Reverse Mortgages: Potential Impact on Medicaid Eligibility

A reverse mortgage can impact a borrower’s Medicaid eligibility, in particular when the borrower receives a lump-sum payment for the mortgage, says a longtime MarketWatch housing columnist. This can have a very adverse effect on a borrower’s ability to pay for nursing home care, should he or she require that care soon after the reverse mortgage is taken out.

In a MarketWatch question and answer forum featuring the advice of housing writer Lew Sichelman, Sichelman addresses what he calls a little understood and under-publicized aspect of reverse mortgages: their impact on Medicaid eligibility.

“If a patient takes out a reverse mortgage and receives a lump-sum, they’re often ineligible for Medicaid to pay for nursing home care,” the column begins. The rules are complicated, the article explains, but Medicaid allows a patient to have not more than $2,000 plus a house and automobile. A large, lump-sum payment can impact that dollar amount in the month when it is received, according to Sichelman.

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A reverse mortgage, while it does not impact Medicare or Social Security, can have an effect on Medicaid and Supplemental Security Income, he writes. “If you opt for a lump-sum payment from a reverse mortgage, any amount retained the month after you receive it would count as a resource and could affect SSI or Medicaid coverage,” the article states. “Also, when the proceeds of a reverse mortgage are paid out on a monthly basis, the payments act to increase the senior’s income and could possibly render him or her ineligible for Medicaid.”

While reverse mortgages are a viable option for those who wish to improve their later-years’ lifestyle, he says, “they could prove to be deadly—financially speaking—if they must move into a nursing home, even if only on a short-term basis.”

Read the full article.

Written by Elizabeth Ecker

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  • The questioner had some good information regarding Medicaid and reverse mortgages and is obviously well versed.  The writer on the other hand was less so.  Neither, however, discussed look back rules.
     
    Lately while looking at websites it is ridiculous how many reverse mortgage originators claim to have information on Medicaid.  We need to be very careful what we claim.  If we are wrong because we really do not know the subject matter or just not up-to-date we can do more damage than good for those we are trying to help and also the industry.

    • Thank you The_Critic

      . I work for an elder law attorney and I cannot express how dangerous it is to get Medicaid info on the web or from a friend, Social Worker, neighbor. Great to get an understanding, but go to someone who knows Medicaid rules, which are interpreted differently by each state.

  • One error in the above is that RM payments are generally not counted as income per se.  Their impact on Medicaid payments is through the asset test.  If monthly benefits are not spent and are allowed to accumulate, however, they become part of the borrower’s assets and could then affect benefits.

    Also, it’s important to note that not only nursing home care is affected.  Many Medicaid recipients live in private residences and rely heavily on their Medicaid coverage to cover ongoing medical expenses not covered by Medicare, including copayments for doctor visits, hospitalization, and prescription drugs.  In some states, Medicaid also covers home care services, which can also be vital in keeping clients in their own homes.  These benefits can amount to thousands of dollars a year for a client in poor health, and the loss of those benefits could mean that all of the reverse mortgage proceeds are eaten up by medical costs.  In some cases, the borrower would be left in a worse position than before the RM.

    Loan originators, when working with low income borrowers, need to be sensitive to these issues.  Lump sum draws are not the right answer for every borrower, even if they are more profitable for the lender.

    • rmcounselor,

      Why does everyone feel as if they must be experts in so many fields?  That is a clear sign of lack of professionalism.  While it is not wrong to express opinion, it is only so if the customer/counselee is fully aware that the speaker is not necessarily competent in the field under discussion and the customer/counselee is advised to seek the help of those who are competent in such matters.

      Your last admonition is your best; however, you fail to state that you, other counselors, and originators should be advising customer/counselees to seek the advice of those who are competent in matters outside of HECMs unless you are licensed, current, and competent in such matters.

      If you are addressing issues outside of mortgages and not advising customer/counselees to seek the advise of those who are experts in the matters being addressed, then you also could unwittingly be putting the senior in danger while thinking all of the time that your depth of knowledge helped them.

  • One error in the above is that RM payments are generally not counted as income per se.  Their impact on Medicaid payments is through the asset test.  If monthly benefits are not spent and are allowed to accumulate, however, they become part of the borrower’s assets and could then affect benefits.

    Also, it’s important to note that not only nursing home care is affected.  Many Medicaid recipients live in private residences and rely heavily on their Medicaid coverage to cover ongoing medical expenses not covered by Medicare, including copayments for doctor visits, hospitalization, and prescription drugs.  In some states, Medicaid also covers home care services, which can also be vital in keeping clients in their own homes.  These benefits can amount to thousands of dollars a year for a client in poor health, and the loss of those benefits could mean that all of the reverse mortgage proceeds are eaten up by medical costs.  In some cases, the borrower would be left in a worse position than before the RM.

    Loan originators, when working with low income borrowers, need to be sensitive to these issues.  Lump sum draws are not the right answer for every borrower, even if they are more profitable for the lender.

  • It doesn’t surprise me that the writer neglected to mention the other options with the Reverse Mortgage.  The credit line has been an option since the program started and does not affect ANY benefits or supplements the client gets from the State or Government. As long as they take only what they need and spend that amount within a month.  I advise all of my clients to look at their credit line as emergency funds and only use it when needed. Its so important to set yourself apart from the rest of the pack by having integrity and truly get to know your client.  Everyone is different and as such should be handled accordingly.  These seniors put their trust in us to help them chose what program is best for them and it is our responsibility as Mortgage Professionals to look our for clients best interest first and not necessarily our pockets.  

    • Kelly,

      It seems you are willing to accept responsibilities which are outside of the expertise of a mortgage professional.  It is not my job to be current on Medicaid issues or to advise my customer on such issues.  It is very doubtful you are competent in Medicaid matters.  We are mortgage professionals who need to practice our own profession not assuming the position of elder law attorney.  It is clearly our job to refer seniors to  those who are experts in fields such as Medicaid and SSI.

      • That’s not the case at all but I do inform them that they need to look into the consequences if they are getting public assistance.  Just like any video, brochure or website about Reverse Mortgages, I inform them what each program entails and the benefits.  Its up to them to decide what program is best for their situation.  I was referring more to mortgage professionals who only steer the client that makes the most money for them and not let the client know they have other options.  

  • Caution is required when working with Medicaid recipients for all the reasons mentioned in the article and in the comments, plus a few others.

    This is also true for people who are receiving other forms of special assistance like food stamps, extended VA medical benefits, Supplemental Social Security Income, and Disability Income. I’m sure there are more. These often use the same income and asset tests to demonstrate both a person’s initial and their ongoing eligibility. Fortunately, most of these special programs also involve a knowledgeable (and usually very helpful) Case Coordinator who coordinated the initial application and monitors the ongoing eligibility.

    The Case Coordinators are a great resource for understanding the Dos and Don’ts so you and your borrowers know that you are following a truly beneficial plan of action. The borrowers should have this person’s contact information with their other benefits documentation.

    More limited forms of assiatance, such as Property Tax Abatement, Appliance and Energy Efficiency Upgrades, Low Income Prescription Drug Plan premium assistance and others have their own criteria, but which are usually published loacally and do not usually require a Case Worker.

    Either way, the ideal way to integrate a reverse mortgage with special benefits programs is to do your discovery work in the proposal stages, so that the borrowers are informed, prepared and confident before they go to counseling and Benefit Check-Up flags get raised. 

    • Bill,

      Here we go again.  If there is NO known expert in place, you are advising the originator to become that advising expert.  That is a huge mistake. 

      For example, you do your due diligence about a prospect being a Medicaid recipient as you present in your Comment above.  The prospect asks that since he/she is not a Medicaid recipient if it is OK to purchase liquid assets to replenish their retirement assets or give gifts to charity or heirs from proceeds.  You tell them that should be no problem since they currently are not Medicaid recipients.  Then within days of funding a fixed rate HECM, she/he puts into place the plan they discussed with you notifying their loved ones that you had looked at everything with them especially Medicaid.  Two months later he/she has a stroke and would have immediately qualified for Medicaid if they had not done what you agreed was OK.  Yet you did YOUR alledged due diligence. Were you wrong?  Absolutely if you did not add to your Medicaid discussion that you are not an expert and in any kind of financial planning they should seek the advice of experts.

      Trying to be more than we are is ethically and morally wrong.  We need to be aware of all kinds of things but we should not become advisors in the things we are aware of UNLESS we are competent and licensed to provide such advice and that is the reason the senior hired us.  There are far too many pitfalls to discuss in this short comment.

      While we can discuss financial matters outside of our engagement, we should also advise seniors to seek the advice of competent licensed advisors on all such matters.  To do the first WITHOUT doing the second is acting unprofessionally and incompetently. 

  • While I agree that it is not the originators role to be versed in Medicaid rules, I would advise that originators do not give ANY advice on medicaid.  In response to Kelly’s comment – in some states (our state of Maine) Medicaid recipients who have a credit line would NOT be eligible for the home care assistance as it falls under an often hidden note regarding eligiblity – any liquid funds that can be obtained within 90 days.  A creditline on a reverse mortgage does fall under this – so stating that a credit line never impacts public benefits is not actually accurate.  Even the benefitscheckup.org tool is useless when it comes to this sticky situation. 

    This is why local counseling can be a critical factor as a counselor in another state may not be privy to this information.  At the very least borrowers should be refered to their local Area Agency on Aging Medicaid & Medicare specialists.

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