IRS Issues New Tax Deductibility Limits for Long-Term Care Insurance

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Source: Think Advisor

Traditional tax-qualified long-term care insurance policies now have new tax deductibility limits, according to the IRS.

Premiums for tax-qualified long-term care insurance policies are considered a medical expense, according to the American Association for Long-Term Care Insurance, and for an individual who itemizes tax deductions, medical expenses are deductible to the extent that they exceed the current amount required to meet the individual’s adjusted gross income (AGI).

Neither hybrid nor linked benefit (life plus LTC or annuity plus LTC) policies qualify for the deductions. However, individual taxpayers can treat premiums paid for tax-qualified long-term care insurance for themselves, their spouse or any tax dependents (such as parents) as a personal medical expense, according to AALTCI’s website.

The new 2019 limits for traditional LTC insurance premiums (that can be included as “medical care”) are as follows: If the policyholder’s attained age before the close of the taxable year is 40 or younger, $420 in premiums are deductible, unchanged from 2018. For policyholders 41 to 50, the limit is $790, versus $780 in 2018.

For those 51 to 60, the limit is $1,580, up from $1,560 in 2018, while for those 61 to 70, the limit is $4,220, up from $4,160. The largest deduction, for those more than 70 years old, is $5,270, up from $5,200.

Jesse Slome, executive director of AALTCI, points out in an email that older policyholders can benefit from the “potential of a $5,270 qualifying expense (deductible)” for a single person, or up to a $10,540 expense “for a couple where one spouse now has big medical/dental/vision bills.”

More information on LTCI and taxes is available from AALTCI’s website.

Commentary: Critical-illness insurance can protect savings

A critical-illness insurance policy can help “bridge the gap” in health coverage, writes Rod Rishel of AIG Consumer Insurance. Such policies offer a lump-sum payment that can help guard retirement savings and also provide continuity for small businesses, Rishel writes.

ThinkAdvisor (free registration) (3/28)

Commentary: Long-term care needs to be part of health care overhaul

Any effort to reform and replace the Affordable Care Act should include provisions to address long-term care, write Everette James, Walid Gellad and Meredith Hughes of the University of Pittsburgh. Efforts to enhance long-term care should include strategies that bolster the LTC insurance market and changes to how Medicaid and Medicare cover LTC, according to James, Gellad and Hughes.

Health Affairs Blog (3/16)

Long-Term Care Costs Climbing

A couple in their 60s both purchasing new long-term care insurance coverage can expect to pay between 6 and 9 percent more compared to a year ago, according to the annual industry analysis of prices.

“A typical couple where both spouses are age 60 will pay between $100 and $150 a month each for long-term care insurance protection,” said Jesse Slome, director of the American Association for Long-Term Care Insurance.  The national trade group just released its 2017 Long-Term Care Insurance Price Index, an annual examination of costs for new policies available.

Slome said good coverage provides benefits for up to 360 days with a benefit pool that increases each year as the policyholder ages. “For many individuals who ultimately need long-term care, this is going to be sufficient or good coverage, and it’s certainly going to be far more affordable.”

About 41 percent of current long-term care insurance claims end within one year, according to association data.

AHIP-commissioned study: Half of us will need LTC

People have a 50% chance of needing long-term care at some point, yet many underestimate the likelihood of needing such care, according to a new LifePlans study commissioned by AHIP, but insurance can provide protection. The study also found that of those who do need LTC, 30% will need the care for five years or more, and 3 in 5 people surveyed underestimate how much care in a skilled nursing facility costs in their community. AHIP blog (1/10)

California Has the Most LTCi Policyholders

In California, more than 600,000 are covered under a traditional long-term care insurance policy, according to the American Association for Long-Term Care Insurance. “This is certainly due to the size of California as well as the fact that the state has been very active in making residents aware of the importance of planning. While the California Partnership program has little relevance to consumers today, in former years it was valuable protection that I strongly advocated and which was actively marketed by insurance professionals,”   explains Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI). Roughly seven million Americans have traditional long-term care insurance protection and another million have coverage under a linked-benefit or alternative product.

“A significant number of the inbound phone calls we handle and the online request for information come from Californians. Admittedly, there are fewer specialists today than there were a few short years ago, but there are still good avenues available for those who want to get information and compare their choices and options,” he said. For more information, visit www.aaltci.org or call 818-597-3227.

Why We Need a Government-Run LTC Program

by Laura Katz Olson
The U.S. is experiencing a rapid aging of our population, particularly among the eighty-five and over a sector that is most in need of long-term care (LTC). Low-income seniors requiring personal assistance in performing activities of daily living generally cannot afford costly private-sector services on their own, whether at home or in an institution. So they must rely on Medicaid, a demeaning needs-tested program that may force them into a nursing home. Middle class older people have to impoverish themselves to qualify for the program and they, too, frequently wind up in an institution unless the family steps in. People who depend on Medicaid generally do not have access to the better-quality facilities.

Abdication of collective responsibility for our frail elders also overly burdens their roughly 17.7 million family caregivers, mostly women, often leaving them emotionally, financially, and physically overwhelmed. They must contend with a confounding array of complex illnesses and multiple functional and cognitive disabling conditions, including Alzheimer’s disease and related dementias. In order to attain any government assistance, the aged and their families endure pointless paperwork and bureaucratic hurdles not encountered by participants in other social programs such as Social Security. I experienced this first-hand, nearly eight years ago, when I was suddenly thrust into a long-distance caregiving role for my mother and repeatedly faced intractable obstacles to attaining assistance for her. This was the beginning of my education as a consumer and not just a researcher of services for the aged. Geographic location determines the available amount, scope, and duration of publicly-supported services rather than actual need. My mother, who was entitled to only 10 hours of home care per week under Florida’s Medicaid program, surely could not have remained at home with such limited help given the extent of her disabilities. She might have fared slightly better in another state.

Private long-term care insurance is touted by certain political leaders as a solution. However, the evidence suggests that this is not a viable alternative for the vast majority of Americans. Premiums tend to be prohibitively expensive for moderate and low-income families, and have been skyrocketing for many individuals who already own policies. Plans typically pay far less than the actual cost of care, cap the number of benefit years, impose elimination periods (generally ninety days), and usually are not indexed to inflation. Collecting on contracts can be challenging as well since qualifying conditions for claiming benefits tend to be stringent. In addition, insurance companies tend to cherry-pick the healthiest clients, refusing to enroll anyone even at risk for disabling disorders.

In my estimation, in order to meet the current and future needs of care-dependent individuals, the U.S. must implement a mandatory, government-run LTC social insurance program. Similar to Medicare, everyone would contribute through a combination of general taxes, payroll taxes and annual premiums for recipients, based on income. Concomitantly, a universal single-payer system would de-stigmatize the receipt of benefits by advancing LTC as a social right; eliminate the pauperization of middle-class elders; remove income verification requirements; drastically reduce recertification and other burdensome procedures; save money through lower administrative costs, and offer economic security to seniors and their families. The plan would equalize access to benefits, irrespective of household income or where one resides. Older people not only would be eligible for the same services in each state, but they could also move to a new locale more easily and expeditiously. Certainly, this would be advantageous for chronically ill elders who want to be closer to their adult children and grandchildren. Moreover, in an all-embracing public program, the choice between entering a nursing home and obtaining care at home would be the same everywhere in the nation and the quality of services would no longer depend on one’s ability to pay.

In order to recruit enough competent, dedicated nurses and nursing aides, it would be necessary to pay adequate wages and benefits, provide advancement opportunities and improve the workplace environment. Many nursing homes are short-staffed and face high turnover. Studies consistently show that having high levels of direct-care workers is one of the most important factors in providing decent care.

Let me offer a few suggestions to further enhance the quality of care under my proposed government-run LTC social insurance program. The U.S. would benefit from a restructuring of the nursing home and home care delivery systems. For example, it is well-documented that for-profit nursing homes—especially publicly-traded chains—generally have a lower quality of care in terms of overall ratings, staffing, turnover, deficiencies, citations, and complaints. The growing trend toward private equity ownership of institutional facilities and home care agencies has greatly worsened the situation.

Long-term care is ill-suited for market strategies and the concomitant pressures of profit maximization. We should transform the financial underpinnings of LTC by moving from commercial to predominantly public and nonprofit providers, as occurs in most other economically advanced nations. Such a shift would not only eliminate the perverse incentives that prioritize financial gains over people, but could also foster a less costly and more humane means of serving our vulnerable citizens.

Barring such a radical transformation, at a minimum, it would be necessary for policymakers to break up the multi-facility nursing home chains; outlaw the takeover of long-term care services by private investment firms; and establish tougher regulations for the LTC industries and impose immediate and harsh penalties for violating them. The cost of prescription medicines must be controlled as well.

Some may argue that a government-supported LTC social insurance system would be too costly. However, the U.S. already spends considerable taxpayer dollars for such services, with clients mostly receiving substandard, sometimes harmful care for our money. In 2014, total Medicaid spending on LTC was $119 billion; Medicare contributed an additional $30 billion for post-acute services and rehabilitation. As these figures suggest, LTC is big business with much of the money flowing into the coffers of commercial nursing home and home care companies. Unless our public officials advance fundamental structural changes, the long-term care industries that have positioned themselves to feed at the public trough will continue to thrive at the expense of the chronically ill aged and their struggling paid and informal caregivers.

Laura Katz Olson has served as a Professor of Political Science at Lehigh University since 1974. She has published widely in the field of aging, health care and women’s studies, her articles addressing social welfare policy, especially the problems of older women and long-term care. To date, she has published nine books, mostly focusing on the care of the frail elderly. Olson has served on the American Political Science Council and is on the editorial board of the Journal of Aging Studies and the New Political Science Journal. In 2009, she received the Charles A. McCoy Lifetime Achievement Award and, in 2012, Lehigh University’s Williamson Award in Social Research for her book The Politics of Medicaid. Her most recent book, Elder Care Journey: a View from the Front Lines, relates her personal experiences as a caregiver for her mother.

Many Consumers Miss LTC Planning

A study by Lincoln Financial Groups finds that the majority of people who are 40 to 70 have not taken the necessary steps to prepare for a long-term care event. Only 45% of those with a financial advisor have discussed long-term care with their advisor, and few are aware of the wide range of solutions. Among those who have spoken with a financial advisor about long-term care, the most common resource discussed is long-term care insurance (82%). Retirement savings are the second most common resource (61%). Among the least discussed resources are hybrid products that combine long-term care benefits with a life insurance policy or annuity. Hybrid products are rapidly gaining traction in the market and outsell traditional long-term care insurance products, according to LIMRA. Only 28% of those surveyed own a financial product that can help address potential long-term care expenses. The top reasons for purchasing the product are to avoid depleting assets and for peace-of-mind, each cited by 92% of product owners followed by the desire to get the care one needs (86%).

Primary barriers for purchasing an LTC product are competing financial priorities and concerns over paying for something that may never be used – each reason cited by 57% of respondents. While some types of long-term care coverage products are use it or lose it, many hybrid products provide a benefit whether or not care is ever needed. Andrew Bucklee of Lincoln said, “As we head into Long-Term Care Awareness Month, its a perfect time for those who have not planned for potential care needs to begin conversations with their family and financial advisor. During these discussions, its critical that advisors help their clients identify their care preferences and other potential needs while ensuring they understand the differences among the many types of financial solutions available and the distinct advantages of each when building a tailored strategy that includes the right mix of solutions.” Respondents ranked these financial concerns in order:

  • Healthcare expenses (62%)
  • Retirement planning – having enough to live comfortably (59%)
  • Value of investments declining (58%)
  • Costs associated with nursing home or adult day care (54%)
  • The event of outliving their money (48%)

For more information, visit www.whatcarecosts.com/Lincoln/2016.

IRS Increases Tax Deductions for Traditional Long Term Care Insurance

irs

The IRS increased tax deductible limits for traditional long-term care insurance premiums paid in 2017. Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI) said, “The tax deductibility of premiums…provides a real incentive for consumers, especially after retirement.” Only traditional long-term care insurance policies may be tax-deductible to an individual. Special tax advantages are not available for linked-benefit products, such as life insurance or annuity policies that provide a long-term care benefit. According to the AALTCI, in 2016 more people will purchase combo products than those who purchase traditional LTC insurance policies. IRS reports for 2014 reveal that nearly 5.1 million tax filers with incomes of $40,000 to $100,000 reported medical expenses that exceeded adjusted-gross income limits. Starting in 2017, all individuals can deduct qualified medical expenses that exceed 10% of adjusted gross income for the year. The limit is 7.5% of adjusted gross income for 2016, for individuals 65 and older. The IRS allows individuals to deduct medical expenses including preventative care, dental and vision care, prescription medications, glasses, contacts and hearing aids. Traditional long-term care insurance premiums can be included in the term “medical care.” “For retired seniors,…reduced income and increased medical costs means that the cost of traditional long-term care insurance can be all or mostly tax deductible. Many seniors have medical expenses that don’t meet the adjusted gross income limit. But they exceed the limit when the cost of long-term care insurance is included, which provides a significant tax deduction. This is a real benefit for the 23 million individuals age 65 or older who file federal tax returns,” said Slome. The following are the just announced 2017 limits:

Attained Age
Before Close of
Taxable Year               2017 Limit                  2016 Limit
–––––––––––––––––––––––––––––––––––––––––––––––––––
40 or younger             $410 (+ 5.1%)             $390
40+ to 50                    $770                            $730
50+ to 60                    $1,530                         $1,460
60+ to 70                    $4,090                         $3,900
70+                             $5,110 (+4.9)               $4,870

Source: IRS Revenue Procedure 2016-55 (2017 limits) and 2015-53 (2016 limits)

For more information, visit www.aaltci.org or call the organization at 818-597-3227.

Pay for Long-Term Care Insurance with a Health Savings Account

Many Americans realize they need long-term care insurance, but balk at the premiums. Now there’s an easy way to pay, says Denise Gott, CEO of ACSIA Partners. Just use some of the money that’s already in your Health Savings Account. Millions of Americans have such accounts, and millions more may open them. To be eligible, you must first have a high-deductible health plan (HDHP). Health Savings Accounts (HSAs) are tax-advantaged savings accounts designed for HDHP policyholders. HSAs are restricted to health-related purposes. With some limitations, funds may be withdrawn tax-free to pay for deductibles, co-insurance, dental and vision care, and other items. These other items include long-term care and premiums for long-term care insurance.

There are two key advantages. The first is paying for LTC premiums with pre-tax dollars (within limits based on age). The second is convenience: tapping funds one has already set aside. “It’s a shame so few people know about this,. We’re spreading the word through our business partners and to the public directly,” says Gott.

HSAs have proved popular since their introduction in 2004. Within two years there were 3 million accounts, and by mid-2016 there were more than 18 million, according to a report from Devenir. Double-digit growth is projected for 2017, 2018, and beyond. “In the years ahead, HSAs promise to be an increasingly important tool for the health and wellbeing of our longer-living population,” says Gott.

Most Americans can participate if they have or if they get an HDHP. However, those already covered by government health benefits — through Medicare or Medicaid, for example – are generally not eligible. You can open an HSA with a bank, credit union, insurance company, or other approved organization. Employers may also set up plans for their employees.  For more information, visit acsiapartners.com.

Last Updated 06/19/2019

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