Ken Himmler.com

Your chances of requiring some sort of long-term care increase as you age, and long-term care insurance (LTCI) can help you cover your long-term care expenses. Although tax issues are probably not foremost in your mind when you buy LTCI, it still pays to consider them. In particular, you should explore whether your premiums will be deductible and your benefits taxable.

You may be eligible for an income tax deduction

You may be able to deduct all or part of the LTCI premiums you pay for yourself, your spouse, or a dependent, but only if your policy meets the IRS criteria for a qualified policy. If you bought the policy before January 1, 1997, and it met the requirements of the state where it was issued, it is automatically considered a qualified policy. If you bought the policy later, it must satisfy several requirements to be considered qualified. First of all, the policy must provide coverage only for qualified long-term care services. These include necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, as well as maintenance or personal care services that are required by a chronically ill individual, in connection with a plan of care prescribed by a licensed health-care practitioner. Also, your policy must satisfy the following conditions:

• It must be guaranteed renewable, meaning that you can renew your policy as needed without undergoing additional medical exams
• It must not have a cash surrender value or any provision that allows you to cash in, pledge, assign, or borrow against the policy, or receive anything more than a refund of premiums paid if you cancel the policy
• It must provide that any refunds and dividends (other than refunds upon termination of the policy) can be used only to reduce future premiums or increase future benefits

• It must not pay for (or reimburse) expenses that are reimbursable under Medicare, unless Medicare is a secondary payer, or unless the policy pays a specified amount per day regardless of actual expenses .It must meet certain consumer protection requirements set out in the Internal Revenue Code.

The amount of your deduction depends on a few factors

If your LTCI policy meets the conditions listed above, or if it was issued before January 1, 1997, at least part of your premium may be tax deductible as a medical expense. To qualify for a medical expense deduction, your unreimbursed medical expenses (including LTCI premiums) must exceed 7.5 percent of your adjusted gross income. Also, you must itemize your deductions.

The maximum amount of LTCI premiums that you can deduct in a year depends on your age at the end of the year. In 2009, deduction limits (which are indexed each year for inflation) are as follows:

Age Limit on Deduction
40 or younger $320
41 to 50 $600
51 to 60 $1,190
61 to 70 $3,180
71 or older $3,980

Watch out–your long-term care insurance benefits may be taxable

A qualified LTCI contract is treated as an accident and health insurance contract, and the benefits are typically treated as tax free. However, if your contract pays a set dollar amount per day (per diem), the tax-free treatment is subject to a certain limit, indexed annually for inflation. Benefits over and above this limit are generally considered taxable income.

Under this limit, the amount of your LTCI benefits that is excluded from taxation in a given period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts:

  The actual cost of qualified long-term care services during the period
  The dollar amount for the period ($280 per day for any period in 2009)

It’s a different story if you have a nonqualified LTCI policy, though. Such benefits may be subject to income tax.
 

If you or a loved one is covered by a Medicare health plan or prescription drug plan, now is the time to review your coverage and compare your options. Anyone covered by Medicare can make changes to his or her coverage, including choosing a new plan for 2011, beginning on November 15 and continuing through December 31, 2010. Although you can make changes at any time during this period, the earlier you do so, the more time your new plan has to mail you a membership card and other important information before your coverage begins.

       The 2011 Medicare Options Compare tool allows you to compare Medicare health plan options, including HMOs and PPOs

     The 2011 Plan Finder allows you to compare prescription drug coverage from stand-alone prescription drug plans and Medicare Advantage plans that provide prescription drug coverage (may be called MA-PDs)

Recently I had a great conversation with a client. Apparently this client’s son had been given the credit card information on their credit card with the understanding that they could use it for small investments into their new business. Unbeknowenst to them they ran this credit card up and over $125,000. Once this was discovered it became apparent that there would be no way that they would ever be able to pay off this credit card with the interest between 14% and 19%.  The bank referred them to this service and they renegotiated them down to a payment plan that the interest was at 7%.  I want to disclose that I have no relationship with this service and I cannot give you any details other than if you know someone that could benefit from this then you may want to refer them

Money Management, Trisha Roy, # 888-845-5669, Ext. 5831 & email is trisha.roy@moneymanagement.org.

I am writing this from my office away from my office, downtown Sarasota, Fl. Many times I have to get out of the office to get my mind straight and think. As I was thinking about this recession we are in I asked myself what has really caused this. I think there has been many reasons from a Rip Van Winkle fed chairman (not that I think Greenspan was any better) to a greedy real estate market and to put the cherry on the cake the unregulated oil commodity market. That brings me to my next question. How did we get back in this oil crisis? I do know that it has affected everyone we know from those who travel and now have to pay for luggage, to those who depend on transportation and finally those who are retired and are dependent on retirement income from the stock and bond markets. I am not going to complain about the situation because all that does is boil the blood. I am however going to tell you about part of the problem with our oil crises. Oil prices respond to Read more…

Here we are in another day of la-la land with the U.S. and their drug policies. As I was doing research on the portfolios today I noticed some rather odd gyrations within the pharmaceuticals. When I looked further I noticed that just overnight six very popular drugs have doubled in price. As an example Ambien went up 160% in price. Do I have an answer for this, no. I will say that it is primarily a problem with the U.S. Last June (2007) I traveled to Germany to get back surgery done because the cost of this in the U.S. would have been five times as high as it was in Germany. The greatest part of it was it was a single price of 34k. This included everything from the surgery, the post-op and the drugs. If you have ever had any medical work done in the U.S. be prepared to pay $40.00 for a roll of surgical tape. That is another story where a local hospital did in fact try to charge my insurance company $40.00 for surgical tape – until I complained that I could get a roll of hockey tape for $2.00.

Here is the problem:

1) When you are retired or you are going to retire plan on needed a nest egg of about $225,000 per person for medical expenses. (Assuming you retire at age 60 – if you retire earlier it will be more)

2) Plan on an average annual increase of 15% on all medical expenses.  (This sounded good until the 100% increase overnight on drugs)

3) Plan on a 7 out of 10 chance that you will in fact need long term care before you die.

I dont know about you but getting older is really expensive. If you have had an experience with medical expenses ruining someone retirement leave a comment.

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Also check out the other post/article I wrote on Medical Expenses in retirement at

http://www.kenhimmler.com/2008/08/06/healthcare-in-retirement