July 2014

Tax-qualified or Non-tax-qualified Long Term Care Insurance

Posted on July 30, 2014 by Jim Koewler — No Comments ↓

Today’s blog post continues the series about buying long term care insurance as a strategy for planning ahead for long term care. My post of May 22, 2014 discussed whether to buy long term care insurance at all. My post of May 29, 2014 suggested looking for a stable, proven insurer. My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company. My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care. My post of June 22, 2014 suggested a daily rate to choose when purchasing long term care insurance. My post of July 10, 2014 advised to look carefully at the list of Activities of Daily Living that can trigger coverage from the long term care insurance policy. My post of July 17, 2014 described the differences between a “period of time” kind of coverage and a “pile of money” kind of coverage. My post of July 25, 2014 advised to make sure that the long term care insurance includes coverage for cognitive impairment. The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s post will discuss whether to buy a tax-qualified long term care insurance policy or a non-tax-qualified long term care insurance policy.

A tax-qualified policy has, as the label implies, certain tax advantages over non-tax-qualified policies. Premiums, or a portion of the premiums, for a tax-qualified policy can be deducted from the taxes of the policy holder if the taxpayer’s medical expenses (including the deductible amount of the long term care insurance premium) exceed the threshold amount for tax-deductibility. (Tax deductibility of health care costs may be different now that the Affordable Care Act has gone into effect.) The amount of premium that can be counted toward medical expenses goes up with age.

For the self-employed, however, the premiums for a long term care policy may be deductible without regard to the type of policy. In fact, the premiums may be deductible for the self-employed and his or her spouse as well. (This is more a tax planning issue than a long term care insurance issue. Please consult your tax advisor for details and proper planning.)

Likewise, the benefits paid out from a tax-qualified policy are not countable as income. It is not clear, however, that the benefits from a non-tax-qualified policy are taxable. The law that created tax-qualified policies (HIPAA) states that tax-qualified policy benefits are not taxable as income, but the law is silent about non-tax-qualified policies.

Whether policy benefits are counted as income may not matter, however. If you buy long term care insurance to cover the “look back” period before qualifying for Medicaid, as suggested in my post of June 19, 2014, your giving assets to your friends and family (to protect those assets from long term care costs) should leave you with income (including the insurance proceeds) that is low enough not to worry about taxation (especially after deducting medical costs.)

There is a significant difference between the triggers for tax-qualified and non-tax-qualified policies. (The policy trigger is the event or combination of events that causes the policy to start paying benefits.)

Tax-qualified policies must pay when the policy holder cannot perform two or more Activities of Daily Living. Activities of Daily Living include going to the bathroom, bathing, getting in and out of bed or a chair, and other similar actions. (Activities of Daily Living are discussed in my post of July 10, 2014.) Tax-qualified policies must also pay if the policy holder has a cognitive impairment (such as dementia) that endangers the policy holder or others. (Cognitive impairment coverage is discussed in my post of July 25, 2014.)

Non-tax-qualified policies may start paying benefits when the policy holder is unable to perform only one Activity of Daily Living or has a cognitive impairment that endangers the policy holder or others. In addition, the Activities of Daily Living list for a non-tax-qualified policy may include walking, which is not generally included on tax-qualified policies. In fact, some non-tax-qualified policies are triggered when the policy holder’s doctor determines that long-term care is needed (and do not set out any limits on how the doctor makes such a determination.)

(Note: As mentioned in my post of July 10, 2014, make sure that bathing is one of the listed Activities of Daily Living.)

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

Make sure to include Cognitive Impairment coverage in your Long Term Care Insurance

Posted on July 25, 2014 by Jim Koewler — No Comments ↓

Today’s blog post continues the series about buying long term care insurance as a strategy for planning ahead for long term care. My post of May 22, 2014 discussed whether to buy long term care insurance at all. My post of May 29, 2014 suggested looking for a stable, proven insurer. My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company. My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care. My post of June 22, 2014 suggested a daily rate to choose when purchasing long term care insurance. My post of July 10, 2014 advised to look carefully at the list of Activities of Daily Living that can trigger coverage from the long term care insurance policy. My post of July 17, 2014 described the differences between a “period of time” kind of coverage and a “pile of money” kind of coverage. The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s post will discuss Cognitive Impairment coverage.

More and more seniors who need long term care need it because of Alzheimer’s disease or some other form of dementia. It would be terrible to find out when you need long term care that your long term care insurance doesn’t cover non-physical ailments.

Remember, insurance companies will pay out on policies when the policy terms require payment. The policy is a contract, and insurance companies will honor their contracts. (Undoubtedly, some will be more cooperative than others.) At the same time, insurance companies won’t (and shouldn’t) pay out for claims that aren’t within the contract. As a result, you can’t assume that every long term care insurance policy that you consider will cover long term care costs no matter the reason that the insured needs care.

Before buying coverage, make sure that the policy covers long term care costs associated with cognitive impairment.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

The Pile-of-Money policy versus the Period-of-Time policy in Long Term Care Insurance

Posted on July 17, 2014 by Jim Koewler — No Comments ↓

Today’s blog post continues the series about buying long term care insurance as a strategy for planning ahead for long term care. My post of May 22, 2014 discussed whether to buy long term care insurance at all. My post of May 29, 2014 suggested looking for a stable, proven insurer. My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company. My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care. My post of June 22, 2014 suggested a daily rate to choose when purchasing long term care insurance. My post of July 10, 2014 advised to look carefully at the list of Activities of Daily Living that can trigger coverage from the long term care insurance policy. The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s post will discuss the differences between long term care insurance policies that pay for a set period of time and long term care insurance policies that pay out a certain sum of money.

Some long term care insurance policies pay for a certain period of time that the insured needs long term care. (We’ll call these Period-of-Time policies.) It doesn’t matter to the insurance company whether the insured person needs just a little help (i.e., the cost is low) or extensive (i.e., the cost is high) help. As long as the policy pays out for a long enough period of time to cover the average stay in a nursing home or to cover the look-back period to qualify for Medicaid (both of which were discussed in my post of June 19, 2014,) a Period-of-Time policy should satisfy the insured person’s needs.

Other policies pay out a certain amount of money (i.e., the daily rate chosen in the policy times the number of days or years chosen in the policy.) (We’ll call these policies Pile-of-Money policies.) If the care that an insured person needs costs less than the daily rate set forth in the policy, the coverage could last longer than originally planned.

Because of their greater flexibility, I prefer the Pile-of-Money policies. If, however, a particular applicant can save significantly on the cost of premiums, a Period-of-Time policy is a good choice.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

Look carefully at the list of Activities of Daily Living before buying Long Term Care Insurance

Posted on July 10, 2014 by Jim Koewler — No Comments ↓

Now that we’ve outlined the financial parameters of our long term care insurance policy, we will look at the conditions that will trigger coverage. Most policies now use a loss of the insured person’s ability to carry out Activities of Daily Living (“ADLs”) to trigger coverage. Usually, the policy will start to pay out when the person has trouble with two of these ADLs. Policies differ in the list of ADLs that they examine.

Most policies (and, for that matter, most geriatric care managers) consider seven primary Activities of Daily Living when determining whether a person needs assistance or supervision: Bathing (personal hygiene or grooming,) dressing and undressing, feeding oneself (does not include cooking,) transferring (getting in and out of bed and/or a chair,) ambulation (walking or otherwise getting around,) continence (controlling one’s bladder and bowel movements,) and toileting (including cleaning oneself.)

Some policies do not include bathing as one of the Activities of Daily Living. Because of the slick surfaces in tubs and showers and because the tub or shower usually requires a step in and out, bathing is frequently the first ADL for which a senior will need help. Before buying a long term care insurance policy that uses ADLs to determine whether to pay a claim, make sure that the policy includes bathing in the list.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

Keep your doctor separate from your Managed Care Organization in the “My Care Ohio” program

Posted on July 3, 2014 by Jim Koewler — No Comments ↓

In my prior four posts on My Care Ohio, I’ve described the new (in Ohio) program for people on both Medicare and Medicaid (people called “dual eligibles.”) On February 21, 2014, I tried to provide an overview on how the My Care Ohio program will work (Managed care for Ohio Medicare/Medicaid “Dual Eligibles”.) On February 28, 2014, I explained how My Care Ohio is an attempt to cut costs through insurance company command and control methods rather than empowering people to choose lower cost care by making it easier to qualify for in-home care Medicaid through PASSPORT or for the Assisted Living Waiver instead of maintaining the current financial incentive to choose a nursing home, with its higher cost per person (My Care Ohio: A Triumph of the Stick over the Carrot.) On March 7, 2014, I described the decisions that dual eligibles must make when My Care Ohio comes to their county: (1) whether to accept managed care for Medicare for this first year; (2) which Managed Care Organization to join; and (3) whether to accept managed care for Medicare for years two and three. (Your Options in “My Care Ohio,” managed care for Medicare/Medicaid “Dual Eligibles”) On March 13, 2014, I outlined what to choices to make when enrolling in My Care Ohio. (What to choose in “My Care Ohio,” managed care for Medicare/Medicaid “Dual Eligibles”) Now that My Care Ohio has actually started in all of the counties to be included (in the three-year pilot program, anyway,) I want to revisit these issues, revise one of my suggestions, and highlight what I consider to be the most important suggestion. (I plan to resume the series on how to buy long term care insurance wisely next week.)

My biggest fear for people in the My Care Ohio program is that their managed care organization (i.e., the insurance company to which they are assigned) will reduce services (in order to cut costs) that the managed care organization/insurance company deems unnecessary. (For the sake of brevity, let’s call the managed care organization/insurance company the “MCO.”) For example, if the person is in a nursing home and is doing well, the MCO might decide that the person can go home and receive home care (with a resulting big reduction in costs.) If the person did well in a nursing home because of the 24 hour supervision, sending them home would be a mistake. However, I fear the cost-cutting motive of the MCO’s management and fear that some people will be sent home that should not move home.

The best protection against unwise cuts in services is the person’s doctor. If, though, the person’s doctor gets his or her payment from the MCO, the doctor may be hesitant to question or oppose the MCO’s decision to reduce services. To avoid MCO influence over the doctor, I urge all people in the My Care Ohio program to:

Opt out of the Medicare portion of My Care Ohio; and
Choose an MCO different than the insurance company through which they have their Medicare supplement or advantage plan.

For example, a person who has United Health Care for a Medicare supplement should make sure NOT to include Medicare in their My Care Ohio program and also make sure NOT to choose United Health Care for their My Care Ohio MCO. That way, the doctor is paid by someone other than the MCO and would be immune to perceived pressure from the MCO to acquiesce to questionable care decisions.

It’s not too late to change MCOs. Every My Care Ohio participant has 90 after coverage starts to change MCOs and possibly to opt out of Medicare coverage. My Care Ohio started on May 1 for the first group (Cuyahoga, Geauga, Lake, Lorain, and Medina counties,) so people in those counties have until July 29 (assuming I counted 90 days correctly) to switch. (The other groups started in June and July, so their 90 day period to make changes still has lots of time.)

I also withdraw my earlier suggestion not to renew your Medicare supplement or advantage plan for next year. After watching the first weeks of My Care Ohio, I feel that the separation of the doctor from My Care Ohio in the way suggested above is sufficient. Withdrawing completely from supplements and advantage plans would accomplish no more toward this goal and would add more expenses to people’s annual health costs.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.