** This article has been revised from its original version which was published on March 14, 2022.
In the new year, taking stock of your life and health care is more important than ever. As Americans continue to respond to COVID-19 in its many iterations, we are defining what is most important to preserve our health and financial future.
For many, the mere mention of long-term care health insurance conjures up images of twilight years far removed from our daily lives. However, the reality is that you may find yourself in need of long-term care due to a sudden illness or as the result of an accident. The US Department of Health and Human Services statistics currently show that about seventy percent of individuals over the age of 65 will require some long-term care during their lives. Genworth’s 2022 statistics show that a full 37 percent of long-term care recipients are under 65 years of age.
Know Your Options
Regardless of your age or cause, when long-term care becomes a requirement, it’s essential to know and plan for your options to fund the care you need, and where and how you prefer to receive it. Your planning today can make a dramatic difference to your available financial resources and those caregivers (mostly family) who participate in the financial burden of your care.
Naturally, the best scenario is having prepared for the future by having healthy balances saved in your retirement programs and health savings accounts. If the funding is available to cover long-term care costs for yourself or a loved one, it is wise to do so. Perhaps, you can only make part of the funding happen, in which case you may have to ask loved ones for help. They may have the financial resources to finish covering premium costs. Paying some out-of-pocket for an aging parent early on means less of a toll emotionally, physically, and financially, should a family member have to become a full-time caregiver.
Long-Term Care Insurance
The IRS considers long-term care insurance as a medical expense. If the policy is qualified, it’s deductible. IRS rules state the policy must have been issued on or before January 1, 1997, and adhere to certain requirements. Policies purchased before this date may qualify to become grandfathered if the state’s insurance commissioner approves the sale of the policy. From 2022 to 2023, in age categories from sixty to seventy years old, the IRS deductible limits per individual have increased by $260.
Hybrid Policies
Note these tax deductions are more limited or not available in hybrid policies. These policies combine life insurance and annuity policies with long-term care benefits. Hybrid policies are becoming particularly popular because if long-term care is not needed, the individual’s heirs may receive a death benefit. Your medical expenses need not exceed a certain percentage of your income to be tax-deductible. If you earn a profit, you may still take the amount of your long-term care insurance as a deductible.
Government Benefits Programs
Public programs are becoming more heavily leveraged for lower-income individuals to plan for long-term care services. There is nothing wrong with taking advantage of these programs; however, most Americans don’t understand the differences between Medicare and Medicaid, what and who they fund, and for how long. The answers are complex as there are physical and financial thresholds to qualify for benefits, which may vary from state to state. Here is a general overview of qualifications and limitations in coverage and choices of care facilities.
Sometimes referred to as Medicaid crisis planning, an elder law attorney can guide you through the process of sheltering some of your assets. Medicaid is a federal/state program helping low-income seniors with limited income and assets afford healthcare and long-term care. Many seniors believe their only option to qualify for the program is to “spend down” their assets. While this is true in some cases, proactive Medicaid planning can protect a substantial portion of your assets if done correctly.
The program’s eligibility rules are complicated, as is the application process. It’s best to navigate the process with a specialized Medicaid planning elder law attorney well before you tap the benefits. Always seek professional legal advice when creating your long-term care strategy using Medicaid. Applications are rarely successful as a do-it-yourself project, and mistakes can have devastating long-term consequences on a family and its finances.
Options for long-term care exist; however, finding the best solution for your financial circumstances is complex. As 2023 is before us, we all need to look to the future of our healthcare and prioritize proactive planning, ensuring there will be a solution in place when we encounter the likelihood of a long-term care requirement. Please Contact our Chicago area offices by calling 312-878-0155 to schedule an appointment.