Could Medicare Advantage cutbacks increase demand for reverse mortgages?

Article Summary

Fewer plan choices in cities and rural communities

Medicare Advantage has become the coverage choice for more than half of the 70 million Americans enrolled in Medicare, according to NPR. The report came as Medicare’s annual open enrollment period got underway and continues through Dec. 7.

Traditional Medicare is administered by the federal government and is available to people age 65 and older, as well as some individuals with qualifying conditions. Medicare Advantage, by contrast, is offered by private insurers that contract with the government. It often attracts enrollees because it can include vision and dental benefits and may have lower premiums than traditional Medicare.

Even so, private insurers can decide where they will sell Advantage plans, which means they may pull out of areas that are not profitable. NPR cited research in the Journal of the American Medical Association showing that the number of people who have been forced to leave Medicare Advantage has climbed sharply in recent years.

The research found that from 2015 through 2024, about 1% of beneficiaries were forced to disenroll. That figure rose to 6.9% in 2025 and to 10% in 2026. Seven states — New Hampshire, Vermont, Maryland, North Dakota, South Dakota, Wyoming and Idaho — recorded forced disenrollment rates of 40% or higher in the current year.

Earlier research from KFF also highlighted a gap in access to Advantage plans. Roughly 20% of Medicare beneficiaries who have 40 or more plan choices live in just 4% of U.S. counties, with those counties concentrated in heavily populated parts of Pennsylvania, Ohio, Michigan and California.

By contrast, many rural areas and even some large metropolitan areas have fewer options. KFF said 638,000 Medicare beneficiaries live in 193 counties without any Advantage plans in 2027, equal to 1% of all beneficiaries, up from 399,000 in 2026. In Alaska, none of the state’s 110,000 Medicare beneficiaries have Advantage plan choices.

In major population centers including Dallas, Minneapolis, Seattle and Houston, seniors are expected to have between one-quarter and one-third fewer plans available next year, according to KFF.

What this could mean for home equity

For older homeowners under financial pressure because of limited health coverage or rising medical costs, using home equity may be one possible answer. In that context, it is important to note that a reverse mortgage — including a federally insured Home Equity Conversion Mortgage or a proprietary loan — does not affect Medicare eligibility.

Reverse mortgage funds are not counted as taxable income by the IRS, so borrowers do not face a higher tax bill simply because they take one out. Because the money is treated as borrowed funds, it generally does not raise the income level used to calculate Medicare premiums. Social Security benefits are also unaffected, since they are based on a person’s earnings record rather than assets or retirement financial products.

However, a reverse mortgage can affect some other financial choices. Medicaid and Supplemental Security Income, or SSI, treat reverse mortgage proceeds left unspent in a bank account as additional income, which could influence eligibility for those need-based programs. Financial advisers often recommend that borrowers who take a lump sum spend it in the same month it is received.

For most borrowers who use a reverse mortgage line of credit, the unused portion is not considered income. Interest and fees apply only to the money that is withdrawn, while the remaining balance grows over time at a rate tied to the loan’s interest rate plus the annual mortgage insurance premium.