Long Term Care

Long Term Care (LTC) insurance is a lot of times thought of as a senior citizen's insurance, the reality is that individuals between the ages of 18 - 64 represent 40% of those currently needing Long Term Care. For more information,

Although Long Term Care insurance is many times perceived of as a senior citizen's insurance, the reality is that individuals between the ages of 18 - 64 represent 40% of those currently needing Long Term Care. Probably, the most publicized case in recent memory would be Christopher Reeve, the actor who played Superman.

Do you know of anyone who was in an accident or a younger person who suffered a stroke?

The Compass Agency can help you navigate thru the choices and obtain the most import goals:

Ongoing healthcare services provided to individuals suffering from a chronic medical condition.

No one likes to think about needing nursing home care. However, through long-term care encompasses care that is delivered in the home, the community, alternate living facilities, and, if needed, nursing homes.

Because of advances in medical science, we are living longer, healthier lifestyles.

If you required medical attention due to a long-term illness or disability, would you be protected? Would your current health insurance provide for day-to-day assistance? Would physical, occupational, or speech therapy be covered?

Most medical coverage, including Medicare, is designed to pay for acute medical conditions. However, there are two different types of medical conditions we need to protect against.*

It is important to check your medical policy to understand what type of coverage you have.

Medicare and most major medical insurance do not provide coverage for intermediate Nursing Facilities or Custodial Nursing Facilities.

Like Medicare, most medical insurance policies will provide some Home Health Care coverage. It is important that you read your policy.

Chronic Medical Conditions progress over a long period of time. Initially, care is provided in the home, most likely by a family member.

It is estimated that almost half of the people who reach 65 will require some nursing home care in their lifetime, with 32% of that percentage requiring more than 90 days of care.

It is projected that almost three out of four people who turn 65 will require some home health care, with 40% of that percentage requiring more than 90 visits.

You're younger and healthier now. And the younger you are, the lower the premium for long-term care insurance will be.

Remember:
One of the most important things in our lives is our health.
It's important that we take care of it.

Qualified Long Term Care Insurance
Both Discounted and Deductible Premiums

Praised by the Americans for Long-Term Care Security coalition Congressional Representative Christopher Shays, R-CT., states,

Medical advances and healthier lifestyles are affording us longer lives. These added years could significantly increase one's exposure to Long Term Care episodes.

One in five Americans over the age of 50 is at risk of needing long term care services in the next 12 months.

The employer paid portion of LTC Insurance premiums is deductible as a general business expense:

The employer paid portion of the LTC Insurance premiums is not deductible if the coverage is provided through cafeteria plan or flexible spending account.

The employer paid portion of the LTC Insurance premiums is excluded from the employee's taxable income.

The employee paid portion of the premium is deductible based on the rules for individual purchase.

* Not all long-term care contracts are tax qualified. Policies must meet certain federal standards before you can deduct the premium. These policies are called tax qualified or qualified long term care insurance contracts. Benefits you receive from a qualified LTC policy are generally not taxable as income.

Benefits received from a policy that is not a qualified LTC policy may be taxable as income.

For costs and further details of coverage, including exclusions and reductions or limitations and the terms under which the policy may be continued, in force, contact Compass Agency.

A growing number of business owners are taking advantage of a relatively new permanent perk: the company-paid, qualified LTC insurance plan. In increasing numbers, Executives in their 40s and 50s are recognizing the important role comprehensive LTC planning plays in asset preservation and wealth transfer.

Effective January 1, 1997, the Health Insurance Portability and Accountability Act (HIPAA), codified as IRC Section 7702B, created Qualified LTC Insurance (QLTCI) contracts. The following information focuses on the federal income tax treatment of QLTCI contracts with respect to “C” corporation employer-sponsored QLTCI and “self-employed” individuals (sole proprietorships, partnerships and limited liability companies) who may deduct the cost of QLTCI for employee-spouses.

QLTCI treated as accident and health insurance IRC Sections 7702B(a)(1) and (a)(3) provide that QLTCI plans shall be treated as an accident and health insurance contract. This is extremely favorable treatment for both the employer and employee as it affects IRC Sections 162, 106, 105, 213 and 7702B(a)(2)… all of which are considered in this article.

QLTCI and non-discrimination coverage requirements

The IRC Imposes no non-discrimination coverage requirements on employer-sponsored QLTCI plans. Employers may be selective in choosing the employees for whom they wish to purchase a QLTCI plan. The IRC does, however, impose non-discrimination coverage requirements on employers who adopt Self-Insured Medical Reimbursement Plans under IRC Section 105.

Deductibility of QLTCI premiums

A “C” Corporation employer may deduct 100% of the cost of a QLTCI plan for the employee and dependent (spouse) as an “ordinary and necessary” business expense under IRC Section 162(a).

Owner-employees of sole proprietorships, partnerships, limited liability companies, and “S” corporations receive less favorable federal income tax treatment for deductibility of QLTCI premium payments. They are treated as “self-employed” individuals and may only deduct a percentage of amounts paid for accident and health insurance under IRC section 162(L). The applicable percentages are 60% for 1999 through 2001, 70% for 2002 and 100% for 2003. Furthermore, “self-employed” individuals are subject to age-based QLTCI deduction limitations under IRC Section 213(d)(10).

Recently, the Internal Revenue Service concluded that “self-employed” individuals may deduct 100% of the cost of an A & H plan for an employee-spouse if the spouse is a “bona fide” employee. The employer-spouse may then be covered by joint QLTCI plan as a member of the employee’s family. (Reference to ISP Coordinated Issue Paper, effective March 29, 1999). The aforementioned ability to deduct 100% of the cost, however, does not apply to “S” corporations because, under IRC Sections 318 and 1372, both the spouse of a more-than-two-percent shareholder and the more-than-two-percent shareholder are treated as partners in a partnership-for-benefit purposes and cannot deduct 100% of the cost of a QLTCI plan. In summary, the 100% tax deductibility of QLTCI premiums available to “C” corporations also extends to “self-employed” individuals who legitimately employ the owner-employee’s spouse.

Income tax treatment to employees of employer-sponsored QLTCI IRC Section 106 excludes “C” corporation employer contributions to QLTCI plans from the Income of the employees who benefit from the plans. Similarly, this benefit extends to the sole proprietor, partnership or limited liability company, that provides QLTCI coverage to the spouse as an employee.

Income tax treatment to employees upon receipt of QLTCI benefits

IRC Section 7702B(a)(2) provides that amounts received under a QLTCI contract shall be treated as received on account of personal injuries and sickness, and shall be treated as reimbursement for expenses actually incurred for medical care as defined in IRC section 213(d). Income-tax-free per diem indemnity payments may be made to employees, subject to limitations provided by IRC Section 7702B(d)(2). For 1999 and 2000, employees may receive up to a maximum daily benefit of $190 income-tax-free, as an indemnity for Long Term Medical Care.

Income taxation of QLTCI premium refunds

IRC Section 7702B(b)(1)(E) states the general rule that all QLTCI premium refunds are to be applied as a reduction in future premiums or to increase future benefits. The special rules under IRC Section 7702B(b)(2) specifically state that refunds only on a complete surrender or cancellation of the contract can be included in income to the extent any deduction was allowable for the QLTCI premiums. IRC Section 7702B does not state that premium refunds, which are received on the death of the Insured, may be included as Income.

This article is not intended to serve as legal or accounting advice; a professional should be consulted about the specific laws and facts relevant to any particular situation.

Why is Long-Term Care So Important? ...We're Living Longer
If you were born	Your Average Life Expectancy
At the turn of the century In 1930 In 1995	40 years 60 years 73 years

Professional Care Providers:	Personal Care Providers:
Registered Nurses Licensed Practical Nurses Licensed Vocational Nurses Occupational Therapists Physical Therapists Speech Therapists	Licensed Social Workers Home Health Care Aides

Nursing Home Care:	The national average ranges from $40,000 to $70,000 per year.
Home Health Aides:	The average 8-hour visit is from $70 to $90 per day.
Alternate Living Facilities:	Costs range depending on the type of facility. Typically they run about 65% of the cost of Nursing Facilities.
What is the average cost of Nursing Home Care in your area?

Comments on the Financing of Long-Term Care

Deductibility of QLTCI premiums