Long Term Care Insurance – Part I

Over the past few years, you’ve undoubtedly seen numerous advertisements for Long Term Care Insurance, but you probably don’t understand these policies and how they can help you. Also, there are many misconceptions about which benefits health insurance, Medicare and Medicaid provide when long term care is needed.

Basically, long term care is medical and non-medical care for people who have a chronic illness or disability. This care is generally related to assisting people with "custodial care" which is daily living activities like dressing, bathing and using the bathroom. Your own health insurance covers short-term illnesses and does not pay for this type of extended care. Medicare covers only a limited amount of post hospital care and does not pay for any custodial care. Medicaid is a state and federal government program that provides extended care benefits, but only to low income individuals with a small amount of assets.

According to www.medicare.gov, The Official U.S. Government Site for People with Medicare, about nine million men and women over the age of 65 will need long-term care this year. By the year 2020, 12 million older Americans are expected to need long-term care. The government is emphasizing the need for long term care planning through educational campaigns being launched in many states. These promotions are intended to increase awareness that people cannot count on the government for long-term care expenses. Acknowledging this issue, Congress has offered tax benefits for long term care insurance through the Health Insurance Portability and Accountability Act. This act allows favorable tax treatment for premiums to and benefits from qualified plans. Premiums paid by individuals are deductible as medical expenses for itemized deduction purposes depending on the individual’s age. This means you are allowed a maximum annual deduction amount for the premiums you paid which are determined by your current age. As with other unreimbursed medical expenses, long-term care expenses exceeding 7 ½% of adjusted gross income are deductible. The most significant tax advantage is for business owners. Employer payments for group premiums are tax deductible to the employer and not taxable income to the employee. Also, up to $240 per day of benefits paid from long-term care policies is tax-free.

The cost of long-term care today is quite expensive and it is expected to continue to rise. The national average cost for care in a Nursing Home is $58,000 per year! More than ever, long term care planning needs to become an integral part of retirement planning for everyone. Most people desperately want to avoid living in a nursing home and avoid putting a financial strain on their children and other family. Long term care insurance can provide someone with a benefit amount to pay for this care and—the individual can choose the type of care, whether at an assisted living facility or at home care. It’s easy to understand why many people refer to long term care insurance as "anti-nursing home insurance."

Next week, I’ll tell you about the best policies and which options you need to look for when choosing a policy.

My thanks to my associate, Kimberly Reynolds for her assistance with this article.