slide1 n.
Download
Skip this Video
Download Presentation
Tax Treatment of Qualified Long Term Care Insurance

Loading in 2 Seconds...

play fullscreen
1 / 45

Tax Treatment of Qualified Long Term Care Insurance - PowerPoint PPT Presentation


  • 169 Views
  • Uploaded on

Tax Treatment of Qualified Long Term Care Insurance A Continuing Education Course for Agents & Brokers. Long Term Care Insurance products underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Tax Treatment of Qualified Long Term Care Insurance' - aviv


Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

Tax Treatment of

Qualified Long Term

Care Insurance

A Continuing Education Course for Agents & Brokers

Long Term Care Insurance products underwritten and issued by

Berkshire Life Insurance Company of America, Pittsfield, MA,

a wholly owned stock subsidiary of

The Guardian Life Insurance Company of America, New York, NY.

8509-01-08

today s agenda
Today’s Agenda
  • Overview of Long Term Care
  • HIPAA 1996 & Long Term Care Insurance
  • Defining tax qualified LTCI
  • Tax treatment of LTCI for individuals
  • Tax treatment of LTCI for business owners
  • Health Savings Accounts & LTCI
  • State tax treatment of LTCI
what is long term care
What Is Long Term Care?
  • Skilled, custodial or maintenance care
    • assistance with activities of daily living (ADLs)
  • Wide range of services for those with…
    • Chronic illness
    • Permanent disability
    • Cognitive impairment
where is ltc provided
Where is LTC Provided?

82%

Home Health Care

Adult Day Care

Assisted Living

18%

Nursing Home

Source: The Wide Circle of Caregiving. Kaiser Family Foundation. et al, June, 2002

who needs long term care
Who Needs Long Term Care?
  • 35 million people in the U. S. areover age 65
    • 6 million need long term care*
  • 77 million Baby Boomers will begin turning 65 in 2011

*Long Term Care Planning: A Dollar and Sense Guide. United Seniors Health Council,January 2002

"Study: Baby boomers could 'strengthen community life,'" Janet Kornblum, USA Today, June 14, 2004

who needs long term care1
Who Needs Long Term Care?
  • Longer life expectancy = greater probability of need for care
  • People over age 85…
    • the fastest growing segment of our population
    • 50%+ will need nursing care*

Source: A Profile of Older Americans, Administration on Aging, 2002

long term care is a family issue
Long Term Care is a Family Issue
  • Care-giving: difficult decisions &economic consequences
  • Geographically dispersed families
  • Baby Boomers:
    • The “sandwich” generation
  • Two income families (the caregiver works)
formal adjustments to work schedule due to caregiving
Formal Adjustments to Work Schedule Due to Caregiving

Use Sick Days/

Vacation Time

Decreased

Hours

Leave of

Absence

Full- to

Part-Time

Quit Job

Retired Early

Source: The MetLife Juggling Act Study Balancing Caregiving with Work and the Cost Involved. November 1999

annual average cost of care
Annual Average Cost of Care*
  • Home care - $24,700
    • Based on hourly rate of $19.00 at 5 hrs/visitand 5 visits/wk
  • Nursing home - $77,745
    • Based on private room rate of $213.00

*Metlife Mature Market Institute Market Survey of Nursing Home and Home Care Costs, September 2007

the cost of care
The Cost of Care
  • Annual Nursing Home costs increasing faster than overall inflation.

Based on the previous example:

Source: Health Spending Projections Through 2013, Office of the Actuary, Centersfor Medicare and Medicaid Services, February 2004

who pays for long term care
Who Pays for Long Term Care?

Total Long-Term Care

Expenditures

Nursing Home

Expenditures

3%

2%

4%

4%

10%

8%

40%

46%

25%

28%

18%

12%

$150.8 billion

$110.8 billion

█ Medicaid█ Medicare █ Out of Pocket █ Private Insurance

█ Other Private█ Other Public

Source: CMS, National health Accounts, 2005

medicare and private health insurance are not the answer
Medicare and Private Health Insurance are Not the Answer
  • Medicare only pays for “skilled” care
    • designed to get you better
    • most long term care is non-skilled care
  • Examples of non-skilled care:
    • oxygen therapy or respiratory therapy for emphysema patients
    • catheter maintenance
    • colostomy drain
    • help with bathing, dressing or other ADLs

Source: Shelton Marketing Services, Inc. 2003

medicaid should be the last option considered
Medicaid Should be the Last Option Considered
  • Medicaid pays for what you do not want: nursing home care
  • Medicaid is welfare: stringent income and asset requirements to qualify
  • Limits your choices

* Refer to your state’s Medicaid rules

medicaid limitations
Medicaid Limitations*
  • Generally below $2,500 in assets
  • Spousal monthly income allowance $1603
  • Look Back Period
    • 5 years
  • Unlimited penalty period

* Refer to your state’s Medicaid rules

is medicaid planning the solution
Is Medicaid “Planning”the Solution?
  • Converts countable assets into inaccessible assets by giving themaway or placing them in trust.
  • It’s a guessing game
    • impossible to judge the correct timing
    • who do you plan for?
  • If not done right, assets are still subject to mandated estate recovery upon death
ltc growing consumer awareness
LTC: Growing Consumer Awareness
  • 71% of Americans claim to be aware of the problem*
  • 50% of Americans age 45 or older have discussed the possible need for long term care with their adult children*
  • American workers rank the importance for LTCI equal to that of group life insurance**

* American Council of Life Insurers, 2003

** Insurance Employee Benefit Survey. Prudential Financial, 2003

national association of insurance commissioners
National Association ofInsurance Commissioners
  • NAIC Model Regulations, 1993
    • Must provide at least 12 months of coverage
    • Must be reimbursement or indemnity contracts
    • Must cover treatment provided in settings other than hospitals
health insurance portability and accountability act of 1996 hipaa
Health Insurance Portability and Accountability Act of 1996 (HIPAA)
  • Federal law that defined tax qualified LTCI
  • Qualified LTCI policies receive favorable tax treatment
  • Any LTCI policy issued prior to January 1, 1997 is grandfathered
tax qualified ltci policy definitions
Tax Qualified LTCI:Policy Definitions
  • May only provide coverage for qualified long-term care services
    • Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services and maintenance, or personal care services required by a Chronically ill individual.
    • Qualified services must be provided following a Plan of Care prescribed by a licensed health care practitioner
tax qualified ltci policy definitions1
Tax Qualified LTCI:Policy Definitions
  • Chronically Ill
    • Requires substantial assistance with at least two of six activities of daily living (ADLs)
      • ADLs: dressing, eating, bathing, toileting, transferring and continence
    • Expected to require assistance for more than 90 days

or,

  • Substantial Supervision due to a Severe Cognitive Impairment
    • Severe Cognitive Impairment is a deterioration or loss in intellectual capacity
    • Substantial Supervision means you require continual supervision by another person
      • May include cueing by verbal prompting, gesture, or other demonstrations
tax qualified ltci other requirements
Tax Qualified LTCI:Other Requirements
  • Must be guaranteed renewable
  • May not, in general, duplicate Medicare
  • Must meet NAIC regulations
  • Must have no cash surrender value
  • Must apply all refunds or dividends as a reduction of future premiums or an increase to future benefits, except upon death or total policy surrender
tax treatment of qualified ltci
Tax Treatment of Qualified LTCI
  • Qualified LTCI is treated as accident and health insurance1
  • Premiums can be deductible2
  • Benefits received are not generally taxable income3
  • Un-reimbursed cost of qualified LTC services are deductible as medical expenses

1- IRC Sec. 7702B(a)(3)

2- IRC Sec. 213(d)(1)(D), 213(a)

3- IRC Sec. 105(b), 7702B(a)(2), 7702B(d), 213(d)(1)

tax qualified ltci benefits
Tax Qualified LTCI Benefits
  • 100% of the proceeds on a reimbursement policy are tax free
tax qualified ltci benefits1
Tax Qualified LTCI Benefits
  • With indemnity policies the greater of the first $270 or actual cost of care is tax free

The information provided here is not intended as tax or legal advice.

taxation of premiums individuals
Taxation of Premiums: Individuals
  • For income tax purposes, qualified LTCI premiums qualify as a medical care expense.
  • Deduction is subject to age-based eligible premium limitations, which are adjusted annually.
    • IRC Sec. 213(d)(1)
eligible ltci premium
Eligible LTCI Premium

2008 Eligible Premium Amounts

taxation of premiums individuals1
Taxation of Premiums: Individuals
  • Only eligible premium is deductible
    • Must itemize deduction on schedule A line 1
    • Added to other unreimbursed medical expenses
    • Amount that exceeds 7.5% of Adjusted Gross Income (AGI) is deductible
employer paid ltci
Employer-Paid LTCI
  • Employer may deduct 100% of premiums paid on behalf of W-2 employees and spouses1
    • Age based eligible premium limits do not apply
  • C-Corp. may deduct 100% of premiums for:
    • Owner-employees, spouses, tax dependents, and retirees

1- PL 104-491, IRC Sec. 7702B(a)(3)

employer paid ltci1
Employer-Paid LTCI
  • Premium excluded from employee’s income1
  • Benefit is generally tax free to employee2

1- IRC Sec. 106(a), 7702B(a)(3)

2- IRC Sec. 105(b), 7702B(a)(2), 7702B(d), 213(d)(1)

employer paid ltci2
Employer-Paid LTCI
  • Employer designates or “carves-out” specific classes of employees that will be covered with LTCI.1

1- Treas. Regs. 1.105-5, 1.106-1

employer paid ltci3
Employer-Paid LTCI
  • May not be paid through:
    • Cafeteria plan1
    • Flexible spending account2
    • Salary reduction

1- IRC Sec. 125(f)

2- IRC Sec. 106(c)(1)

sole proprietorship
Sole Proprietorship
  • May deduct 100% of eligible premium for:
    • Owner
    • Spouse
    • Tax dependents i.e. parents & other relatives
  • May deduct 100% of actual premium for:
    • Non-owner employees
    • Their spouses
sole proprietorship eligible premium deduction
Sole ProprietorshipEligible Premium Deduction

$

$

$

$

  • Self-employed 55 year old owner with a49 year old spouse
sole proprietorship total premium deduction
Sole ProprietorshipTotal Premium Deduction

$

$

$

$

  • 55 year old owner employs his 49 year old wife
  • Wife is the owner of the joint policy
  • She and her owner/husband are the insureds
sole proprietorship paid up 10 pay deduction
Sole ProprietorshipPaid up (10 Pay) Deduction

$

$

$

$

  • 55 year old owner employs his49 year old wife
  • Wife is the owner of the joint policy
  • She and her owner/husband are the insureds
partnerships s corporation shareholders
Partnerships & S-Corporation Shareholders*
  • Premiums are deductible by the firm1
  • Premiums represent income to these owners2
  • These owners may deduct the eligible premium3

1- IRC Sec. 162 (a)

2- IRC Sec. 707(c)

3- IRC Sec. 162(I), 213(D),213D(10)

* Greater than 2% shareholder

rules of attribution s corporations
Rules of Attribution:S-Corporations

Situation:

  • Spouse of shareholder is a W-2 employee of the corporation
  • Corporation pays and deducts premium for both
  • Premium must be added to income of both shareholder and spouse
health savings accounts hsas
Health Savings Accounts (HSAs)
  • Tax exempt account established to pay qualified medical expenses
  • Individuals, under 65, covered by a high deductible health plan (HDHP)
  • Contributions are tax deductible
  • Distributions for qualified medical expenses are tax-free
health savings accounts hsas1
Health Savings Accounts (HSAs)
  • HSA Contribution Limits (2008)
    • the lesser of the annual deductible or $2,900 single / $5,800 family
    • “catch-up” for 55+ is $900 for 2008
  • HDHP Limitations
    • minimum deductible: $1,100 single / $2,200 family
    • maximum out-of-pocket: $5,600 single / $11,200 family
hsa s long term care insurance
HSA’s & Long Term Care Insurance
  • Distributions generally cannot be used to pay health insurance premiums
  • However, long-term care premiums are treated as qualified medical expenses
  • HSA’s offered under a cafeteria plan may be used to pay LTCI premiums
  • Tax deduction limited to the eligible premium
state tax treatment of ltci
State Tax Treatment of LTCI
  • More than half of states offer some form of tax incentive on an individual’s or employer’s state taxes.
  • Some states offered some form of above the line tax incentive (not subject to exceeding a % of AGI) without respect to income.
  • See the handout - Quick Reference Guide to State Tax Treatment of Long Term Care Insurance
summary
Summary
  • Overview of Long Term Care
  • HIPAA 1996 & Long Term Care Insurance
  • Defining tax qualified LTCI
  • Tax treatment of LTCI for individuals
  • Tax treatment of LTCI for business owners
  • Health Savings Accounts & LTCI
  • State tax treatment of LTCI
slide45
Tax Treatment of QualifiedLong Term Care Insurance

A Continuing Education Course for Agents & Brokers