Reverse Mortgages Can Protect Against New Medicare Surcharges

This year, Medicare introduced a new income scale that will make paying for certain coverage options such as Medicare Parts B and D more expensive once they take take effect in 2018. However, a reverse mortgage might be able to help seniors maximize their savings against these new Medicare surcharges, according to a recent Investment News article.

Officially known as the income-related monthly adjustment amount (IRMAA), these surcharges create higher Medicare out-of-pocket costs for beneficiaries without providing any additional health coverage benefits, says the article written by Katy Votava, Ph.D., RN, and president of, a consulting firm that works with financial advisers and consumers on health care coverage. 

Specifically, the new law updated the scale used by Social Security to determine Medicare surcharges, essentially lowering the top three modified adjusted gross income (MAGI) tier thresholds. This means more beneficiaries will be exposed to paying top levels sooner than is currently the case, said Votava.


“The good news is that there are several retirement-income planning options for advises to consider that can help people move down a bracket or two and save their hard-earned nest egg dollars,” Votava writes.

The basic strategy is to structure retirement income to maximize cash flow sources that are not included in Medicare’s MAGI calculation. One method to achieve this goal, she says, is by using a reverse mortgage, as the tax-free loan proceeds are not included in the calculation of Medicare IRMAA surcharges.

“Consider whether a HECM line of credit can be used instead to supplement taxable distributions to keep a person from going over into the next Medicare surcharge bracket,” Votava writes. 

Read the full Investment News article. 

Written by Jason Oliva

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  • Per Medicare 95% of all beneficiaries will NOT be impacted by the new law. By the way, Medicare did not introduce this test as the author states but rather Congress and President Obama in Medicare Access and CHIP Reauthorization Act of 2015 which created this new law.

    There is no impact this year at all but begins in the tax year 2018. This year and 2017 will serve as a base for the increase in 2018.

    While there is a choice for this 5% of upper income retirees, HECMs with their accruing MIP and interest is probably not the best source of cash for this purpose. Few if any seniors should be looking to HECMs to cure this impact.

    On the other hand, it is understandable why a RN who is providing financial advice might look at HECMs as a great answer for the 5%.

    • I concur. I haven’t seen the numbers, but would be surprised if the avoidance of the additional one-time Medicare premium bump in a given year by borrowing the marginal income resulting in the bracket creep via a HECM and incurring a recurring compound interest charge will make sense.

      • REVGUYJIM,

        I am no financial analyst but unless the senior has a very short remaining lifetime and already has a HECM, getting a HECM for this specific purpose makes little to no economic sense, as HECMs do not produce tax-exempt income but rather debt proceeds which have nothing to do with income and as HECM proceeds incur monthly charges of both MIP and interest.

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