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| February 10, 2012 |
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 Longterm Care Insurance: Planning For Your Future
by David N. Chazin
Nearly one out of every two Americans age 65 or older will spend time in a nursing home. While 45 percent of nursing home stays last three months or less, the average nursing home stay is 19 months, and 10 percent of stays last five years or longer. Such care can be very expensive and quickly deplete your family’s financial resources. Who Will Pay? The average cost of nursing home care nationwide currently exceeds $40,000 a year and can run much higher in certain parts of the country. Home care may be less expensive but is still costly. For example, you might spend as much as $1,000 a month to have an aide come into your home three times a week to help with dressing, bathing, and meal preparation. Skilled care, such as physical therapy, would cost more. Medicare and Medicare supplemental insurance (Medigap) generally don’t cover long-term care. Medicare does pay for some nursing and home health-care expenses, but the services must be medically necessary and short term in nature. Medicaid requires you to “spend down” your assets to a “poverty” level before it will begin paying long-term care costs. Consequently, most people of moderate means pay for long-term care themselves, either from family assets or with long-term care (LTC) insurance. LTC policies pay a certain amount for each day you receive care. You generally can choose the amount you want, from $40 to more than $200 a day. Most policies also allow you to select from a variety of other benefits. These benefits might include an inflation rider to help ensure payments will keep up with care costs, a home health care rider, and a choice of how long you must reside in a nursing home or the number of home-care visits you must receive before benefits begin, as well as how long you want payments to continue. Tax Breaks Corporations, which sponsor LTC insurance plans, can pay for policies for their employees and their spouses on a pre-tax basis. The employee does not report the premium as income. Consult with your tax advisor as the procedure varies between C-Corporations and S-Corporations and owners and non-owners. To help individuals with the high costs of long-term care, the Health Insurance Portability and Accountability of Act of 1996 introduced three federal income-tax incentives designed to encourage people to buy LTC insurance. First, if you buy a tax-qualified LTC insurance policy individually or at work, part of your premium may be deductible on your federal tax return as a medical expense. (Only total medical expenses, including LTC premiums that exceed 7.5% of your adjusted gross income are deductible.) In 2002, the amount you can include in your medical expenses is limited to:
Second, any amounts you receive under a qualified LTC policy generally are excluded from income for federal income-tax purposes. Again, a limit applies. In 2002, the maximum LTC insurance payment you can exclude is $210 a day or $76,650 a year. This limit, as well as the premium limit, is subject to an annual inflation adjustment. Third, if you make out-of-pocket payments for long-term care expenses incurred for yourself, your spouse, or a dependent, you generally can deduct these payments as medical expenses, as long as your expenses meet the 7.5% of adjusted gross income requirement. Earlier Is Better LTC insurance premiums are based on your age when you buy the policy and the benefits you choose. As the following chart shows, buying insurance at age 50 can give you a significant cost advantage over buying the same coverage at age 60 or 70. The chart assumes a standard policy, including a 100% home health-care rider, lifetime coverage, and no spouse discount. (Some policies offer a premium discount if your spouse is also insured.) The policy will pay $100 a day after the first 90 days of care.
For an average nursing home stay of 19 months, the total of benefit payments made under any of these policies after the 90-day waiting period — about $49,000 — is considerably more than the total premiums paid. More than Asset Protection While protection for your assets is a powerful reason for buying LTC insurance, it’s not the only reason. Making LTC insurance an integral part of your overall financial plan also gives you the opportunity to choose the level of long-term care you want should the need arise. The wide variety of policy options available lets you select the coverage features you feel will best meet your future needs. Moreover, people with private-pay insurance, as opposed to Medicaid, generally have a greater choice of care facilities and a shorter waiting period to be admitted to the facility of their choice. Perhaps, most important of all, you gain the satisfaction of knowing you will not be a burden to your family in your older years — either financially or physically. Source: 2001 Tax Facts 1 Book, Published by The National Underwriter Company. Published: December 12, 2002 Use of this article without permission is a violation of federal copyright laws. 
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