Monday, October 31, 2011

IRS Issues Long-Term Care Premium Deductibility Limits for 2012

The Internal Revenue Service (IRS) is increasing the amount taxpayers can deduct from their 2012 taxes as a result of buying long-term care insurance.

Premiums for "qualified" long-term care insurance policies (see explanation below) are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 7.5 percent of the insured's adjusted gross income.

These premiums -- what the policyholder pays the insurance company to keep the policy in force -- are deductible for the taxpayer, his or her spouse and other dependents. (If you are self-employed, the tax-deductibility rules are a little different: You can take the amount of the premium as a deduction as long as you made a net profit; your medical expenses do not have to exceed 7.5 percent of your income.)

However, there is a limit on how large a premium can be deducted, depending on the age of the taxpayer at the end of the year. Following are the deductibility limits for 2012. Any premium amounts for the year above these limits are not considered to be a medical expense.

Attained age before the close of the taxable year
Maximum deduction for year
40 or less
More than 40 but not more than 50
More than 50 but not more than 60
More than 60 but not more than 70
More than 70

What Is a "Qualified" Policy?
To be "qualified," policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of "inflation" and "nonforfeiture" protection, although the consumer can choose not to purchase these features. Policies purchased before January 1, 1997, will be grandfathered and treated as "qualified" as long as they have been approved by the insurance commissioner of the state in which they are sold. For more on the "qualified" definition, click here.

The Georgetown University Long-Term Care Financing Project has a two-page fact sheet, "Tax Code Treatment of Long-Term Care and Long-Term Care Insurance."

To download it in PDF format, go to:

This article is reprinted with the permission of

Monday, October 24, 2011

Medicare's Open Enrollment Season Already Underway

This year's holiday shopping season has begun early for Medicare beneficiaries: the program's Open Enrollment Period, during which you can enroll in or switch plans, began October 15 and ends on December 7.

During this period, you may enroll in a Medicare Part D (prescription drug) plan or, if you currently have a plan, you may change plans. In addition, during the seven-week period you can return to traditional Medicare (Parts A and B) from a Medicare Advantage (Part C, managed care) plan, enroll in a Medicare Advantage plan, or change Advantage plans. Beneficiaries can go to or call 1-800-MEDICARE (1-800-633-4227) to make changes in their Medicare prescription drug and health plan coverage.

Even beneficiaries who were satisfied with their plan in 2011 need to review their options for 2012, particularly because things are still in flux due to changes brought on by the health care law. Prescription drug plans can change their premiums, deductibles, the list of drugs they cover, and their plan rules for covered drugs, exceptions and appeals. Medicare Advantage plans can change their benefit package and as well as their provider network.

According to the federal Centers for Medicare and Medicaid Services (CMS), Medicare Advantage premiums are expected to decrease by an average of 4 percent next year from this year, while Part D plan premiums will likely increase about 2 percent to $30 a month, on average.

“There’s no doubt that a lot of seniors are in the wrong plan,” Ross Blair, the CEO of, a site that compares Medicare plans, told SmartMoney.  “A lot of them could save hundreds of dollars a year by switching.” 

Reaching for the Stars
One change beneficiaries using the Medicare Plan Finder will notice this year is CMS's enhanced five-star rating system.  Plans that have achieved a five-star rating from CMS are identified with a "gold star" icon.  Those that have received a low overall quality rating for the past three years are identified with a "warning signal" icon.  Another new innovation is that there is no time limit to switch into a five-star Advantage or prescription drug plan. Medicare beneficiaries have one opportunity to switch to one of these top-rated plans anytime during 2012. (For more on the significance of the star rating system, see "Medicare Plans See Dollars in the Stars.")

If you want out of your Advantage plan after December 7, you can "disenroll" between January 1 and February 14.  At that point you can return to traditional Medicare and add a Part D plan, or move into a five-star Advantage plan.  But if you return to traditional Medicare you may not be able to buy Medigap coverage at that point, although the rules vary by state.

If you take no action, you will remain in your current plan unless your Medicare Advantage or drug plan is terminating its Medicare contract. Also, if you receive the Low-Income Subsidy (LIS) to help pay for some or most of your Part D drug costs, you may be randomly reassigned to a different plan. (For more on the LIS program, also known as "Extra Help," click here.)

Some factors to consider when evaluating your drug plan include:
  • What is the monthly premium?
  • Does the plan continue to cover necessary drugs?
  • Does the plan provide coverage for drugs in the "doughnut hole" or coverage gap?
  • What pharmacies are covered under the plan?
Some factors to consider when comparing Medicare Advantage plans include:
  • What is the monthly premium?
  • What is the cost-sharing for doctor visits?
  • Which doctors and hospitals are covered?
  • Is prescription drug coverage included?
  • Are any other extra benefits included and will they be useful to you?
(For a MarketWatch article on picking an Advantage plan, click here.)
Remember that fraud perpetrators will inevitably use the Open Enrollment Period to try to gain access to individuals' personal financial information.  Medicare beneficiaries should never give their personal information out to anyone making unsolicited phone calls selling Medicare-related products or services or showing up on their doorstep uninvited.  If you think you've been a victim of fraud or identity theft, contact Medicare.  For more information on Medicare fraud, click here or here.
Here are more resources for navigating the Open Enrollment Period:

For more about Medicare, click here.