Long-term care tax deduction included in Bush 2005 budget

Tax deductions for premiums for private long-term care insurance plans would increase sale of these insurance policies. This would help the assets of the American family by protecting them from the high risk of needing care.

February 5, 2004--President Bush's 2005 budget is again including tax incentives for the public to purchase long-term care insurance. The Budget would also promote the use of long term care (LTC) insurance by eliminating the ban on LTC Partnership programs. Through Partnership programs, consumers who purchase and use Partnership-approved insurance can become eligible for Medicaid services after their insurance coverage is exhausted without having to divest all of their assets, as is typically required.

"I am very excited that the President continues to understand the importance of private long-term care insurance as a way to protect the assets of the American family," said Matt McCann a nationally known expert in long-term care insurance

The 2005 Bush budget would provide an above-the-line deduction for long-term care insurance premiums. Current law provides a tax preference for employer-paid long-term care insurance. However, the vast majority of the long-term care insurance market consists of individually purchased policies, for which no tax preference is provided except to the extent that deductible medical expenses exceed 7.5 percent of AGI or the individual has self-employment income. Premiums on qualified long-term care insurance are deductible as a medical expense, subject to annual dollar limitations that increase with age. The Administration proposes to make individually purchased long-term care insurance more affordable by creating an above-the-line deduction for qualified long-term care insurance premiums.

"Group plans tend to cost more and have more limited benefits then individual long-term care insurance plans. In addition, few employers offer long-term care insurance as a benefit to start with. The above-the-line deduction will encourage more and more people to plan for long-term care before they retire. This will make already affordable premiums even more affordable," McCann said from his Darien, Illinois office.

McCann says the Secretary of the Treasury would be authorized to require long-term care insurance to meet consumer protection standards for quality coverage. The deduction would be available to taxpayers who individually purchase qualified long-term care insurance and to those who pay at least 50 percent of the cost of employer-provided coverage.

The deduction would be effective for taxable years beginning after December 31, 2004, but it would be phased in over four years. The deduction would be subject to current law annual dollar limitations on qualified long-term care insurance premiums.

McCann also says the Bush budget plan would provide an additional personal exemption to home caregivers of family members. Current law provides a tax deduction for certain long-term care expenses. In addition, taxpayers are allowed to claim exemptions for themselves (and their spouses, if married) and dependents who they support. However, neither provision may meet the needs of taxpayers who provide long-term care in their own home for close family members.

Effective for taxable years beginning after December 31, 2004, the Administration proposes to provide an additional personal exemption to taxpayers who care for certain qualified family members who reside with the taxpayer in the household maintained by the taxpayer. A taxpayer is considered to maintain a household only if he or she furnishes over half of the annual cost of maintaining the household. Qualified family members would include any individual with long-term care needs who is (1) the spouse of the taxpayer or an ancestor of the taxpayer or the spouse of such an ancestor and (2) a member of the taxpayer's household for the entire year. An individual would be considered to have long-term care needs if he or she were certified by a licensed physician (prior to the filing of a return claiming the exemption) as, for at least 180 consecutive days, unable to perform at least two activities of daily living without substantial assistance from another individual due to a loss of functional capacity; or, alternatively, (1) requiring substantial supervision to be protected from threats to his or her own health and safety due to severe cognitive impairment and (2) being unable to perform at least one activity of daily living or being unable to engage in age appropriate activities.

"Some people want to forget about the biggest risk any of us face in our lifetime, the risk of needing long-term care. One out of two people who reach the age of 50 will need some form of long-term care service during their lifetime. Medicare and health insurance do not pay for most long-term care services. This means the American family must pay for future care out of their own assets UNLESS people plan ahead. I applaud President Bush in making long-term care a priority. This will help the American family as well as state and federal Medicaid budgets. Medicaid, the medical welfare program, will pay for long-term care only after exhausting their assets," McCann said.

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