Fred Thompson’s many career accomplishments include serving in the United States Senate, a six-year acting stint as a tough-knuckled district attorney on Law and Order, and a Presidential run. Now, Senator Thompson can add acting as a reverse mortgage company’s front man to his already lengthy resume’. Thompson is just one of several celebrities who have been recruited by reverse mortgage companies to appear in slick television commercials extolling the virtues of taking out a reverse mortgage. Henry Winkler, who may be remembered by many as “the Fonz” from the popular show Happy Days, has signed on as a spokesman with One Reverse Mortgage, the number three reverse mortgage company in the country. James Garner, the actor who starred as Brett Maverick in the late-1950’s western series Maverick, has appeared in commercials for the reverse mortgage company Financial Freedom. Another company’s celebrity of choice is Robert Wagner. These famous faces and the companies they represent want seniors to believe that taking out a reverse mortgage is a no-lose way to earn some quick cash.

So what exactly is a reverse mortgage? A reverse mortgage is a special type of home loan that allows homeowners to convert a portion of their home equity into cash. The home equity that has accumulated over the years is paid to the homeowner. The owner may choose from several options of methods of receiving payment. These include a lump sum payment, a monthly payment, and line of credit. The difference between a reverse mortgage and the traditional home equity loan or second mortgage is that repayment is not required until the borrower no longer uses the home as his other principle residence. While this detail may be touted as a benefit of taking out a reverse mortgage by certain celebrities, the harsh reality is that a senior’s Medicaid eligibility can be seriously affected by such loans.

According to the Alabama Medicaid Agency’s policy interpretations, the reverse mortgage is a loan and the payments received are not considered to be income.  However, payments received in the month(s) following the month of receipt are considered to be available, and therefore countable, resources.  Additionally, transfer of assets rules apply when payments received are not used to meet the needs of the applicant. If the funds generated from the reverse mortgage are not spent, they could accumulate and push a potential Medicaid applicant’s resource value over the acceptable limit. In Alabama, this amount is $2,000. 

Funds received from a reverse mortgage are not immune from the rules concerning spend-down periods. If either the institutionalized spouse (the one living in the nursing home) or the community spouse (the one still residing at home) collects money from taking out a reverse mortgage, those funds must be spent down as well. Additionally, a Medicaid applicant could face transfer penalties if Medicaid agency determines the money from the reverse mortgage has been gifted, or transferred, for less than fair market value. An experienced elder law attorney should be contacted if additional questions arise concerning how taking out a reverse mortgage may affect one’s Medicaid eligibility.

If setting aside an inheritance for children and/or grandchildren is one’s primary objective, getting a reverse mortgage may not be a wise move. After an elderly homeowner who has taken out a reverse mortgage (or a surviving spouse) passes away, the house and much of the sales proceeds must be paid back to the lender. Taking out a reverse mortgage may forfeit any plans one may have had to leave an inheritance for family members and friends. There are some cases in which getting a reverse mortgage is not necessarily a bad idea. If you have a critical need for additional money and have no close heirs, taking out a reverse mortgage may be an option. Additionally, if you do not intend to leave an inheritance to your family or your children don't particularly want to inherit the house, a reverse mortgage can serve as supplemental income. Still, proceed with caution and understand that you should always consider the effect such a move could have on your Medicaid eligibility should that be a pertinent issue one day.

When deciding whether or not to get a reverse mortgage, it is important to consider all of the facts. Do not allow yesterday’s favorite Hollywood icon to influence a decision that could have lasting consequences for not only your life and financial future, but that of your loved ones. Medicaid eligibility policy does not heed advice given by forgotten celebrities via television commercials; neither should you.

This column is one in a series of articles concerning Medicaid eligibility issues. Marlan Golden is an intern with Healthcare Compensation Solutions. Contributing author Liz Hammond is a Medicaid Eligibility Consultant with Healthcare Compensation Solutions. The employees of HCS are not attorneys. The information contained in this article is presented as a public service.  The information is provided for educational purposes only and should not be misconstrued as legal advice. Readers who have additional questions concerning the interpretation or application of the law are encouraged to seek experienced legal counsel.   HCS is a private consulting firm that specializes in all areas of Alabama Medicaid Reimbursement and is comprised of a team of retired eligibility employees who bring over a century of combined years of experience in Medicaid eligibility, Social Security, Veterans’ Affairs, and the Department of Human Resources. Please feel free to send in a personal experience regarding Medicaid issues to: HCS, Attn: Senior Solutions, P.O. Box 240515, Montgomery, AL, 36124.