Most states offer long term care government programs with incentives for those who buy long term care insurance. The two primary incentives are:
- State credits or deductions; and
- Asset-retention incentives via Partnership insurance policies
The federal government has offered tax breaks since 1997 for the purchase of qualified LTCI policies.
Premiums can be included with other annual uncompensated medical expenses for deductions from your income; in excess of 7.5% of adjusted gross income up to a maximum amount adjusted for inflation.
Benefits you receive to pay for long term care services are generally not counted as income. For policies that pay-out using the expense incurred method, benefits in excess of the cost for long term care services may be taxable. For policies that pay-out using the indemnity or disability method, benefit payments up to the federally approved per diem (daily) rate are tax-free, even if they exceed your expenses.
To trigger the benefits under your policy, the federal law requires that you’re unable to do two ADLs (activities of daily living) without substantial assistance.
- “Medical necessity” cannot be used to trigger benefits.
- Chronic illness or disability must be expected to last for at least 90 days.
- For cognitive impairment, a person must require “substantial supervision.”
BENEFITS OF LONG TERM CARE GOVERNMENT PROGRAMS
- Partnership policies are tax-qualified plans that contain certain consumer protections by federal law. These plans must offer inflation protection so the benefits keep up with the cost of inflation over time.
- The long term care partnership program provides an alternative to spending down or transferring benefits by forming a partnership between Medicaid and private long term care insurers.
- Once private insurance benefits are depleted, special Medicaid eligibility rules are applied if additional coverage is needed.
KEY FEATURES OF LONG TERM CARE PARTNERSHIP POLICIES
Policies must be tax-qualified plans.
Policies must provide inflation protection:
- Those under age 61 at date of purchase must have compound inflation protection.
- Those at least 61 years of age, but under age 76, must have some level of inflation protection.
- Those over age 76 may have, but are not required to have, inflation protection.
HOW DO I KNOW IF I PURCHASED A PARTNERSHIP POLICY?
If your policy is a partnership plan, you’ll receive a notice in writing from the insurance carrier. Depending on your state of residence, it will be in one of the following ways:
- Your policy or certificate will be identified as a partnership policy in the policy itself either on the front page or on the schedule of benefits.
- You will receive a letter from your insurance company advising that you purchased a partnership policy. If this is the only notification you receive, it is extremely important to keep it in a safe place.
These programs have specific requirements in each state. To be sure, contact your state’s insurance department to check on availability. Many states with long term care partnership programs have information on their website. To locate your state’s insurance department website, visit here >>
Please Note: The information on this site is provided for informational purposes only and should not be construed as tax or insurance advice. Please consult your tax advisor and/or insurance professional for advice regarding your specific circumstances. Results may vary by state.
FEDERAL LONG TERM CARE INSURANCE PROGRAM
The Federal Long Term Care Insurance Program (FLTCIP) is sponsored by the U.S. Office of Personnel Management (OPM) and is insured by John Hancock Life & Health Insurance Company, one of the nations leading insurance carriers.
Federal and U.S. Postal Service employees and annuitants, active and retired members of the uniformed services, and qualified relatives may be eligible to apply for coverage with the FLTCIP.
The federal plan offers a variety of plan designs and includes the following:
How MUCH – amount policy will pay out
- Daily benefit amounts from $100 to $450 (in $50 increments)
- 4% or 5% Automatic Compound or Future Purchase Option (FPO) inflation
How SOON – when benefit payments begin
- 90 Calendar Day Elimination Period (waiting period)
How LONG – how long are benefit paid
- 2 years
- 3 years
- 5 years
To learn more about the Federal Long Term Care Insurance Program, click here.