 The U.S. Census estimates that roughly 83 million Americans qualify for long-term care insurance. Yet, more than 76 million people have no stand-alone long-term care coverage. Since many people still believe that government programs like Medicare and Medicaid will cover the costs of long-term care, these numbers aren’t surprising.
In reality, there is no comprehensive public coverage for long-term care. Medicare pays only for short term, skilled nursing home care following hospitalization and state Medicaid programs require recipients to spend down to the poverty level in order to qualify for assistance. Long-term care insurance, which is designed to protect assets and independence, is one of the only safety nets that will protect people from the risks associated with long-term care. |
Over the past 20 years, the government has started recognizing its inability to pay for long-term care expenses by advising people to look into long-term care insurance to protect their assets. To encourage Americans to take more personal responsibility for covering their long-term care costs, lawmakers have developed a variety of incentives and programs to reward those who buy long-term care insurance.
State Partnerships
In addition to offering a long-term care insurance program, federal lawmakers have also helped design state partnership programs.
To receive Medicaid assistance under normal standards, applicants must first spend down all of their assets to $3,000 or less. However, with new partnership programs, people who purchase an approved long-term care policy will have asset protection, which guards against rules that require people to liquidate assets to get state-funded care.
A partnership-qualified policy enables people to protect one dollar of personal assets for every dollar their policy pays out in benefits. The amount of asset protection is equal to the total of all benefits paid under the policy when the consumer applies for aid.
This program is about helping people avoid the devastating financial effects of spending or giving away their savings to receive long-term care coverage, said Deb Newman, founder of Newman Long Term Care in Richfield, Minn.
“Most people do not want to lose financial independence by giving away their money,” Newman said. “This program gives you the ability to keep some of your assets and still let the state pay for your care.”
More than 35 states currently offer long-term care partnership policies and many others are in the process of implementing the program. Consumers are advised to check with their state insurance department for details.
Tax Incentives
Similar to government insurance programs, the tax advantages of investing in long-term care coverage are tremendous as well.
In 1997, the federal government began offering tax incentives to reward people for buying long-term care insurance, including tax-qualified policies. Congress created these tax perks to encourage both consumers and insurance companies to embrace long-term care insurance.
Under a tax-qualified policy, insurance premiums qualify as itemized deductions on federal tax returns. Additionally, benefits from a qualified policy are received tax-free.
Many providers exclusively offer tax-qualified policies, as over 80 percent of long-term care policies sold in the U.S. are tax-qualified, according to insurance companies.
There are also federal tax perks for businesses that implement long-term care insurance. Premiums for tax-qualified policies paid for employees, their dependents, spouses and retirees are 100 percent deductible as a business expense for C-corporations. Premium costs are also deductible for self-employed individuals.
Along with federal incentives, many states offer tax deductions or credits for long-term care insurance. In some states, tax breaks are applied to a variety of long-term care policies.
Isn’t there a federal long term care option?
Some may recall that long term care was supposed to be part of the Health Care Reform law President Obama signed in 2010. That’s true, but after spending almost two years trying to figure out how to make the Community Living Assistance Services and Supports (CLASS) Act viable, the federal government shelved what was meant to be a national long-term care insurance option. Part of the legislation required the CLASS Act to be sustainable for 75 years. After months of intense scrutiny, the actuaries running the program announced that they could not make the program operate within those parameters. The CLASS Act was permanently eliminated at the end of 2012 as part of the Fiscal Cliff negotiations. As part of that compromise, a federal commission was created to study the care problem and create some recommendations.
Long-term care insurance remains one of the few viable ways to protect families from financial heartache, as relying on state and federal entitlement programs is not an advisable plan. However, with the numerous government incentives available, investing in long-term care insurance is more beneficial than ever.
