Long Term Care

What is Long Term Care?

Long-term care refers to the type of medical or personal care services you need if you become unable to care for yourself. This may be the result of chronic illness (cancer), disability, loss of functional capacity (e.g .Parkinson's, Stroke, etc), or cognitive impairment (Alzheimer's). Long-term care is different from traditional medical care. Traditional medical care treats physical problems directly in an attempt to permanently cure or control them. Long-term care helps a person maintain his or her ability to function, perform normal daily activities, or maintain a normal lifestyle. Long term care can be home health care, assisted living, adult day care, personal care facilities, or nursing homes.

Who Needs Long Term Care?

Women tend to outlive their husband and have a 13% chance of spending 5 years or more in a nursing home, compared with 4% of men. 72% of the residents in nursing homes are women and 90% of nursing home residents are over the age of 65. In contrast, 22% of the disabled American population is under age 65. The chances of you using LTC (Long Term Care) insurance is about 2 in 5, while the chances of using your homeowners insurance about 1 in 88, and using your auto insurance is 1 in 47.

Cost of Long Term Care

Long term health costs have risen by more than 20% in the last three years. Nursing home cost ranges from $43,000 to $60,000 annually. Assisted Living costs range from $20,000 to $48,000 annually. The difference for the annual cost is based on geographic location.

What Determines the Cost of Long Term Care?

Long Term Care Policies gives you a number of options which will impact the price. Aside from age at the time of purchase and location, benefits such as the following affect the price:

• Amount of Daily Benefit ($100 per day, $200 per day etc.)
• Length of Policy (covers 5 years, 10 years, Lifetime)
• Inflation Protection (covers cost of inflation over time as the cost of care increases)
• Comprehensive Coverage (we do not know where we will end up receiving Long Term Care Services; home care, assisted living, nursing home) It is comforting to know that the policy will provide benefits in a variety of settings.

How Does the IRS handle Long Term Care Policies

LTC Insurance is treated like medical expenses under the IRS tax code. There are three categories that have different tax treatment.

1. Individual.
2. Self-Employed, Partnerships, S-Corporations, LLCs, and LLPs.
3. C-Corporations.

Individual
Individuals may deduct their medical expenses to the extent that they exceed 7.5% of their adjusted gross income. The amount of eligible LTC Insurance premium can be added to your other eligible expenses for tax year. Health Savings Accounts allow you to purchase a LTC policy with tax free dollars.

Self-Employed, Partnerships, S-Corporations, LLCs, and LLPs
Self-employed individuals, including sole proprietors, partners, and more than 2% shareholders of a subchapter S-Corporation, can deduct a percentage of eligible premiums paid for LTC insurance as a business expense. The percentage is subject to the age-based limits as determined for individual taxpayers and will increase over time. The advantage to being a business owner is that you don't have the 7.5% hurdle to jump. You can deduct 100% of the eligible amount. Policies provided for non-owner employees are not taxable to the employee.

C-Corporations
C-Corporations can deduct 100 % of all Tax Qualified LTC Insurance premiums as a business expense for all employees, their spouses and dependents, and retirees. In addition, an employer's contributions toward the cost of the premium are not included in the employee's income.

It appears as though LTC Insurance is not governed by the ERISA regulations, which has enabled C-Corp's to avoid discrimination rules for employer-employee provided coverage. This means an employer can provide any number of key employees coverage without having to provide it for all of the employees.

The above interpretation is for general informational purposes only. Benefit Providers Inc. is not intending to present itself as a tax professional, but rather offer our opinion of the tax code as it relates to tax qualified long-term care insurance. We encouraged you to consult your tax professional for specific details.