While most members of the baby boom generation feel they have prepared for their retirement, the majority have failed to prepare for the possibility of needing long term care. According to William J. Scanlon, a General Accounting Office expert on health care financing, very few Americans are prepared for their own long term care needs.
The reason behind this is the misconception that government, or major medical insurance, will pay for long term care services. Most major medical insurance plans pay for only a limited number of days of long term care services. Medicare, the government insurance program for people age 65 and older, also limits the number of days it will pay for long term care services.
Today the annual cost for a stay in a nursing facility averages about $40,000.* With inflation, that number could rise to $97,000 by the year 2030. According to Mike Greenwald, head of a private research firm, most baby boomers could avoid the risk their financial future faces by purchasing a long term care insurance policy. "We just have to think through what longer life means," he said. "We have to pay for it."
* American Health Care Association
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Did You Know?
* Consumer Reports, October 1997
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A Brief Look at Medicare and Medicaid
Planning for your retirement is not complete without considering how you will pay for long term care services. Many Americans assume Medicare and Medicaid will pay for long term care but this is not always the case. Here is a brief explanation of how these programs work.
MEDICARE is a government program intended for people who are age 65 or older. In order to have Medicare pay for long term care services, you must meet certain guidelines. You have to have been in the hospital for at least three days and your physician must certify that you need care in a skilled nursing facility. Only at that point will Medicare pay for these services, and only for the first 20 days. After that, you must pay a Medicare daily deductible. In 1998, that deductible was $95.50 a day. After the 100th day, Medicare no longer pays for the skilled nursing facility and all costs are left solely up to you.
MEDICAID is a federal-state government cooperative program that insures the poor. It is not government funded long term care coverage for all, as some people believe. Medicaid will pay for long term care services only after you have met a state-determined poverty level. Once you have depleted your assets to meet that poverty level, Medicaid, not you or your physician, will determine how much you should spend on long term care. The important part to remember is you must be impoverished before you can be eligible for Medicaid.
Those who believe these two programs will pay for their long term care services have an expensive surprise in store for them. However, through long term care insurance, you can avoid any surprises and feel secure in the financial future you are building for you and your family.
Tax Benefits of
Long Term Care Insurance
In 1996, Congress passed the Health Insurance Portability and Accountability Act, legislation that helped to clarify the tax status of long term care insurance. According to the act, long term care insurance is to be treated the same way that health insurance and accident insurance is treated under the Federal income tax code. This means that benefits paid, (subject to a limit) by a long term care insurance policy will not be treated as taxable income to the policyowner.
In addition, the HIPAA act created another tax incentive for tax-qualified long term care insurance. Premiums paid for your long term care insurance policy can be counted as medical expenses for those who itemize their deductions for Federal income tax purposes. Although the amount of premium the act allows you to deduct is limited, the amount increases significantly as you grow older. The act also states that long term care expenses not covered under your long term care insurance will be deductible for those who itemize. However, the amount you can deduct is limited.
Tax-qualified long term care insurance can help protect your assets and help you feel more secure about your financial future. If you have more questions about tax-qualified long term care insurance, consult your financial adviser.
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