May 2006

Long-Term Care Planning: Tax Advantages for Business Owners and Key Executives

By Steve Cain

Most executives invest a lot of time and money building their estate; then they spend even more money protecting their property and liability with policies such as homeowners and automobile insurance. Most, though, overlook a critical part of asset protection, long-term care insurance (LTCI). Yet, the likelihood that an executive will require some type of extended custodial or medical support, and the cost of that care, keeps rising all the time. In fact, the odds of an individual experiencing the need for a long-term care (LTC) claim are one hundred twenty times greater than losing their house due to a fire or other catastrophic loss.¹

LTC costs pose a far greater threat to savings than either home or auto claims — because both the probability and size of the typical LTC claim are much higher. Unfortunately, it doesn't take long for those expenses to put even a reasonably wealthy individual's assets in serious jeopardy.

Advances in medical treatment and technology are extending our lives longer than ever before. Unfortunately, living longer does not guarantee a good quality of life. The older we get, the greater the likelihood an individual will experience chronic medical conditions such as arthritis, Alzheimer's disease, joint replacement, stroke, etc. This potential medical need, in turn, creates a greater necessity for quality long-term or extended care.

In 2005, the national average cost for LTC services was $70,000 per year. What if you were faced with a detrimental health condition that lasted several years? Long-Term Care Insurance provides affordable, necessary and timely support.

What is Long-Term Care?

LTC is the kind of care a person of any age needs when he or she requires assistance with normal activities of life such as bathing, dressing, eating and moving about. The need for care could be due to an accident, sickness, old age, or any disability that prevents an individual from performing these daily tasks. LTC can be "custodial," meaning routine care, or "skilled," meaning care provided by nurse, therapist or other professional. Assistance may also come from family members, and take place in a variety of settings — at home, in assisted living facilities, continuing care retirement communities, adult daycare centers, or in skilled nursing homes.

What Long-Term Care is NOT…

LTC is not the care one receives while in the hospital or at a physician's office. It is not the acute care one needs to recover from an injury or brief sickness. It is not the short-term rehabilitation from an operation or from an accident. Also, in sharp contrast to what many Americans think, long-term care is not predominantly administered in the nursing home; statistics show that 85 percent of all those receiving long-term care receive it in their own homes or in assisted-living facilities.¹

Who Pays for Long-Term Care?

Most people think that Medicare, Medicaid, health insurance and long-term disability (LTD) policies will pay for all of our long-term care needs, but that is a common misconception. Medicare, Medicare HMOs and Medicare Supplements were designed to pay for the costs of hospitals, doctors, and skilled professional care, not LTC services. Although Medicare does provide short-term coverage for stays in skilled nursing facilities, it does not cover custodial (unskilled) care or assisted living care, nor does it cover extended home health care. The government's Medicare guidebook suggests that Americans should not count on Medicare as their primary source of LTC funding. To receive Medicaid benefits, one's income and assets must meet federal poverty guidelines. A person must "spend-down" his or her assets before becoming eligible. Medicaid does not cover services provided at home or in assisted-living facilities — only in skilled nursing homes. Medical insurance covers specific treatment for acute care, and long-term disability may replace one's income, but neither of these will pay for the costs associated with long-term care.

New Federal Tax Incentives

Employers across America are looking at LTC Insurance as a meaningful way to enhance employee benefits, retain key employees, and take advantage of significant tax benefits. These policies can protect the employee or business owner's personal assets with pre-tax dollars.

HIPAA Legislation in 1996 created generous incentives for business owners to purchase LTCI for themselves, spouses and/or their key executives. Here are some of the highlights:

• State tax credit available (varies by state)

• Business owners can deduct 100 percent of premium paid for employees

• Business owners can deduct up to 100 percent of their own premium (C-Corps, PC's, LLP's, LLC's, S-Corps, etc.)

• Spouses can be added to polices at significantly discounted rates, and the premium can be deducted

• Policy benefits are income tax-free

• Benefits do not inflate employees' income

• "Discrimination" is allowed in offering coverage (carve-outs)

• LTCI is fully portable

• Paid-Up options are available in most states (10-Pay and Paid-up at 65)

• Return of premium features may be available (varies by state)
  

Long-term care insurance can play a critical role in one's complete financial plan. Not only will LTCI protect the business owner or key executive's assets, but it can assure independence, personal dignity, quality and choice in one's extended health care. Corporate and association discounts, premium deductibility, and income tax-free benefits make LTCI a bargain for the best asset protection available today.

To find out more about the LTC product or see a complete listing of other exclusive insurance products offered to IEEE members through the IEEE Financial Advantage Program, please visit us online at www.ieeeinsurance.com.

Endnotes

1) Out of 1,000 people aged 65 and older, the odds are that five will experience a catastrophic loss of their home due to fire, 70 will experience an auto accident resulting in a claim, and 600 will require some form of long-term health care. — Source: Metlife Mature Market Survey, 2000.

Disclaimer: Federal and State laws in this area are complex and subject to change. We do not render tax or legal advice. Please consult with your advisors regarding applicable tax or legal considerations.

Steve Cain, CLTC, CSA, is Director of Long-Term Care at Marsh Private Client Life Insurance Services. He is a certified LTC specialist with over 13 years of
experience in the industry, both from the home office and sales/marketing perspective. He leads the LTC Practice for Marsh Private Client Services and works with numerous national associations and Fortune 500 companies. Comments may be submitted to todaysengineer@ieee.org.