reverse mortgage legislation, if passed, would have prohibited those doing a reverse mortgage to purchase any insurance product for 18 months afterward. This included Long Term Care insurance.

  • There is so little real information that one cannot tell what is really being advocated. The state program could be confiscatory. To blindly trust Mr. Gleckman’s assessment seems very shaky. There is no mention if this program would be non-recourse or nothing more than a HECM. Would it be fixed rate or adjustable?rnrnBlind faith in a chair supporting the user is one thing but blind faith here is something else again. One question that is not answered in the article is if HUD supports this particular concept.

  • This isnu2019t the first state to try a partnership. In 2007 Minnesotau2019s Senate bill 196 u201cestablishes several incentives to encourage elderly persons to use reverse mortgage proceeds to pay for long-term care services in their own homes as an alternative to nursing facility placement.u201dnnOne section of the bill stated u201cu2026 MHFA (Minnesota Housing Finance Agency), in cooperation with DHS (Department of Human Services), to establish a reverse mortgage incentive program to help individuals pay costs necessary to maintain them in their homes as an alternative to nursing facility placement. To qualify a person must: (1) be age 62 or older; (2) be eligible for Medical Assistance (MA) within 365 days of admission to a nursing facility; (3) not be eligible for MA or for the Elderly Waiver; (4) need services not paid for by government programs; (5) obtain a reverse mortgage on a home worth $156,000 or less; and (6) use substantially all of the mortgage proceeds for qualifying services. Program incentives for eligible persons include: (1) payment of up to $1,560 of the initial mortgage insurance premium, (2) payments to reduce reverse mortgage service fee set-asides, and (3) other incentives approved by MHFA.u201dnnThis bill did not pass. Not sure how some of the incentives (i.e. MIP and service set aside) would have been implemented. The bill was not passed. nnThen in the 2009 reverse mortgage legislation, if passed, would have prohibited those doing a reverse mortgage to purchase any insurance product for 18 months afterward. This included Long Term Care insurance. n

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