With Americans' life expectancy now at about 79 years, some of our longer lives will be spent needing lengthy — and costly — long-term care. The fact that long-term care is for many an unavoidable health care need helps explain why tax deductions — which many people don't know about — exist for qualified long-term care insurance.
The Centers for Disease Control website explains LTC:
"Long-term care services include a broad range of health, personal care, and supportive services that meet the needs of frail older people and other adults whose capacity for self-care is limited because of a chronic illness; injury; physical, cognitive, or mental disability; or other health-related conditions. Individuals may receive long-term care services in a variety of settings: in the home from a home health agency or from family and friends, in the community from an adult day services center, in residential settings from assisted-living communities, or in institutions from nursing homes, for example."
A common mistake is to think Medicare pays for such needs as nursing homes, skilled nursing care; and assisted living services. It doesn't, for these and more issues, which is a reason LTC insurance exists. The maximum qualified LTC insurance tax deductions are determined by age groupings. In 2015, the maximum eligible premium deductions allowed as a medical expense, by age group, are:
The unfortunate reality is that LTC insurance policy costs are rising as health care costs increase and the number of companies offering LTC insurance decreases.
Consumer Reports, in an Aug. 2012 article on LTC insurance, reported that an insurance industry research company found that from 2007 to 2012, 10 of the top 20 insurers offering LTC insurance dropped the product.
"Insurers are exiting the market or raising rates because they overestimated how many people would stop paying for their policies over time and underestimated the costs of long-term care. And low interest rates have made it difficult to grow the reserves they need on hand to pay claims," the article said.
For those with LTC insurance, tactics for consumers to lower their costs are similar to other insurance types: reduce your coverage limits. But that runs obvious risks. If you eventually need the LTC insurance benefits but have reduced your coverage to save on premiums, the financial hole may open beneath you, just not as rapidly as if you had no coverage. It's a dice roll. Will you need it, making it worth the cost, or not? Are you even eligible?
These deductions are subject to the same thresholds as other non-reimbursed medical expenses. Unless you have significant other non-reimbursed health care expenses, you might not meet the minimum tax-deduction threshold. Explore LTC insurance, what it does, and what it doesn't do, if you should, or shouldn't, with your financial adviser or accountant. Time, after all, is passing.