2012 LTC TAX GUIDE

NOTE I have add the color (red) comments, bold, and Italics.  

Please note that the tax information provided is an interpretation of federal guidelines.  Client/Agents should consult with their tax advisor regarding any tax-related issues.

2012 Tax Advantages of Qualified LTC Insurance

Understanding the tax advantages and benefits of qualified LTCi can be a benefit to you when working sales in both the individual and employer group markets. 

                                                                                              2013 Update

Attained Age Before The Close Of Taxable Year	Eligible Annual LTC Premiums
40 or Less	$350     2013   $360
More than 40 but not more than 50	$660                $680
More than 50 but not more than 60	$1,310              $1,360
More than 60 but not more than 70	$3,500              $3,640
More than 70	$4,370              $4,550

   

 For calendar year 2012, the per-diem limitation under 7702B(d)(4) regarding periodic payments received under a qualified LTC insurance policy is $310.

INDIVIDUALS

Qualified Long Term Care insurance (LTCi) premiums and expenses are deductible personal medical expenses for those who itemize. For additional information see Section 213 of the Internal Revenue Code. Only unreimbursed medical expenses in excess of 7.5% of adjusted gross income are deductible based upon the government age-based table.  This must change.  There should be an above the line deduction of LTC.  Tax credits would also make it more affordable.

PASS THROUGH ENTITIES

Self-employed Individuals

Under Section 7702B(a)(3), a self-employed person may deduct 100% of premium paid for the individual, as well as the individual’s spouse and dependents, up to the maximum eligible allowed as indicated in the above chart without regard to the 7.5% limitation.

 LIMITED LIABILITY CORPORATIONS, PARTNERSHIPS & S-CORPORATION 2%+ OWNERS

The above entity business owners are all treated as if they are partners. LTCi premiums have been classified as health insurance under Section 7702B(a)(3) and when the business pays the premium, it is 100% tax deductible by the business entity. The LTCi premium becomes taxable income to the business owner as “guaranteed” income. IRC Section 707(c); IRC Section 162; IRC Section 61. From the business owner’s tax return and applicable schedule used for business income and expenses, the eligible premium for long term care will be an above the line tax deduction.

C-CORPORATIONS, PC CORPORATIONS & TAX-EXEMPT ORGANIZATIONS

The above businesses may deduct, as a business expense, all qualified LTCi premiums paid for its employees, employees’ spouses and dependents, as well as retirees and their spouses. This includes the business owner, who is considered an employee of the corporation. The employer’s contributions toward the cost of the premium are not included as imputed income to the employee. IRC Section 162(1); IRC Section 106.

CONTRIBUTORY ARRANGEMENTS

When the employer and the employee share the cost of the LTCi premium, the company may deduct all premium it contributes for qualified LTCi plans as a business expense. Premiums paid for spouses and dependents of employees and retirees and their spouses, are treated similarly. For federal income tax purposes, the employee’s portion of the premium is treated as if paid by the individual, and is deductible – subject to the age based limits for individual taxpayers – if the employee’s total unreimbursed medical expenses, including qualified LTCi premiums, exceed 7.5% of the employees adjusted gross income.

PER DIEM CONTRACTS

For 2012, the tax-free receipt of benefits under a per diem policy is limited so that policyholders will be taxed on the amount of benefits which exceeds the greater of $310 per day or the amount of qualified long term care expenses incurred by the insured.

Source: http://www.irs.gov/pub/irs-drop/rp-11-52.pdf   This is not providing tax or legal advice. You should consult your own tax, legal or other professional advisor before promoting these products to your clients. To ensure compliance with requirements imposed by the IRS in Cir. 230, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. 

Part 1 CPR: CA Partnership for Long-Term Care

Note:  The CA Partnership Long-Term Care CE course is  8 hour of instruction Insurance Agents take every two years to be in compliance.  I am primary instructor in Southern CA for
 Senior Insurance Training Services 

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California began the CA Partnership for Long Term Care program in 1994, to promote the purchase of private LTC insurance by offering consumers access to Medi-Cal under special eligibility rules should additional LTC coverage (beyond what the policies provide) be needed.

The California Partnership for Long-Term Care with a select number of private insurance companies.  These insurers have agreed to offer high quality policies that meet stringent standards set by the Partnership and the State of California.  These special policies are commonly called “Partnership Policies.”

Unique Aspects Of the Partnership Policy

1. Dollar for Dollar Asset protection for Medi-Cal qualification and Estate Recovery Credit.  

                  Each dollar your Partnership policy pays out in benefits entitles you to 
                  keep a dollar of     your assets if you ever need to apply for Medi-Cal. 
                  Your  protected dollar will also be exempt from any claim theState of California
                  may have against your estate to recover the cost   of State-paid long-term 
                  care or  medical services provided to you.

2. Face to Face Independent Care Management 

Partnership policies include an Independent care management benefit.   The care manager is a health care professional or a social worker who is employed by a care management agency that provides assessment, care coordination, and monitoring.  Works with you to assess your circumstances, determine the specific services you need, develop a plan of care to address your needs and, if you desire, coordinate and monitor services to insure you are cared for appropriately.  The care manager paid for by the Insurer but is contracted through the CA Dept of Health.  Care Managers, are all required to meet specific standards established by the Partnership.

3. Premium Increase Protection.

4. Monthly Reimbursement for Home Care Cost 

    Additional Features To KEEP The Policy IN-FORCE

For Additional Information Regarding the CA Partnership:

CA Partnership Before You Buy 2012

CA Consumer R U Ready CA

CA LTC Agents: AB 999 Passed

Note: AB 999 when first introduced almost guaranteed more Insurance companies exiting CA.  I have reviewed 3 articles and this one published by John Hancock works best for me.

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Revised version of California Assembly 999 passed on August 31st  September 7, 2012

Over the past two years, the LTC industry (including John Hancock) has been working with the California Insurance Department (CID) and legislators on revisions to rate stabilization and consumer disclosure requirements.

As originally introduced in early 2011, California Assembly 999 (AB 999) contained provisions which would have a significant and negative impact on the marketplace. The most problematic was the provision that would limit a carrier's ability to raise rates more than every 5 years for pre-rate stabilized business and every 10 years for post-rate stabilized business. This bill was withdrawn in mid-2011 with the caveat that the industry would work with the CID and Legislators on additional reforms.

On August 31st, a revised version of AB 999, that removed the more onerous aspects of the original bill, was passed by the Legislature Key. Provisions of the bill to include the following:

•Actuarial Requirements - The bill adds additional actuarial requirements that must be met by
carriers when filing initial products or rate increases in the area of loss ratios, pooling, interest rates
and contingent nonforfeiture. The bill also allows for a carrier to implement a requested/approved rate increase in smaller annual segments over time. The 5-year/10-year restriction on a carrier's ability to raise rates was not included in the re-introduced and final version of AB 999.
•Enhanced Disclosure & Access to Information - The bill also improves consumer disclosure and
access to information regarding a carrier's long-term care insurance product portfolio.

Next steps – We expect Governor Jerry Brown to sign this bill shortly. California AB 999 will become effective on January 1, 2013.

Alzheimer's - Some Facts & Stats (Part 1)

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Resource Links

Alzheimer's Association
National Institute of Health-Alzheimer's

LTC 101: The Kiplinger Financial"Who Cares?" video

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The Knight-Kiplinger Financial video "Who Cares? Kiplinger's No-Nonsense Look at Long-Term Care and How To Pay For It" link: 

 http://www.kiplinger.com/video/v.php/who-cares-37227843001.html  

This video first was introduced to LTCi Agents in 2008.  Although, brought to you by John Hancock, it is a fine presentation that has held up well over the years. 

Only 22 minutes long great start on understanding Long-Term Care and LTC insurance.

              Steven Hawking reacts to long-term care insurance.

           

LTC 101: Policy Design (short-fat vs long-thin)

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Two ideas prevail when developing a LTC Reinbursment policy.

1: Short - Fat: A short elimination period (30 or 90 days) of $200 to $400 a day benefit with a two, three or four year multiplier.  

Example $200 x 1095 day = $219,000 first year policy value, 90 day facility 0 day home care, 5% compound inflation. 

    Annual Premium 50 year old couple  $2,708 

 (United of Omaha- Std)

Advantage: Client controls the cash flow.  Depending upon need (cost and length of care) sends all or part of  the covered benefits. 

2. Long-Thin: less Daily benefit x 5 year to eight year multiplier with a long elimination period (180 or 365).

Example: $100 x 2,920 = $292,000 first year value. 365 day elimination period , 5% compound.

    Annual Premium for 50 year old couple $2,356 

 (United of Omaha- Std)

Advantage: Premiums savings because client self insures for the short term.  Only for the catastrophic -LONG TERM- does he have access to the insurance benefit.

Note: Short-Fat design with access to more money earlier is best:  The savings gained for a LONG waiting period does not offset the exposure to the early cost of care. 

Long-Term Care Insurance can be complicated with many decisions required in designing a comprehensive policy.     

Insureds need to take the time to understand the features and definitions that distinguish  each companies coverage.

 "Long-term care insurance can allow loved ones to care ABOUT YOU …instead of having to care FOR YOU."