The Virtues of Private Reverse Mortgages

Banks have been touting the advantages of so-called “reverse” mortgages for many years as a way for cash-strapped seniors to tap into the equity in their homes to meet their expenses, whether simply for day-to-day living or to pay for the increased costs of home care.

The basic concept of a reverse mortgage is that the bank will make payments to the homeowner, rather than the other way around. The payments can be a single lump-sum, a line of credit, or a stream of monthly payments. The bank does not have to be paid back until the homeowner moves out or passes away.

But the bank must be paid back at that time. For a senior who moves to a nursing home, this means liquidating an asset that is non-countable for Medicaid purposes and turning it into a countable asset that must be spent down before the former homeowner can qualify for Medicaid coverage.

In addition, because the bank is advancing money without knowing for sure when it will be paid back, there are high upfront costs to reverse mortgages. And these mortgages are limited to about half of the equity in the home, which may or may not meet the homeowner’s needs.

For these reasons, many elder law attorneys advise clients to seek out more traditional financing if at all possible, such as a line of credit from a bank.

However, there is another alternative that in many instances better meets the needs and goals of older homeowners — the private reverse mortgage. This is a private loan, usually from a family member, to the homeowner secured by a mortgage on the senior’s home.

Here are some of the advantages for the senior homeowner:

• It’s cheaper. The upfront costs of paying an attorney to set up a private reverse mortgage may be as little as 10 percent of the cost of a commercial reverse mortgage.

• Interest rates are lower. The interest rate on a private reverse mortgage is set by the IRS each month and is less than the interest rate on a commercial reverse mortgage.

• There’s no limit on what percentage of the home equity may be borrowed. The ability to tap into more equity in the home can delay the day of reckoning when the senior must move to a nursing home just because there’s not enough money to pay for caregivers.

• The loan need not be paid back until the house is sold, so if a senior moves to a nursing home, she can keep her house.

• Once in a nursing home or other facility, the senior can continue to receive payments on the private reverse mortgage if needed to maintain the house or to pay for extra care in the nursing home — even to pay for family members to come visit.

Here are some of the advantages of private reverse mortgages for family members:

• What’s good for a parent or grandparent is good for the entire family. To the extent the senior can save money in mortgage costs, the bigger the ultimate estate that will pass to the family.

• The ability to tap into more equity in the home can mean that family members who are providing assistance can either alleviate the burden by hiring more paid caregivers or be paid themselves for providing care.

• While current interest rates are very low, the rates set by the IRS are higher than money markets and certificates of deposit are paying these days. This means that the family member or members advancing the funds will earn a bit more than they would if the money were sitting in the bank.

• A private reverse mortgage can help protect the equity in the home because it takes precedence over any claim by Medicaid.

The family of any senior who owns a home but who has little in savings should consider the private reverse mortgage as a way to help parents and grandparents have the retirement they deserve. Contact your elder law attorney for more information.

New Medicare Premium, Deductible and Co-Pay Charges for 2011

The basic premium for Medicare Part B will be $115.40 a month in 2011, up from $110.50 in 2010 (a 4.4 percent increase). But because there will be no cost of living benefit increase for Social Security recipients for 2011, most beneficiaries will be exempted from paying this increase and will instead pay the same $96.40 premium amount they have paid since 2008.

A “hold-harmless” provision in the Medicare law prohibits Part B premiums from rising more than that year’s cost of living increase in Social Security benefits. Since there is no Social Security increase, most beneficiaries — about 73 percent — will not have to pay any increased Part B premiums because of the hold-harmless provision. Those covered by the provision will continue to pay Part B premiums of $96.40 per month in 2011.

But this hold-harmless protection does not apply to the other 27 percent of beneficiaries — about 12 million in all — who either:

• do not have their Part B premiums withheld from their Social Security checks, or 
• pay a higher Part B premium surcharge based on high income (see below), or 
• are newly enrolled in Part B.

All Medicare beneficiaries will be subject to the new deductibles and co-payments, as outlined below. Medicare Part B covers physician services as well as qualifying out-patient hospital care, durable medical equipment, and certain home health services, among other services.

Following are all the new Medicare figures for 2011:

• Basic Part B premium: $115.40/month
• Part B deductible: $162 (was $155)
• Part A deductible: $1,132 (was $1,100)
• Co-payment for hospital stay days 61-90: $283/day (was $275)
• Co-payment for hospital stay days 91 and beyond: $566/day (was $550)
• Skilled nursing facility co-payment, days 21-100: $141.50/day (was $137.50)

As directed by the 2003 Medicare law, higher-income beneficiaries will pay higher Part B premiums. Following are those amounts for 2011:

• Individuals with annual incomes between $85,000 and $107,000 and married couples with annual incomes between $170,000 and $214,000 will pay a monthly premium of $161.50. 
• Individuals with annual incomes between $107,000 and $160,000 and married couples with annual incomes between $214,000 and $320,000 will pay a monthly premium of $230.70. 
• Individuals with annual incomes between $160,000 and $214,000 and married couples with annual incomes between $320,000 and $428,000 will pay a monthly premium of $299.90. 
• Individuals with annual incomes of $214,000 or more and married couples with annual incomes of $428,000 or more will pay a monthly premium of $369.10.

Rates differ for beneficiaries who are married but file a separate tax return from their spouse:

• Those with incomes between $85,000 and $129,000 will pay a monthly premium of $299.90.
• Those with incomes greater than $129,000 will pay a monthly premium of $369.10.

 
The Social Security Administration uses the income reported two years ago to determine a Part B beneficiary’s premiums. So the income reported on a beneficiary’s 2009 tax return is used to determine whether the beneficiary must pay a higher monthly Part B premium in 2011. Income is calculated by taking a beneficiary’s adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest, U.S. savings bond interest used to pay tuition, and certain income from foreign sources. This is called modified adjusted gross income (MAGI). If a beneficiary’s MAGI decreased significantly in the past two years, she may request that information from more recent years be used to calculate the premium.

Free Medicare Preventive Care Has Kicked In

One of the benefits of the health reform law took effect January 1, 2011: free preventive services for Medicare recipients. Under the law, people with regular Medicare will no longer have to pay a co-pay, coinsurance or deductible to receive preventive services that are highly recommended by the U.S. Preventive Services Task Force — services that include screenings for breast cancer, colon cancer, diabetes and heart disease, as well as smoking cessation counseling. Private Medicare plans (also known as Medicare Advantage plans) may still charge for these services, but many do not.

Also under the health reform law, Medicare Part B beneficiaries will now receive an annual wellness visit free of charge. During this yearly visit, your doctor or other health practitioner recognized by Medicare (such as a nurse practitioner) will update your medical history and current prescriptions; measure your height, weight, blood pressure and body mass index; create a screening schedule for the next 5 to 10 years and screen for cognitive issues. And Medicare now pays in full, without patient co-pays or deductibles, for the initial “Welcome to Medicare” that Medicare has offered since 2005 to beneficiaries within 12 months of their becoming covered under Medicare Part B. (For a CommonHealth article on what to expect from a wellness visit and how to get the most out of yours, click here.)

“Preventing diseases that can be prevented, and detecting others at earlier, more treatable stages, are among the keystones for transforming Medicare,” said Jonathan Blum, deputy administrator and director of the Center for Medicare at the Centers for Medicare and Medicaid Services.

“By eliminating the beneficiary’s out-of-pocket costs for most preventive services, we are removing a barrier to access and paving the way for improved health for seniors and people with disabilities who rely on Medicare for their health coverage.”

For a detailed list from the Medicare Rights Center of preventive services that will no longer require out-of-pocket payments, click here. For more on Medicare’s preventive services from the Medicare Rights Center, click here, and from the Center for Medicare Advocacy, click here.