Incorporate Long-term Care Into Your Plans

Physician's Money Digest, February 2006, Volume 13, Issue 2

Over the past few years, you've undoubtedlyseen numerous advertisements for long-termcare insurance, but you may notunderstand these policies and how they can help you.Basically, long-term care is defined as medical andnonmedical care for chronic illness or disability. Thiscare is generally related to assisting people with custodialcare or daily living activities such as dressing,bathing, and using the bathroom. While your ownhealth insurance covers short-term illnesses, it doesnot pay for this type of extended care.

The cost of long-term care today is quite expensiveand expected to continue to rise. More than ever,long-term care planning needs to become an integralpart of retirement planning for everyone. The nationalaverage cost for care in a nursing home is $58,000per year, and most people desperately want to avoidliving in a nursing home and its financial strain ontheir children and family. Long-term care insurancecan provide a benefit amount to pay for this care.Individuals can choose the type of care, whether anassisted living facility or home care. It's easy tounderstand why many people refer to long-term careinsurance as antinursing home insurance.

There are many misconceptions about the long-termcare benefits that Medicare and Medicaidprovide. Medicare covers only a limited amount ofpost-hospital care and does not pay for any custodialcare. Medicaid is a state and federal governmentprogram that provides extended care benefits,but only to low-income individuals with asmall amount of assets.

According to www.medicare.gov, about 9 millionmen and women over age 65 will need long-termcare this year. By 2020, 12 million olderAmericans are expected to need long-term care.The government is emphasizing the need for long-termcare planning through educational campaignslaunched in many states. These promotions are intendedto increase public awareness that peoplecannot count on the government for funding long-termcare expenses.

Acknowledging this issue, Congress offers taxbenefits for long-term care insurance through theHealth Insurance Portability and AccountabilityAct. You are allowed a maximum annual deductionamount for the premiums you pay on qualifiedplans, as determined by your current age. As withother unreimbursed medical expenses, long-termcare expenses exceeding 7.5% of adjusted grossincome are deductible. The most significant taxadvantage is for business owners. Employer paymentsfor group premiums are tax deductible to theemployer and not taxable income to the employee.Also, up to $240 per day of benefits paid fromlong-term care policies is tax-free.

Stewart H.Welch III, CFP®, AEP, is the founder of the Welch Group,

LLC, which specializes in providing fee-only wealth management

services to affluent retirees and health care professionals throughout

the United States. He is the coauthor of J.K. Lasser's New Rules

for Estate and Tax Planning (John Wiley & Sons, Inc; 2001). He welcomes

questions or comments at 800-709-7100 or visit www.welchgroup.com.

This article was reprinted with permission from the Birmingham Post Herald. He

thanks his associate Kimberly Reynolds for her assistance with this article.