Linkage Between Reverse Mortgages, Medicaid and SSI (Part 1 of 2)

By Atare E. Agbamu, CRMS

(The following article is the first of a two-part series.)

If your next client is receiving Medicaid or SSI, you need to carefully explain the ramifications of getting a reverse mortgage, so they don’t put themselves at risk of losing government benefits.

To educate our members, NRMLA hosted a conference call as part of our monthly Learn While-U-Lunch program titled How Do Reverse Mortgages Impact Social Security, Medicaid & SSI? Presenters included Roy Trudel from the federal Centers for Medicare and Medicaid Services, Baltimore, Md., elder law attorney John Gosselin, Winchester, Mass. and financial planner Mark John Crews, Carmichael, CA.

Means-Tested Programs: SSI and Medicaid
Reverse mortgages can impact SSI, or Supplemental Security Income, and Medicaid, but not Social Security. The reason being that SSI and Medicaid are “means-tested” programs that limit beneficiaries’ incomes and assets.

Administered by the Social Security Administration, SSI is a federal income supplement program funded by general tax revenues (not Social Security taxes) that helps aged, blind, and disabled people who have little or no income by providing cash to meet basic needs for food, clothing, and shelter.

Medicaid, on the other hand, is a joint federal/state program—administered at the federal level by the Centers for Medicare and Medicaid Services (part of the Department of Health and Human Services)—that is the primary payer of long-term care in our country

Trudel restated that “as far as eligibility requirements go, we can leave Social Security retirement out of this discussion because it is not a means-tested program. There are no specific income or resource requirements, so a reverse mortgage has no impact on Social Security retirement and disability benefits.”

Countable Income and Resources
Both SSI and Medicaid impose the same income and asset restrictions.

“An individual can’t have more than $623 in countable income for the month or more than $2,000 in countable resources [$3,000 for a couple] to be eligible for SSI benefits,” he said.

What counts toward income or resources is debatable. It does not include every penny of income a person receives, or every resource they have. Some possessions, such as a home, are excluded. While SSI is a straight federal program with common guidelines, Medicaid is another matter.

Medicaid Rules: You See One and You See one
There are similarities between SSI and Medicaid eligibility rules; however, states have some flexibility over how they apply Medicaid rules.

Unfortunately, it is virtually impossible to say across the board what the eligibility requirements are for Medicaid. They vary tremendously from state to state.

“I can say that in most states, people getting SSI benefits automatically get Medicaid as a result,” said Trudel. “But after that, as the old saying goes, ‘When you’ve seen one Medicaid program, you’ve seen one Medicaid program.’”

Loan Proceeds: Non-Countable Income, But …
The sole reference that governs how reverse mortgages are treated under SSI and Medicaid is found on the Social Security Administration’s (SSA) web site. The rule states that the proceeds from a reverse mortgage are considered to be proceeds of a loan and therefore not countable as income. Although SSA wrote the rule for its SSI program, Trudel said that CMS uses the same guidelines for overseeing Medicaid.

To view this reference, go to https://s044a90.ssa.gov/apps10/poms.nsf/lnx/0501140300!opendocument, and scroll to the very bottom.

The single most important caveat is that your client must use his reverse mortgage proceeds immediately. Any funds retained the month after which they are received will count as an asset and could impact Medicaid or SSI eligibility. For example, if the client receives $4,000 in a lump sum for home repairs and spends it all the same calendar month, everything is fine.

But any residual funds remaining in the person’s bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, the client could become ineligible for Medicaid or SSI.

Since there are resource requirements, and they are fairly low, it wouldn’t take long, potentially, for these assets to accumulate.

Do No Harm, Avoid Lender Liability
Given the fine line between non-countable income and countable resources, Gosselin was asked what a lender can do to protect a customer’s SSI and Medicaid eligibility.

Gosselin advised lenders to keep in mind the goal of improving customers’ lives when structuring reverse mortgage payout options. Since lump-sums and automatic monthly payments [term and tenure] could lead to risky accumulation of resources, those options should be avoided.

He argued there is another reason why lenders should not recommend those options: Lender liability risk.

“By coming in with a loan product and disqualifying them from the benefits they were receiving there is potential for liability if a lender comes in and puts somebody at harm,” said Gosselin.

Crews, the financial planner, agreed that lawsuits are a possibility.

“Something is going to happen down the road. You need to work with competent people who understand the blend of reverse mortgages with government benefits,” added Crews.

Consider Line of Credit
Gosselin believes the reverse mortgage line of credit option “makes a lot of sense” for someone on SSI with “extremely low” income (about $630 a month).

Borrowers can draw down what they need for that particular month without disqualifying themselves from the SSI benefit that they are receiving.

At the same time, your clients want to remain in their homes, they want to be able to maintain their homes, and they need to keep up with the cost of living

The line of credit really extends that to them. As a lender, the trick is to make sure your clients know their limits. It is almost like being a diabetic, said Gosselin; you can have one cookie, but not two.

Advise your clients not to get in the habit of saving money. A lot of elders on low incomes have traditionally been hoarders. They try to save every penny they can, and they think of the reverse draws as money they can save.

It is sometimes hard for them to spend down below $2,000. It is really not something a lender can watch. After you walk away from the transaction, it is hard for a lender to monitor from a servicing standpoint what they have done with the money.

Government Will Find Out
Short of Big Brother monitoring bank accounts of Medicaid recipients, Trudel was asked how the government knows when customers are accumulating assets.

He explained that states have regulations which require beneficiaries to report to their local Medicaid office when changes occur with their financial situation. Failure to report changes can cause someone to lose eligibility when it comes time to re-qualify. Under state and federal rules, states do “re-determination” (re-qualification) “at least once every 12 months.”

Tell your clients who are on Medicaid or SSI that the government will find out if they accumulate resources above the allowable limit. Remind them of the consequences. And inform them that Medicaid may seek to recoup a portion of the costs it paid for their care—but that’s an issue for another article.

Related Documents

Medicare & You 2002 Medicare and Home Health Care Understanding Medicare Part D Medicare at a Glance Long-Term Care Awareness Campaign: Own Your Future How Medicare Part D Works How to Save Medicard $20 Billion a Year and Improve the Program in the Process The Realist's Guide to Medicaid and Long-Term Care