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
$350
More than 40 but not more than 50
$660
More than 50 but not more than 60
$1,310
More than 60 but not more than 70
$3,500
More than 70
$4,370
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."
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 www.medicare.gov 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 PlanPrescriber.com, 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:
Americans who take time off work to care for their aging parents are losing an estimated $3 trillion dollars in wages, pension and Social Security benefits, according to a new MetLife study. Meanwhile, the percentage of adult children providing basic care for their parents has skyrocketed in recent years.
Nearly 10 million adults age 50 and over care for an aging parent, MetLife says. For the individual female caregiver, the cost impact of caregiving in terms of lost wages, pension and Social Security benefits averages $324,044. For male caregivers, the figure is $283,716.
The study also identified a dramatic rise in the share of men and women providing basic parental care over the past decade and a half. In 1994, only 9 percent of women and 3 percent of men and were providing care. By 2008, the percentage of women caregivers had more than tripled to 28 percent, while the figure for men had quintupled to 17 percent. "Basic care" is defined as help with personal activities like dressing, feeding, and bathing. Daughters are more likely to provide basic care and sons are more likely to provide financial assistance, the study found.
"Undoubtedly, the impact of the aging population has resulted in increased need within families for family caregiving support," the study notes.
At the same time, MetLife found that adult children age 50 and over who work and provide care to a parent are more likely to have fair or poor health than those who do not provide care to their parents.
The study was based on an analysis of data from the 2008 National Health and Retirement Study (HRS).
The findings have implications for individuals, employers and policymakers, MetLife says. Individuals, it says, should consider their own health when caregiving and should prepare financially for their own retirement. Employers can provide retirement planning and stress management information and assist employees with accommodations like flex-time and family leave.
On the policy side, although only a few states mandate paid family and medical leave, "clearly this policy would benefit working caregivers who need to take leave to care for an aging parent," the study concludes. MetLife also notes that the CLASS Act, a voluntary long-term care insurance program that is part of the new federal health reform law, will provide some coverage for long-term care needs as well as raise public awareness of the issue.
For more on the study, "The MetLife Study of Caregiving Costs to Working Caregivers: Double Jeopardy for Baby Boomers Caring for Their Parents," click here.
Barbara Salerno and her family thought their decision to send their 80-year-old father, Albert Salerno, to a nursing home would mean he would be safe and cared for--but they were wrong. Barbara tells the story of how her family was helpless in saving their father even though they visited him nearly every day. Nursing home staff minimized and explained away a sharp downturn in Mr. Salerno's condition. By the time he finally received medical attention; Mr. Salerno was in acute renal failure, had advanced pneumonia and was malnourished. He died a few days later.
Americans who take time off work to care for their aging parents are losing an estimated $3 trillion dollars in wages, pension and Social Security benefits, according to a new MetLife study.
Meanwhile, the percentage of adult children providing basic care for their parents has skyrocketed in recent years.
Nearly 10 million adults age 50 and over care for an aging parent, MetLife says. For the individual female caregiver, the cost impact of caregiving on in terms of lost wages, pension and Social Security benefits averages $324,044. For male caregivers, the figure is $283,716.
The study also identified a dramatic rise in the share of men and women providing basic parental care over the past decade and a half. In 1994, only 9 percent of women and 3 percent of men and were providing care. By 2008, the percentage of women caregivers had more than tripled to 28 percent, while the figure for men had quintupled to 17 percent. "Basic care" is defined as help with personal activities like dressing, feeding, and bathing. Daughters are more likely to provide basic care and sons are more likely to provide financial assistance, the study found.
"Undoubtedly, the impact of the aging population has resulted in increased need within families for family caregiving support," the study notes.
At the same time, MetLife found that adult children age 50 and over who work and provide care to a parent are more likely to have fair or poor health than those who do not provide care to their parents.
The study was based on an analysis of data from the 2008 National Health and Retirement Study (HRS).
The findings have implications for individuals, employers and policymakers, MetLife concludes. Individuals, it says, should consider their own health when caregiving and should prepare financially for their own retirement. Employers can provide retirement planning and stress management information and assist employees with accommodations like flex-time and family leave.
On the policy side, although only a few states mandate paid family and medical leave, "clearly this policy would benefit working caregivers who need to take leave to care for an aging parent," the study notes. MetLife also notes that the CLASS Act, a voluntary long-term care insurance program that is part of the new federal health reform law, will provide some coverage for long-term care needs as well as raise public awareness of the issue.
For more on the study, "The MetLife Study of Caregiving Costs to Working Caregivers: Double Jeopardy for Baby Boomers Caring for Their Parents," click here.
Thinking about a time when you will need help taking care of yourself is not fun. That is why most people put off discussing long-term care until it can't be ignored. But it is better to start long-term care planning early. Here are some reasons to start planning now:
People are living longer and are more likely to need long-term care. Life expectancies keep increasing, which means you are more likely to need help at some point. At least 70 percent of people over age 65 will require some long-term care services at some point in their lives, according to the U.S. Department of Health and Human Services.
Care expenses are high. Whether you receive care in a nursing home or at home, expenses are rising. According to the 2010 MetLife Market Survey of Long-Term Care Costs, in 2010 the average cost of a room in a nursing home was $83,585 a year and home care aides averaged $21 per hour. Those figures aren't going to start going down.
Family caregivers may not be available. In more and more households, both partners work. In addition, children often move far away from their parents. This means that your adult children may not be able to easily take of you when the time comes.
The earlier you plan, the better. By planning ahead, you may be able to preserve your assets instead of using them all up paying for long-term care. In addition, if you plan early, you may have more options for care.
To start planning for long-term care, talk to your elder law attorney. Planning steps may include executing advance directives and a power of attorney, putting assets in a trust, purchasing long-term care insurance, getting a reverse mortgage, creating a caregiver contract with an adult child, or transferring a house to children. Your attorney can help you figure out the best plan for you. For more information on the importance of long-term care planning, click here.
Whether your spouse has just passed away or you've lost your mom or dad, the emotional trauma of losing a loved one often comes with a bewildering array of financial and legal issues demanding attention.
Those issues can wait. It is more important to take care of your loved ones and yourself first. When you are ready, the legal issues can be dealt with.
You should meet with an attorney to review the steps necessary to administer the decedent's estate. While the exact rules of estate administration differ from state to state, the key actions include:
File the will in probate court in order to be appointed executor.
Collect the assets. This means that you need to find out about everything the deceased owned.
Pay the bills and taxes. The final income tax return should be filed. If an estate tax return is due, it must be filed within nine months of the date of death.
Provide an informal or formal accounting to the heirs and obtain their approval which is then filed.
Finally, make the final distributions of the remainder of the estate to the heirs.
Estate administration also involves transferring assets that are not controlled by a will. The distribution of these assets may be controlled by trusts, joint ownership or beneficiary designations.
For more details on steps surviving family members should take, click here.
Mr. Swinton received his J.D. at Pace University School of Law from which he graduated Cum Laude, as a Ranking Scholar and winner of the American Jurisprudence Award for Excellent Achievement in the Study of Wills and Trusts.
Mr. Swinton is a contributing author of "Generations - Planning Your Legacy" (Esperti Peterson Institute 1999) and "Strictly Business" (Quantum Press 2002).
In addition to his membership in the National Association of Elder Law Attorneys (NAELA) Mr. Swinton is a member of the American Bar Association, New Jersey State Bar Association, and the Union County Bar Association.
