We should consider having long-term care insurance throughout our lives. The reason for this is because chronic and critical illnesses can occur quickly, and unforeseen. We may also not acknowledge that we are getting older and overlook the need to fit long-term care insurance in a financial plan. It is very important to understand long-term care isn’t only for older Americans. Also, it impacts people of all ages and circumstances. Long-term care is not paid for by the new changes in the Affordable Care Act. Keep in mind that long-term care insurance is provided for those who are experiencing significant difficulties in daily living with little indication of improvement.

The Federal government has passed legislation which addresses the financial stress of Medicare, Medicaid and Social Security. The long term care crisis is no different. Adding another entitlement to the three would already provide the 78 million baby boomers with larger entitlement programs. Because of the grave nature of the long-term care demand, many have advocated to have a program to afford everyone’s long-term care needs, nonetheless. To incentive the purchase of long-term care, the Federal Government addressed the movement in 1997. Which brought about a health care reform package that provides tax incentives for individuals and employers to purchase long-term care insurance. Which means Americans were made aware of the benefits of investing in a long-term care policy.  The Health Insurance and Portability Act, (HIPAA), established minimum coverage criteria. Congress sought to ensure that the private insurance policies purchased were adequate, suitable, and would provide beneficiaries with enough financial benefits when the long-term care insurance would be needed. Policies that would pay beneficiaries too little or too soon do not receive tax privileged treatment. For benefits that do not meet HIPAA standards, awards are generally going to be considered taxable income. However, HIPAA compliant tax qualified policies, of which go towards medical expenses such as medical insurance, are generally not taxed. 

Keep in mind that the IRS sets limits on the daily or monthly equivalents. In which the benefits should not exceed the actual cost of care. Keep in mind that a portion of the long-term care insurance premium, does count as a medical expense per IRC Sec. 213(d)(10)(A). Because medical expenses in excess of 10% of adjusted gross income are tax deductible. (7.5% for those over 65 and older through 2016.) This results in a portion of long-term care premiums helping clients reach a threshold and would put them over it to receive a tax deduction. That’s very favorable.

Asking yourself if Medicare will pay for Long-Term-Care is a very common question both Medicare beneficiaries ask as well as concerned family members, friends and other loved ones. Medicare is designed to provide only for Skilled Nursing Care, which can provide up to 100 days in a nursing home during a benefit period. On average, most Medicare beneficiaries are using 25 days or less. Why? Because most Medicare beneficiaries will not qualify for the skilled nursing care under Medicare guidelines.  Does Medicare provide coverage for custodial shifts at home? No, it does not. It will only cover home healthcare visits that require Skilled Nursing Care. Take for example, Alzheimer’s, a very common condition for the elderly. Because Alzheimer’s requires considerable custodial care, but little to no skilled care, the home health benefit would not be paid for. 

Does Medicare Supplement provide coverage for custodial shifts, or at home care? No, most supplement policies will not provide benefits to the insured. This is because tightened and heightened legislation promoting Medicare cost containment. It seems to be a trend which will continue, shifting the cost of home health care to the individual and the family, rather than the federal government.

The slight majority of long-term-care services in the U.S. is paid for by Medicaid. You may be surprised to find that Medicaid patients’ personal assets are forfeited in order to receive long-term-care benefits. They give most of their income, (which includes Social Security Income) to a nursing home. This allows the long-term-care beneficiary to receive Medicaid home benefits. The beneficiary is usually, (in most states) also required to be placed in the nursing home facility before long-term-care benefits become active. Why would this be? It’s due to limited state funding for home health care. Medicaid programs that provide eight to ten hours of daily informal home health care. This leads many families to consider private long-term-care options which include extenuous home health care, assisted living, and adult day care for their parents. There are numerous real-life applications where families were financially burdened by the exorbitant costs of nursing homes. As a result, assets and retirement income were redirected to pay for the nursing home expenses. Another issue with receiving Medicaid funded nursing care is there may be shortages in nursing home availability, which may cause the beneficiary to move to a different area. Which causes more of a burden on the family, considering the time it may take to visit and care for them. 

A healthcare reform package was enacted in 1997 which provides tax incentives for individuals and employers who purchase long-term care insurance. The government chose this simply because there isn’t enough funding to develop a program which would provide benefits for the public’s long-term care needs. The long-term care entitlement would provide long-term care for over 78 million baby boomers, which may even surpass the “Big Three Entitlements” of Social Security, Medicare and Medicaid.  The Health Insurance Portability and Accountability Act of 1996 (HIPAA) was a law enacted to establish minimum essential coverage criteria for long-term care policies. The minimum benefit would allow beneficiaries to receive tax advantaged coverage through their private long-term care insurance. Policies which do not meet the HIPAA standard will not receive the tax friendly benefits. The government believed that by doing this, it would hold insurance companies accountable for providing adequate and suitable policies, but also encouraging the purchasing of long-term care for the tax benefits.  What are the tax advantages for the HIPPA “tax qualified” policies? IRS put rules in place which allow long term care beneficiaries to receive their benefits and not count as taxable income. This IRS specified daily or monthly equivalent benefits, however, so as long as the payout does not exceed those limits, the tax advantages are true. The IRS allows this long-term care expense per IRC Sec. 213(d)(10)(A), to be deductible medical expenses if in excess of 10%, 7.5% age 65 and older through 2016.)