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Basically, long-term care covers
helping people function -- do things
that they can no longer do for themselves. And, in fact, most seniors
are interested in LTC because they fear that one day they may need help
with the following ADL’s (Activities of
Daily Living): bathing, eating, dressing, toileting, continence,
transferring. This type of personal assistance is central to long term
care, although there could be medical conditions involved, requiring
skilled medical personnel, possibly throughout a 24 hour period. And
the type of the medical condition may very well determine whether the
person can remain at home or belongs in a nursing home, with available
skilled medical care. The need for custodial or personal care was not
the eligibility requirement in most early LTCI policies, issued up to
about 1990 but, instead, a skilled nursing requirement had to be
satisfied, certified by a physician, and custodial care would be
covered after a period of skilled nursing home care. This feature has
been removed from almost all new LTCI policies, so the most common
method for determining when benefits are payable is based upon the
insured's inability to perform two or three of the activities of daily
living (ADLs), enumerated at the beginning of
this paragraph. And, after
having said all of the above, I need to fine tune the information
further in order to explain what constitutes a Federal Tax-Qualified
Policy:
Important Characteristics of
a Federal Tax-Qualified Policy
(From A Shopper’s Guide to Long-Term Care Insurance-2008 issued
by the National Association of Insurance
Commissioners)
1. Premiums can be included with
annual uncompensated medical expenses for deductions from your income
in excess of 7.5% of adjusted gross income up to a maximum amount
adjusted for inflation.
2. Benefits that you receive and use
to pay for long-term care services generally will not be counted as
income. For policies that pay
benefits using the expense incurred method. benefits
that you receive in excess of the cost of long-term services may be
taxable. For policies that pay
benefits using the indemnity or disability methods, all benefit
payments up to the federally approved per diem (daily) rate are
tax-free even if they exceed your expenses.
3. To trigger the benefits under
your policy, the federal law requires you to be unable to do two ADL’s without substantial assistance.
4. Medical Necessity cannot be used
as a trigger for benefits.
5. Chronic illness or disability
must be expected to last for at least 90 days.
6. For cognitive impairment to be
covered, a person must require substantial supervision.
Whether you are considering
buying a tax-qualified or a non-tax qualified policy, consult with your
tax consultant or legal adviser regarding the tax consequences in your
situation. Also, make sure that
you understand how the benefit and triggers will work and that they are
acceptable to you.
Please Note: If you bought a
long-term care insurance policy before January 1, 1997, that policy is
probably qualified. The Health
Insurance Portability and Accountability Act (HIPAA) allowed these
policies to be “grandfathered,”
or considered qualified, even though they may not meet all of the
standards that new policies must meet to be qualified. The tax advantages are the same
whether the policy was sold before or after 1997.
As I stated
earlier, I ask the client at the beginning of our meeting to step back from long-term care insurance, as follows:
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The first is to make a decision -- one that will be
central to the quality of the client's LTC if and when it is needed
-- is where (geographically) the long-term care will take place. This
point is also important in deciding the dollar coverage of LTCI. I
suggest to the client that the care should take place near person or persons who have been close, loving and
interested in her welfare -- and the
younger, the better -- which may eliminate her sibling(s). I also
suggest she make an alternate choice. We may be planning for the next
ten to twenty years and, as we know, nothing remains the same, so we
need alternates. The quality of care will be enhanced if a family
member or friend "checks on things." For example, is the
nursing home following the resident care plan set up at the time of
admission? If not, why not? Has the nursing home staff noticed
changes in the resident's condition which have caused them to alter
the original care plan? These things must be questioned so the staff
becomes aware that outside persons are interested in how matters are
going with the resident ("monitoring duty" of a sort).
Likewise, if the care is at home by an attendant, the home
attendant(s) needs to know that there are other "parties"
very much interested in the patient -- "a mediator" for
personal disagreements or someone to call regarding medical
questions. As you can see, even with the best LTCI policy, the
insurance can become benefit-less, if we don't pay attention to those
other factors.
Updated: February 25, 2010
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