Senior borrowers considering a HECM reverse mortgage who also rely on or anticipate needing Medicaid may face an interaction between the two programs that can have serious financial consequences. Medicaid imposes resource limits on eligible individuals, and HECM proceeds that accumulate in a bank account can count against those limits. MLOs working in this space must understand the basics before making any representations.
How Medicaid Resource Limits Work
Medicaid is a needs-based program. Most states impose a countable resource limit of approximately $2,000 for an individual and $3,000 for a couple, though limits vary by state and program type. Countable resources include cash, bank accounts, and most financial assets. The primary residence is generally exempt as long as the owner intends to return to it.
The Key Issue: Proceeds That Sit in a Bank Account
When a HECM borrower receives a lump sum or monthly tenure payment, those funds are considered income in the month received and countable resources in subsequent months if not spent. A borrower who takes a $100,000 lump sum from a HECM and deposits it in a checking account has just increased their countable resources by $100,000, which likely disqualifies them from Medicaid. Funds held in the HECM line of credit that have not been drawn are generally NOT counted as resources, because they have not been received.
The Line of Credit Option
For borrowers who are concerned about Medicaid eligibility, establishing the HECM as a line of credit rather than taking lump-sum or tenure payments may preserve benefit eligibility. Funds in a credit line are available but not received, and therefore are generally not counted as resources. Borrowers should consult with an elder law attorney before making any HECM disbursement decisions.
- ✦Lump sum HECM: proceeds are income in month received; become countable resources if held into next month
- ✦Tenure payments: counted as income monthly; any unspent balance becomes a countable resource
- ✦HECM line of credit: undrawn funds are generally not countable for Medicaid resource tests
- ✦State variation: Medicaid rules vary by state; consult an elder law attorney in the borrower's state
Aria can walk through HECM disbursement options and help you identify when an elder law attorney referral is appropriate for a client. Ask at vicariointel.com.
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