How Medicare Advantage Changes Could Impact the Reverse Mortgage Market

Proposed changes to health insurance plans used by millions of Americans could have some bearing on the future of the reverse mortgage marketplace, should those changes take effect in 2020.

The Centers for Medicare and Medicaid Services (CMS) announced last week that private Medicare Advantage (MA) plans will expand the scope of their coverage starting in calendar year 2020, including new additions for chronically ill enrollees that are often associated with the reasons a senior borrower may apply for a Home Equity Conversion Mortgage (HECM) or a proprietary reverse mortgage. It also has the potential to affect the tens of millions of Medicare beneficiaries that populate the United States.

These changes have the potential to affect the reverse mortgage market itself, since chronically ill residents would have an expanded ability to stay in their homes and age in place through expanded modifications they would be able to make that could be covered by MA.

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In describing the new Special Supplemental Benefits for the Chronically Ill (SSBCI), CMS describes scenarios in which MA plans can be used for projects designed to alleviate an enrollee’s chronic condition by making adjustments or additions to their primary residence.

New benefits for chronically ill enrollees

“Beginning calendar year (CY) 2020, Medicare Advantage (MA) organizations may offer items and services that include capital or structural improvements (e.g., permanent ramps, and widening hallways or doorways) if those items and services have a reasonable expectation of improving or maintaining the health or overall function of the enrollee as it relates to the chronic condition or illness,” CMS said in its letter announcing 2020 MA capitation rates and payment policies.

In an accompanying press release, a hypothetical example was given: “For a patient with asthma, an MA plan could cover home air cleaners and carpet shampooing to reduce irritants that may trigger asthma attacks.”

While CMS provides no guidance or interpretation of laws that may apply as supplemental items or services under the MA program, the capitation and payment letter goes on to say that CMS encourages MA organizations to, “to take necessary steps to ensure compliance with all applicable laws.”

Home improvement and reverse mortgages, MA details

Home improvement is often cited as a major reason for a borrower to enter into a reverse mortgage transaction, either in the form of a government-insured HECM or a jumbo proprietary product. A recent survey conducted by AAG of their proprietary borrowers revealed that home improvement was actually the primary reason for their customers to get their loan.

Medicare Advantage refers to private insurance plans, providing coverage within Part C of Medicare in the United States. While original Medicare (Parts A and B) work by charging based on each medical service that is provided, MA plans typically pay for managed care based on a monthly fee for each enrollee, referred to as “capitation.”

According to data compiled by the Henry J. Kaiser Family Foundation (KFF), the majority of the 57 million people on Medicare were covered by traditional Medicare in 2017, with 33 percent enrolled in a Medicare Advantage plan. Since 2004, however, the number of beneficiaries enrolled in private plans has gone from 5.3 million (13 percent) to 19 million (33 percent) over the course of those 13 years.

Most MA plans are provided through either a health maintenance organization (HMO) or preferred provider organizations (PPO).

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