Medicaid Planning – Important Considerations When Choosing a Long-Term Care Plan
It’s no surprise that Medicaid planning has been a widely discussed topic considering the overwhelming cost of nursing home care. For example, the average daily cost of care in the Midwest is approximately $135 per-day. In Ohio, this same care is around $203.00 per-day. Put another way, your long term care plan must account for $6090.00 per-month.
As an estate planning attorney, I’m often asked whether it’s worth purchasing long-term care insurance. Unfortunately, the answer is specific to each individual’s goals, needs, assets, and more. However, there are several important considerations everyone should know. Medicaid planning and elder law are key to estate planning. At a minimum, those planning for their financial and physical health, should consider the following when choosing a long-term care plan.
The financial ratings of a long-term care plan are important when considering purchasing the insurance. Every company is different and each have different ratings. The recommendation is to choose a company with an AM BEST rating of A+ or better. In addition, the assets of the insurance company should be in the billions. In essence, you want the insurance company to have a high rating and be financially sound. For more information on ratings, visit:http://www.ambest.com/home/default.aspx
There are a number of discounts available when considering your insurance plan. Some long-term care insurers will allow for group discounts through employers. Senior clubs and other organizations can also offer discounts from 5%-10% on long-term care. In addition, some companies will actually allow for a 30%-50% discount when both spouses purchase long-term care. Good health discounts may also be given when the applicant is in excellent health which range from 10%-15%. It’s important to realize that not all companies permit these types of discounts and its best to consult with an estate planning or Medicaid planning attorney. Moreover, each company has its own underwriting guidelines which may change the above mentioned averages.
There are several tax considerations when thinking about long-term care insurance. At the federal level, premiums for long-term care insurance fall into the ‘medical expense’ category. So, if the premium (or the premium plus other medical expense) is over 7.5% of the adjusted gross income, part of that premium is tax deductible. Additionally, business owners can deduct the full cost of long-term care insurance protection for themselves and designate individuals, including spouses.
From a national perspective, 26 states offer some form of deduction or tax credit for long-term care insurance premiums. In Ohio, there is a deduction for polity premiums. However, it is absolutely paramount to consult with a Medicaid planning attorney, tax advisor, or financial planner when making these tax considerations. The tax laws change constantly and the it’s important to understand your options fully.
Tax Qualified Plans vs. Non-Tax Qualified Plans
There are two types of long-term care insurance plans: (1) Tax qualified plans and (2) Non-tax qualified plans. Tax qualified plans follow the federal HIPAA law (Health Insurance Portability and Accountability Act). Under this plan, the insured must need assistance with two of the six daily activities necessary for daily living. These activities include:
In order to be eligible, the individual must need assistance for a period of 90 days or greater. These criteria help protect consumers by designating long-term care for those who truly need it. However, the benefits received are not considered taxable income. Tax qualified plans are guaranteed renewable. This means that your coverage can never be cancelled, as long as you pay your premiums.
Non-tax qualified plans allow the consumer to access benefits more quickly. Here, the insured only needs to fall under one of the above mentioned activities of daily living. If you speak with a Medicaid planning attorney, you’ll find that these plans are a bit more expensive than tax qualified plans. (Side note: Cleveland, Ohio Medicaid planning attorneys have been in great debate on the pros and cons of each plan but sticking with a tax-qualified plan is currently my recommendation).
There are numerous other considerations to discuss with your estate planning or Medicaid Planning attorney when thinking about long-term care insurance. For more information, or to speak with a Cleveland, Ohio Medicaid planning attorney, contact Dan Baron at Baron Law LLC. Contact Dan at 216-573-3723 today to set up a free consultation. Dan is a Cleveland, Ohio attorney practicing in the areas of estate planning, Medicaid planning, and business law.