The impact of reverse mortgages on Medicaid and Medi-Cal benefits can be confusing to understand. If your home is free and clear, we set up your HECM Reverse Mortgage using the equity in your home. Since the structuring of HECM Reverse Mortgage is an increasing line of credit, you can request funds in any amount at any time. If you spend those proceeds in the calendar month you receive them; those proceeds do not impact your eligibility for Medicaid and Medi-Cal benefits.
A HECM Reverse Mortgage can pay off a current mortgage and put the remaining funds on an increasing line of credit. You can eliminate your mortgage payment and access thousands of dollars of home equity. Use this equity to improve the quality of your life, do repairs on your home, or use the money for any other reason without jeopardizing your Medicaid or Medical benefits.
To be eligible for Medicaid or Medi-Cal, you must qualify based on your earnings, family size, and disability status – these are all factors that may vary by state. Whether you are single or married also affects the eligibility. For example, single, unmarried seniors with Medicaid coverage covering long-term care can’t possess countable assets that go over a specific limit. Those same individuals also have monthly income restrictions.
Respectively, married seniors cannot have countable income that goes over a particular amount on a month-to-month basis. Allowing you to keep a specified amount of income per month which varies if you’re single or married.
A HECM reverse mortgage may affect your Medicaid eligibility depending on the reverse mortgage payout method chosen. 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?
Assets typically used for Medicaid eligibility include:
- Bank accounts
- Stocks and bonds
- Real estate (other than your primary 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 arrangements
Is a reverse mortgage considered income for Medicaid or Medi-Cal?
No, payments from a reverse mortgage are designated as loan proceeds. This designation is also why reverse mortgages don’t impact your taxes.
Note: There are different types of reverse mortgage payouts. Some of the payout options range from a lump sum payment, a line of credit (HECM), monthly payments, or a combination of those options.
How does this apply to a HECM?
A reverse mortgage doesn’t impact the Medicaid and Medi-Cal income eligibility requirement because the payout does not count as income; instead, 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 you received the payout placing the remaining $2,000 in the bank. After 30 days, you would become ineligible for Medicaid because that remaining money in the bank is then considered an asset.
Bottom line:
A reverse mortgage payout doesn’t immediately disqualify your Medicaid or Medi-Cal benefits. Still, it’s essential to be mindful of how you spend your loan proceeds within a given amount of time. Call us today for more information and how we may make this work for your client.
Thanks to Barry Sikov at Belair Insurance Services, Inc. for his input on this article