A very common question from homeowners is, will Medicare or Medicaid be impacted if I get a reverse mortgage? What about Social Security income?
To begin with, it is important to note that a reverse mortgage is considered a loan and not income. Therefore, any money that you get from a reverse mortgage is free of income taxes. Regardless of how you receive money from a reverse mortgage, which can be a lump sum of money, a monthly payment plan, or from a line of credit (LOC). You are again not required to pay income taxes on the money you get from the reverse mortgage.
So, let’s first take a look at Medicare. Medicare is a federal health insurance program for people age 65 and older and some younger people with disabilities. Medicare is an entitlement program and is not income based. Therefore, Medicare is generally not impacted by a reverse mortgage.
As for Medicaid eligibility, having a reverse mortgage also does not affect Medicaid in terms of income guidelines because the funds from a reverse mortgage are once again not considered income. However, the funds received from a reverse mortgage can potentially affect Medicaid qualification in terms of assets. Medicaid eligibility can be impacted by a reverse mortgage, particularly if the borrower receives a lump sum payment from the reverse mortgage. Medicaid is a means-tested program, meaning eligibility is based on financial need. Receiving a lump sum payment could temporarily increase the homeowner’s assets, which again could potentially affect Medicaid eligibility.
However, if the homeowner uses the reverse mortgage proceeds to cover specific expenses, such as home modifications for aging in place or medical bills, those expenditures may not count as assets for Medicaid purposes. It's critical for individuals considering a reverse mortgage and relying on Medicaid to consult with a financial advisor or elder law attorney to understand how the reverse mortgage may impact their Medicaid eligibility and benefits. Additionally, if a reverse mortgage borrower needs long-term care services covered by Medicaid, the loan could impact their eligibility or impact how the benefits are calculated.
Lastly, let’s look at Social Security income. Social Security benefits are based on your work history and earnings. Once again, because money from a reverse mortgage is not considered income, social security income is not impacted by a reverse mortgage.
However, if you're receiving Supplemental Security Income (SSI), which is a needs-based program for low-income individuals who are elderly or disabled, a lump sum payment from a reverse mortgage could potentially affect your eligibility. SSI has strict income and asset limits, and receiving a lump sum payment may temporarily increase your assets, impacting your SSI eligibility or benefits.
Every situation is unique, and it is critical you investigate your specific situation and consult the proper professional. It's essential to consult with a financial advisor or elder law attorney to understand the potential implications of a reverse mortgage if you are on Medicaid or looking to apply for Medicaid in the future or if you receive SSI or other means-tested benefits.
