Medicaid and Medicare
A reverse mortgage does not affect “non-means-tested” government benefits programs such as Medicare. However, a reverse mortgage can affect “means-tested” programs including Medicaid because those programs test to see how much financial resources a homeowner has available.
Medicare is an entitlement program that one is eligible for regardless of income. Consequently, Medicare is not affected by a reverse mortgage.
Medicaid (and Medi-Cal) is a government sponsored program that is intended to provide health care to low-income individuals. Consequently, Medicaid eligibility can be affected by a reverse mortgage.
Medicaid eligibility requires applicants to have no more than $2,000 ($3,000 for a couple) in countable assets one day out of the month. To explain further, for an individual to be eligible for Medicaid he/she cannot have more than $623 in countable monthly income or more than $2,000 in countable resources (car, house, etc).
The reverse mortgage is not considered income so that eligibility requirement is not affected. However, if an individual on Medicaid were to receive a lump sum of $6,500 from his/her reverse mortgage loan and spend only $4,000 of it in the month in which it was received, putting the remaining amount ($2,500) in the bank, then he/she would no longer be eligible to receive Medicaid because after 30 days the $2,500 would become an asset and exceed the eligibility requirements.
In short, a reverse mortgage does not automatically disqualify a homeowner for Medicaid but the homeowner has to be careful with the timing of spending of the reverse mortgage funds. Seniors should contact their state’s Medicaid administrator to determine exactly how to comply with the Medicaid eligibility requirements if they take out a reverse mortgage.