Long Term Care Insurance

<div class="Section1">Yes.</div><br /> <div class="Section1"><br /> <br /> As a result of the Pension Protection Act of 2006 (PPA), which went into effect January 1 2010, tax-qualified (TQ) long-term care insurance (LTCI) is now included in the scope of the Section 1035-exchange rules. This means that life, endowment, annuity and qualified LTCI may all be exchanged for qualified LTCI.<br /> <br /> In addition, the presence of a qualified LTCI rider on a life or annuity contract will not cause it to fail to qualify for the purposes of such an exchange. In other words, a taxpayer can exchange an annuity without a long-term care insurance rider for an annuity with such a rider, and still qualify for non-recognition treatment.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> In sum, the IRC provides that the following exchanges are nontaxable:<br /> <blockquote>(1)     the exchange of a life insurance policy for another life insurance policy (with or without a qualified LTC rider), for an endowment or annuity contract (with or without a qualified LTC rider), or for a standalone qualified long-term care insurance contract;<br /> <br /> (2)     the exchange of an endowment contract for an annuity contract (with or without a qualified LTC rider), for an endowment contract under which payments will begin no later than payments would have begun under the contract exchanged, or for a standalone qualified long-term care insurance contract;<br /> <br /> (3)     the exchange of an annuity contract for another annuity contract (with or without a qualified LTC rider); or for a standalone qualified long-term care insurance contract; and<br /> <br /> (4)     the exchange of a long-term care insurance contract for another qualified long-term care insurance contract.<a href="#_ftn2" name="_ftnref2">²</a></blockquote><br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Neither an annuity nor a standalone qualified long-term care insurance contract can be non-taxably exchanged for a life insurance policy (with or without a qualified LTC rider).<br /> <br /> <hr /><br /> <br /> Generally, if an individual surrenders an "old" contract and uses the proceeds to purchase a "new" contract, they are required to recognize any gain over basis as ordinary income for federal tax purposes. But if certain requirements are met, Section 1035 allows them to avoid any recognition of gain. (Among these requirements are that the exchange must take place in a "hands-off" fashion directly between the two insurers. The taxpayer must not receive the proceeds, even if later used to purchase the new contract.)<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Under Section 1035, both the owner and insured under the original contract and the new contract must be identical. For instance, an individually-owned contract cannot be 1035-exchanged into a jointly-owned contract.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Such exchanges may be appropriate when the owner of a life or annuity contract no longer has the need associated with the original contract (wealth accumulation), but <em>does</em> have a long-term care need (wealth protection).<br /> <br /> <hr /><br /> <br /> 1035-exchanges can be either "full" or "partial." One might employ a "full" exchange when funding a single-pay product such as a combination product, and a "partial" for a limited payment mode such as a 10-pay. As a practical matter where LTCI is concerned, very few carriers are comfortable accepting partial exchanges on this basis from neighboring carriers. Logistically, it is preferable to move all the products under one financial "roof."<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> The annuities covered by Section 1035 must be non-qualified, and cannot be owned by a trust or corporation. If the annuity is still within its surrender charge period, or the amount to be exchanged exceeds any free withdrawal limit, such amounts will be subject to a surrender charge. If a deferred annuity does not have any gain (as could be the case with a variable annuity in a down market), then there may be little tax benefit to exchanging the annuity for TQ LTCI.<br /> <br /> <hr /><br /> <br /> Having said that, the ability to "wash" gain on non-qualified annuities through either QLTCI or combination products with QLTCI riders is a remarkable tax advantage, and a loophole which may not last forever.<br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td style="text-align: center;" colspan="3" width="399"><strong>Permitted Section 1035 Exchanges</strong></td><br /> </tr><br /> <tr><br /> <td rowspan="4" width="107">Life Insurance</td><br /> <td rowspan="4" width="158"></td><br /> <td width="134">Life Insurance</td><br /> </tr><br /> <tr><br /> <td width="134">Annuity</td><br /> </tr><br /> <tr><br /> <td width="134">Endowment</td><br /> </tr><br /> <tr><br /> <td width="134">Qualified LTCI</td><br /> </tr><br /> <tr><br /> <td rowspan="2" width="107">Annuity</td><br /> <td rowspan="2" width="158"></td><br /> <td width="134">Annuity</td><br /> </tr><br /> <tr><br /> <td width="134">Qualified LTCI</td><br /> </tr><br /> <tr><br /> <td rowspan="3" width="107">Endowment</td><br /> <td rowspan="3" width="158"></td><br /> <td width="134">Endowment</td><br /> </tr><br /> <tr><br /> <td width="134">Annuity</td><br /> </tr><br /> <tr><br /> <td width="134">Qualified LTCI</td><br /> </tr><br /> <tr><br /> <td width="107">Qualified LTCI</td><br /> <td width="158"></td><br /> <td width="134">Qualified LTCI</td><br /> </tr><br /> </tbody><br /> </table><br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 1035(b)(2), IRC § 105(b)(3).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     IRC § 1035(a).<br /> <br /> </div>

<div class="Section1">Policies that do not meet the definition of a qualified long-term care insurance contract under IRC Section&nbsp;7702B(b) generally are referred to as non-qualified (or non-tax-qualified, NTQ) long-term care policies ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="477">477</a>).<div class="Section1"><br /> <br /> Only premiums paid for qualified LTC policies are eligible for deduction, so if this is a significant benefit to one&rsquo;s client, then a tax-qualified (TQ) policy is recommended. Having said that, TQ&nbsp;plans are virtually the only remaining choice today. NTQ&nbsp;sales represent, on average, less than one-half of one&nbsp;percent of all sales.<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> Even though HIPAA was enacted in 1996, the IRS has yet to publicly rule on the taxability of benefits paid from NTQ&nbsp;plans. (The agency has issued several private letter rulings indicating that&mdash;if an individual did not take a premium deduction up front&mdash;benefits would be non-taxable on the back end.) Most observers also agree that it would not be Congress&rsquo; or the IRS&rsquo;s intent to tax a benefit which serves only to reimburse the insured. Had they wished, Congress could have very easily addressed NTQ&nbsp;plans on the spot&mdash;instead, HIPAA is silent.<br /> <br /> <hr><br /> <br /> IRS Form&nbsp;8853 (for reporting taxable payments from LTCI, among other things) addresses the topic obliquely. It cautions not to use the form for amounts received from non-qualified LTCI, instead directing taxpayers to use Form&nbsp;1040, line 21 to report any amount &ldquo;not excludable as income&rdquo;. The question remains whether benefits received from NTQ&nbsp;long-term care insurance are includable or excludable from income. On this point, the IRS suggests that amounts paid for &ldquo;personal injuries or sickness through accident or health insurance&rdquo; are excludable.<br /> <br /> For the first few years following 1997, issuers of NTQ&nbsp;policies were so concerned that consumers were being spooked by the prospect of future taxable benefits that they included &ldquo;pledges&rdquo; and &ldquo;promises&rdquo; in their newly-issued contracts. These documents gave policyholders the right to exchange their NTQ&nbsp;policies for identical TQ&nbsp;plans, in the event the IRS ruled unfavorably.<br /> <br /> Any contract issued before January&nbsp;1, 1997 that met the long-term care insurance requirements of the state in which the contract was issued is treated for tax purposes as a qualified long-term care insurance contract, regardless of whether the provisions of the contract would have otherwise been eligible. (These are called &ldquo;grandfathered&rdquo; policies.) Services provided under such a contract or reimbursed by such a contract are treated as qualified long-term care services ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="477">477</a>) and payments are tax-free.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; HIPAA &rsquo;96, &sect; 321(f)(2). <em><em>See also</em></em> Treas. Reg. &sect; 1.7702B-2.<br /> <br /> </div></div><br />

<div class="Section1">Long-term care insurance companies paying long-term care benefits must file a return that sets forth:</div><br /> <div class="Section1"><br /> <blockquote>(1)     the aggregate amount of long-term care benefits paid to any individual during a calendar year;<br /> <br /> (2)     whether or not benefits are paid, either fully or partially, on a per diem or other periodic basis without regard to expenses incurred during the period;<br /> <br /> (3)     the name, address, and taxpayer identification number ("TIN") of the individual; and<br /> <br /> (4)     the name, address, and TIN of the chronically ill or terminally ill individual for whom the benefits are paid.<a href="#_ftn1" name="_ftnref1">¹</a></blockquote><br /> In addition, any company required to file a return must provide a written statement to each individual whose name is reported under the above requirement. That statement must include the name, address, and phone number of the information contact of the company making the payments, and the aggregate amount of long-term care benefits paid to the individual shown on the above-mentioned return. This written statement must reach the individual on or before January 31 of the year following the calendar year for which the return was required.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> The IRS has prescribed Form 1099-LTC<a href="#_ftn3" name="_ftnref3">³</a> to meet both filing requirements.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Policyholders of both tax-qualified (TQ) <em>and</em> non-tax-qualified (NTQ) long-term care policies receive a 1099-LTC from their respective insurance companies as a result of claims paid. Although the form advises that amounts paid under TQ long-term care insurance are generally tax-free, it is silent on NTQ plans. Furthermore, those who complete Form 1099-LTC are not required to check the box identifying the tax status of the underlying coverage—it is optional.<br /> <br /> <hr /><br /> <br /> For purposes of these reporting requirements, a long-term care benefit is any payment under a product that is advertised, marketed, or offered as long-term care insurance and any payment that is excludable from gross income as an accelerated death benefit under IRC Section 101(g).<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 6050Q(a).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     IRC § 6050Q(b).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.     http://www.irs.gov/pub/irs-pdf/i1099ltc.pdf (last accessed March,13, 2024).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.     IRC § 6050Q(c).<br /> <br /> </div>

<div class="Section1"><em>Editor's Note:</em> The 2017 tax reform legislation repealed the Affordable Care Act individual mandate that required individuals to purchase health insurance or pay a penalty for tax years beginning after December 31, 2018. The employer mandate and reporting requirements were not repealed.</div><br /> <div class="Section1"><br /> <br /> No. According to the IRS, individual health insurance coverage does not include short-term, limited duration insurance.<a href="#_ftn1" name="_ftnref1">¹</a> Because short-term care insurance is, by its nature, short-term and limited in duration, such coverage will not satisfy insurance obligations under the Affordable Care Act (ACA).<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> It's worth noting the current controversy surrounding short term medical health plans. Because individual health insurance "does not include short-term limited duration insurance," this particular product has been exempted from many ACA market reforms.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <hr /><br /> <br /> In June 2016, the Obama administration released a package of proposals designed to strengthen the public risk pool (i.e., those who have coverage through the federally facilitated marketplace, or "exchange"). Their concern was that the risk pool was being damaged by individuals who <em>could</em> enroll during special enrollment periods (triggered by life events) but chose not to.<br /> <br /> This ties back to short term medical care (STMC), which had been sold precisely for such temporary stop-gap situations. The problem was that:<br /> <blockquote>STMC is not subject to many of the ACA's rules;<br /> <br /> STMC can be medically-underwritten and priced on health;<br /> <br /> STMC can discriminate against those with pre-existing conditions; and<br /> <br /> STMC does not have to cover essential health benefits.</blockquote><br /> The problem (as it has been identified) is that insurers began selling STMC for periods as long as 12 months to serve as primary coverage, cherry-picking the healthiest people and plucking them out of the risk pool, all the while avoiding consumer protections.<br /> <br /> The Obama-era rules changed STMC in the following ways:<br /> <blockquote>STMC would be capped at a maximum of three months;<br /> <br /> STMC policies could not be renewed; and<br /> <br /> Insurers had to disclose to consumers that the STMC does not constitute minimum essential coverage, so that the individual could still owe a penalty (for non-compliance with the ACA mandate) in years prior to its repeal.</blockquote><br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> The Trump administration made changes to expand the availability of short-term limited-duration health insurance. The Biden administration used executive power to once again limit the availability of short-term health plans. Taxpayers should pay close attention to these political developments when opting to purchase short-term health insurance.<br /> <br /> <hr /><br /> <br /> Some insurance industry trade groups have opposed these changes, citing the failure of similar attempts to regulate the market.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     Treas. Reg. § 1.5000A-2(d); 42 USC § 300gg-91(b)(5).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     300gg-91(b)(5).<br /> <br /> </div>

<p> Yes, subject to limitation. </p><p> IRC Section 213(a) allows a deduction for the unreimbursed medical expenses paid during the tax year of the taxpayer (plus his or her spouse and dependents) which exceed 7.5 percent of the taxpayer's adjusted gross income (AGI). The 7.5 percent threshold was made permanent in 2020. </p><p> For the purposes of this section, the following are considered medical expenses: <br/><blockquote> Amounts paid for qualified long-term care services (per 7702B(c)); subject to the exceptions below. </blockquote></p><table border="1" align="center" id="rte-e5c8f370-fad7-11f0-8d9a-f7244c6b4cf3"><tr ><td colspan="2" rowspan="1" width="539">"Eligible LTC Premiums"</td></tr><tr ><td width="381">Attained age of individual before close of the 2026 tax year</td><td width="159">Limitation</td></tr><tr ><td width="381">40 or less</td><td width="159">$480</td></tr><tr ><td width="381">More than 40 but less than 50</td><td width="159">$900</td></tr><tr ><td width="381">More than 50 but less than 60</td><td width="159">$1,800</td></tr><tr ><td width="381">More than 60 but less than 70</td><td width="159">$4,810</td></tr><tr ><td width="381">More than 70</td><td width="159">$6,020</td></tr></table><p><hr></hr></p><p> <strong>Planning Point:</strong> The table above was established in 1997 and is indexed for inflation. The limits rise by a medical care cost adjustment, rounded to the nearest $10, based on changes in the medical care component of the CPI (C-CPI-U for tax years beginning after 2017) each August. Although the limits are fairly modest in relation to an average premium, producers should remember that 1) the limits rise each year, and 2) the limits effectively rise every 10 years as a policyholder ages through the bands. Thus, the tax advantage grows over time. </p><p><hr></hr></p><p> An amount paid for qualified long-term care services as defined in IRC Section 7702B(c) ( Q <a href="javascript:void(0)">477</a>) will not be treated as paid for medical care if a service is provided by an individual's spouse or a relative (directly or through a partnership, corporation or other entity) unless the service is provided by a licensed professional. A relative generally is any individual who can be considered a dependent under the IRC.<a href="#_ftn1">¹</a> In addition, a service may not be provided by a corporation or partnership that is related to an individual within the meaning of IRC Sections 267(b) or 707(b).<a href="#_ftn2">²</a></p><p> When the qualified LTCI contract is part of a life or annuity contract (or a rider attached to one), the rules around premium deductibility are different ( Q <a href="javascript:void(0)">477</a>): </p><ul class="rte2-style-ul" id="rte-e5c968a2-fad7-11f0-8d9a-f7244c6b4cf3"><li></li><li>No deduction is allowed under Section&nbsp;213(a) for any premium payment made for coverage under a qualified LTCI contract if such payment is made as a charge against the cash surrender value of the life contract or cash value of the annuity contract.<a href="#_ftn3">³</a></li><li></li><li>But, not all combination products are structured this way. There is at least one (and perhaps only one) suite of combination products available where the qualified LTCI riders are paid separately by the policyholder (and not via internal charge from the cash value). The premiums for these riders are deductible under normal rules above.</li><li></li></ul></p><p><hr align="left" size="1" width="33%"></hr></p><p> <a href="#_ftnref1">1</a>. IRC §§ 152(a)(1) through (8). </p><p> <a href="#_ftnref2">2</a>. IRC § 213(d)(11). </p><p> <a href="#_ftnref3">3</a>. IRC § 7702B(e)(2). </p>

<div class="Section1">No.</div><br /> <div class="Section1"><br /> <br /> An employer's plan that provides coverage under a qualified long-term care insurance contract generally is treated as an accident and health plan with respect to that coverage.<a href="#_ftn1" name="_ftnref1">¹</a> Thus, premiums for long-term care insurance coverage paid by an employer are not includable in the gross income of employees.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> If the employer only pays a partial amount of an employee's premium, the employee is still entitled to deduct the balance paid. Of course, as an individual, the employee would include the portion of the qualified LTCI plan paid (up to the age-based eligible amount) with other itemized medical expenses, and deduct the amount that exceeds 7.5 percent of AGI.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> When a C Corporation, S Corporation, LLC, partnership or sole proprietor purchases qualified LTCI for its employees, such amounts are not includable in the gross income of said employees. A question arises when these employees are <em>also</em> the owners of the relevant company. If that is the case, the analysis below controls.<br /> <br /> <hr /><br /> <br /> Partners of a partnership, members of an LLC (taxed as a partnership) and greater-than-2 percent shareholders of an S corporation are all treated as self-employed individuals for tax purposes. As such, the qualified LTCI premiums paid on their behalf by their businesses <em>are</em> included in their AGI (i.e. passed-through as income); but, they may also turn around and deduct up to 100 percent of their age-based eligible premium (without having to satisfy the AGI threshold applicable to individual filers).<br /> <br /> Shareholder/employees of a C corporation (who are treated as employees) and shareholder/employees who own 2 percent-or-less of an S corporation may exclude from their gross income the entire amount of qualified LTCI premium paid on their behalf (even if it exceeds the age-based eligible premium amounts).<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Small business owners who have an opportunity to pay for their QLTCI premiums "through the business" can save a lot of money this way. If we imagine an owner (e.g., of a partnership, LLC or S Corp) who pays a premium with after-tax dollars, he has to "gross-up" his paycheck in order to cover the income and payroll taxes necessary to net the proper amount.<br /> <br /> <hr /><br /> <br /> Having then paid the premium, the employee might attempt to take a deduction as an Individual, adding age-based eligible premium to other unreimbursed medical expenses, and deducting the portion that exceeds the relevant AGI threshold.<br /> <br /> The business could also pay premiums on the employee's behalf. Although this amount is reported as income to our business owner, the company benefits by avoiding payroll taxes on the amount (and even worker's compensation). Then, the owner benefits from taking the self-employed health insurance deduction for the full amount of the eligible premium—not just amounts that exceed 7.5 percent of AGI.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 7702B(a)(3).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     IRC § 106(a); <em><em>see</em> </em>House Comm. Report on § 321 of HIPAA '96, P.L. 104-191.<br /> <br /> </div>

<p> No, they are not. </p><p> A qualified long-term care insurance contract is treated as an accident and health insurance contract. <em><em>See</em></em> Q <a href="javascript:void(0)">477</a>. Thus, amounts (other than dividends or premium refunds) received under such a contract are treated as amounts received for personal injuries and sickness and are treated as reimbursement for expenses actually incurred for medical care.<a href="#_ftn1">¹</a> Since amounts received for personal injuries and sickness are generally not includable in gross income, benefits received under qualified long-term care insurance are generally not taxable.<a href="#_ftn2">²</a> <em><em>See</em></em> Q <a href="javascript:void(0)">343</a>. </p><p> While there is no limit to the amount of benefits that may be received as reimbursement under a qualified LTC policy, this is not the case when benefits are paid as a "per diem" (i.e., without regard to the cost of services received). In the latter case, a calculation must be performed. </p><p> The taxpayer totals the sum of all per diem payments received during the year, including amounts received from QLTCI as well as accelerated death benefits received on account of "chronic illness" under IRC Section 101(g), but not including accelerated death benefits received on account of "terminal illness" under IRC Section 101(g).<a href="#_ftn3">³</a></p><p> Next, $430 in 2026<a href="#_ftn4">⁴</a> is multiplied by the number of days in the period for which benefits were paid. The greater of this product or actual costs incurred is carried forward. Any reimbursements are then subtracted, and the result becomes the per diem limit, above which amounts received are taxable (Form 1040, line 21). </p><p> One frequently finds an oversimplified version of the above process, i.e., that the first $430 per day is excluded from income, with amounts over this threshold taxable to the extent they do not reimburse actual expenses incurred. This suggests that—as long as per diem payments serve to reimburse expenses—there is theoretically no taxable upper limit. But as Form 8853 makes clear, amounts <em>under</em> the $430 per day limit can be taxable. This occurs when reimbursements are received during the same period as per diem payments (uncommon, but possible for those who are covered by more than one policy). Since one's expenses have been reimbursed, the per diem policy is serving at this point as nothing more than pure income—and it is taxed as such (even if it is far below the $430 per day threshold). </p><p><hr align="left" size="1" width="33%"></hr></p><p> <a href="#_ftnref1">1</a>. IRC § 7702B(a). </p><p> <a href="#_ftnref2">2</a>. IRC §§ 104(a)(3), 105(b). </p><p> <a href="#_ftnref3">3</a>. Amounts paid as accelerated death benefits are fully excludable from income if the insured has been certified by a physician as "terminally ill" (having an illness or physical condition that can reasonably be expected to result in death within 24 months of the date of certification). Accelerated death benefits paid on behalf of individuals who are certified as "chronically ill" are excludable from income to the same extent they would be if paid under QLTCI. </p><p> <a href="#_ftnref4">4</a>. IRC §§ 7702B(d)(4), 7702B(d)(5). </p>

<div class="Section1">Taxpayers who apply for short-term care insurance (STC) are generally not required to complete the comprehensive applications and medical history screening that is required to qualify for long-term care (LTC) insurance. In general, STC provides an attractive option for those who cannot afford, or are unable to qualify for, traditional long-term care insurance (LTCI). Current statistics show that over 40 percent of LTC claims last less than one-year: the most common reason for these claims are short, recoverable illnesses, sudden terminal illnesses, and the single use of non-caregiving benefits (such as equipment and training). For this reason, some clients may find STC a more suitable option.</div><br /> <div class="Section1"><br /> <br /> STC can also be employed as a "gap" to fill the elimination period of someone's existing LTC policy. They may have elected a longer elimination period at a time when circumstances were different, or when they didn't have another choice.<br /> <br /> To summarize, STC solves some of the ingrained challenges inherent in traditional long-term care (i.e., more rigorous underwriting and perceived high cost), and is ideal:<br /> <ol><br /> <li>for those who have waited too long to apply for coverage;</li><br /> <li>when cost is a barrier;</li><br /> <li>when age or health are barriers;</li><br /> <li>for rehab or accident claims;</li><br /> <li>for filling existing elimination periods;</li><br /> <li>for protecting against Medicare's "observation status" penalty;<a href="#_ftn1" name="_ftnref1">¹</a></li><br /> <li>when existing LTCI has not kept pace with inflation; and</li><br /> <li>for those who object to tax-qualified (TQ) triggers and/or the 90-day certification.</li><br /> </ol><br /> <br /> <hr /><br /> <br /> <strong>Planning Points:</strong> Although STC insurance has been offered since the mid-90's, it remains some of the most rate-stable coverage available in the LTC market. Part of the reason it is not more widely promoted is that it has historically—although not exclusively—been offered by carriers with a "less-than-A" rating. If the day comes that "first tier" name brand insurers begin marketing STC, it has many things going for it to penetrate the middle market.<br /> <br /> <hr /><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     Although new legislation looks to be closing this loophole, for years many patients discharged from the hospital to a nursing facility believed they had satisfied Medicare's onerous "three-day prior hospitalization" gatekeeper, only to find they had never been admitted as an inpatient to the hospital, and were instead kept under "observation status."<br /> <br /> </div>

<div class="Section1">No.<div class="Section1"><br /> <br /> The Affordable Care Act (ACA) enacted hundreds of market reforms, including many which affect the individual and group health insurance markets. Title&nbsp;42, Section&nbsp;300gg-91 defines these terms (such as &ldquo;individual health insurance coverage&rdquo;), but it also itemizes a number of &ldquo;benefits&rdquo; which are exempt from the subchapter&rsquo;s requirements.<br /> <br /> Among these are &ldquo;benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof&rdquo; (if such benefits are offered separately).<a href="#_ftn1" name="_ftnref1">¹</a> Thus, a broad category of coverage is excluded based on its function rather than its identification.<br /> <br /> Furthermore, in the explicit definition of &ldquo;individual health insurance&rdquo;, there is a carve-out: it &ldquo;does not include short-term limited duration insurance&rdquo;<a href="#_ftn2" name="_ftnref2">²</a> although this is more likely a nod to short-term medical (<em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="483">483</a>).<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Other excepted benefits include &ldquo;hospital indemnity or other fixed indemnity insurance&rdquo; (if offered as independent, non-coordinated benefits), and coverage for a specified disease or illness.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; 300gg-91(b)(5).<br /> <br /> </div></div><br />

<div class="Section1">Yes.<div class="Section1"><br /> <br /> The individual may deduct premiums paid for a qualified long-term care insurance contract (for oneself, one&rsquo;s spouse and dependents). Because amounts paid for qualified long-term care insurance contracts fall within the definition of medical care, qualified long-term care insurance premiums are eligible for deduction from income by self-employed individuals.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> The self-employed deduction is not subject to the &ldquo;7.5&nbsp;percent of AGI&rdquo; threshold which must be met by individual taxpayers; however, the maximum amount of premium which may be taken as an &ldquo;above-the-line&rdquo; deduction is limited by the age-based eligible premium table (indexed for inflation)<a href="#_ftn2" name="_ftnref2">²</a> ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="487">487</a>).<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> Partners of a partnership, members of an LLC (taxed as a partnership), and greater-than-2&nbsp;percent shareholders/employees of an S Corporation are <em>also</em> taxed under the self-employed rules. ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="489">489</a>).<br /> <br /> <hr><br /> <br /> The deduction is not available to a self-employed individual for any calendar month in which he or she is eligible to participate in any subsidized health plan maintained by his or her (or a spouse&rsquo;s) employer. A &ldquo;subsidized health plan&rdquo; is one in which the employer pays all or a part of the employee&rsquo;s premium. This rule is applied separately to plans that include coverage for qualified long-term care services or are qualified long-term care insurance contracts ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="477">477</a>), and to plans that do not include this coverage and are not such contracts.<a href="#_ftn3" name="_ftnref3">³</a> In other words, the disallowance of this deduction in a given month would require not just eligibility or participation in <em>any</em> subsidized health plan (of the taxpayer or their spouse), but specifically eligibility or participation in a subsidized <em>long-term care</em> plan through work.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&sect; 162(l), 213(d).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 162 (I)(2)(C).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 162(l)(2)(B)(i).<br /> <br /> </div></div><br />