The CLTC Master Class
Your instructor
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2224 Sedwick Road Suite 102 Durham, NC 27713 · 877.771.2582
Mission
•
To educate professionals in the fields of insurance and
financial services about the consequence that not having
a plan for extended care has on the emotional, physical
and financial wellbeing of those their clients love.
•
By giving those professionals the skill set necessary to:
•
•
•
Discuss those consequences.
Offer a plan to mitigate them and when appropriate.
Recommend long-term care insurance as a funding source.
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Philosophy
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Extended care is a field of study similar to those of
insurance, financial services law and accounting.
•
The field focuses on the severe consequences of
providing care over an extended period of years.
•
The best way to protect families is not to sell a
product but offer advice that leads to a plan to
mitigate those consequences.
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Rethinking the language
• Clients vs. prospects
• Long-term care vs. extended care
• Frail vs. sick
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Thoughts on what motivates
people not to purchase LTCi
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• It starts with correcting a presumption…
• The presumption that clients are interested in being educated about the
risk and cost of care is, for many, just that - a presumption.
• The reality is that many are not. In particular those with no prior
experience.
• Why?
• Welcome to Cognitive Dissonance, the psychology of what motivates
clients not to buy LTCi.
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Cognitive dissonance:
The intense discomfort experienced when
one’s beliefs collide with reality.
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• People structure their lives on a set of beliefs.
• When those beliefs are challenged by outside information it creates
cognitive dissonance. People can deal with these incongruities in one of
three ways:
• Ignore the issue.
• Justify continued behavior.
• Change behavior.
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• A type A personality who is disciplined financially falls in love with a…
• Spendthrift who finds it hard to keep a job
• She can deal with cognitive dissonance in one of three ways…
• Ignore the issue
•
Stop listening to her friends
• Justify continued behavior
•
You don’t understand…I love him and he said he would change
• Change behavior
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• Smoking is another example.
• People like to smoke. It’s part of their lifestyle. When confronted with
the unpleasant realities of smoking they react in one of three ways:
• Ignore the evidence:
• Simply stop reading or listening to the drumbeat that smoking will kill
you.
• Justify behavior:
• If I stop smoking I’ll put weight on which is worse than smoking.
• Change behavior:
•
Stop smoking.
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Depending on the role a client plays in a
family, the exact same thought process applies
when the subject of extended care is brought
to the individual’s attention.
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• There are two roles:
1. Primary earner.
2. Primary provider of care.
• The prime directives of primary earners are to provide and protect. If
men, they are hard wired to do so.
• The role of primary providers of care is to create a stable environment
to raise and nurture children (if any) and support the efforts of primary
earners.
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• Primary earners believe they will always be available to keep their
commitments.
• Therefore, in their mind, the risk of them not being able to do so, at any
stage of life is:
• Zero
• In other words if something awful is going to happen it will always be to:
• The other guy.
• This applies to the subject of extended care.
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• As stated traditional thought dictates that educating clients about the
risk and cost of care will motivate them to purchase LTCi
• The flaw is that discussing sickness, senility and dependence conflicts
directly with their beliefs
• There are three ways they can deal with it:
1) Ignore the risk:
•
Listen politely, suggest what was presented is interesting and then
do…nothing
2) Justify continuing behavior:
•
•
It’s not going to happen to me
If it it does, I can self insure it
3) Change attitude
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• Primary providers of care view the subject of extended care very
differently.
• They understand the emotional and physical stress of caregiving.
• They are often dependent on primary earners for income and
understand the consequences if it is lost.
• Both are enhanced if caregivers are women.
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• Therefore, whereas primary earners see extended care as a zero risk
proposition.
• Primary providers of care see it as a consequence proposition.
• Now you know why you usually want a primary caregiver in the
meeting.
• A quick thought: Do you see how these concepts are applicable to the
sale of Life and DI insurance?
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• The key to increased production is not to create cognitive dissonance.
• Which means refocusing the conversation. As you will see:
• A discussion based about the risk of needing care will be replaced with
a…
• Discussion about the consequences providing it would have on primary
earner’s essential directives of providing for, and protecting those he or
she loves.
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A Change of Approach
•
Consumers have been inundated with surveys and statistics of needing
care and its costs.
•
Producers have been told that sharing this depressing news would
motivate consumers to buy LTCi.
•
Nothing has worked other than to produce objections, denial and
frustration.
•
Why? We will show you…
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•
Why traditional selling systems based on risk not only do not work but
create a selling environment that creates a toxic situation.
•
How Consultative Engagement creates a buying environment where
the individual doesn’t purchase a product but rather your advice.
•
How Consultative Engagement (CE) creates a universal selling
platform.
•
How CE creates two new markets: The wealthy and those with no prior
experience.
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Course organization
•
Why traditional selling systems based on risk not only do not
work but create a selling environment that creates a toxic
situation.
•
How Consultative Engagement creates a buying environment
where the individual doesn’t purchase a product but rather your
advice.
•
How Consultative Engagement (CE) creates a universal selling
platform.
•
How CE creates two new markets: The wealthy and those with
no prior experience.
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Part A
What is Extended Care?
A-1
What Causes the Need for Extended Care
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Review:
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Acute impairments.
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Physical impairments.
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Cognitive impairments.
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Impairments require a particular level of care
•
Review skilled vs. custodial care.
•
Care can be provided either formally or informally.
•
Review where it is provided:
•
•
•
•
•
•
•
Home care.
Home makers.
Community-based services.
Adult day care.
Assisted care living.
CCRC.
Skilled nursing homes.
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A-2
The Consequences of Providing Care:
There are Two
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The Emotional and Physical
wellbeing of Those the Client
Loves are Jeopardized
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•
As impairments worsen they severely compromise individuals meaning
they are no longer safe. That means someone has no choice but to
step in.
•
Review who the caregivers are and what the consequences are to their
emotional and physical wellbeing.
•
Power Phrases:
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Providing care to chronically ill people makes healthy caregivers
chronically ill
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If there are children it compels one or more to put their lives aside
affecting his or her life and relationship with siblings that do not help
out which means that providing care rarely brings families together
•
It tears them apart
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If your client ever needs care, his or her life is not going to end
•
Some else’s way of life is going to end
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Extended care is rarely nursing home care.
•
Review misleading statistics about how many people end their lives in
a facility.
•
Nursing home placement is often not a first but rather last choice
because…
•
Making a placement breaks your heart.
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The Second Consequence:
Paying for Care Disrupts Financial Plans
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Paying for care causes a reallocation of income. The issue is that
successful people live on most if not all of their income
•
If the illness lasts long enough it compels an unintended invasion of
the portfolio
•
Review how disruptive using portfolio to pay for care is on plans to
secure financial viability
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Simple, I’ll use my assets to pay for care.
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Note: Clients will always be willing to use their own funds to pay for an
event:
•
That will never happen.
•
Review the severe consequences of using portfolio or other assets to
pay for care.
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Extended Care is Not a Place or Condition
When working with those who have no prior experience it is common to
ask What do you think long-term care (extended care) is?
•
Review how you likely respond to the client’s answers such as:
• A nursing home.
• Dementia or something like that.
• Not being able to take care of yourself.
•
It’s not a place or condition.
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Part B:
Selling a Product vs.
Protecting a Family
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Introduction
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Hopefully you now have a clear understanding of the subject matter.
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Please keep in mind that primary earners and primary caregivers
evaluate risk very differently.
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B-1
Risk-Based Selling
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Review traditional principles.
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An incorrect selling philosophy creates pressure.
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Risk-based selling creates a mismatch of interests leading to a selling
environment.
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Wait a minute...I am confused because this has worked for me.
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Think about who you have been selling to. Do they tend to be selfselectors?
• People with health issues.
• Prior experience.
• Those who listen to those who provide the primary care.
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Note: Does this sound like a life insurance interview?
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•
To successfully engage the new market, the wealthy, and those with
no prior experience you must establish a matching of interests
between the seller and the buyer.
•
To do so requires determining what interests the buyer. This is done
by asking the critical question…
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What’s important to you?
•
Review illustration.
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B-2
Consultative Engagement
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Consultative engagement is based on educating clients on the severe
harm an unexpected need for care would cause to those they love.
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It is predicated on the belief that people will act to protect those they
love but must be given good reasons to do so.
•
Please review those reasons in the form of the two sets of
consequences.
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The equation of interests.
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Your interest: Educating the client about an event that if ever
happened would have severe consequences to those the client
loves. That event is a need for care.
•
Client’s interest: A person who loves someone will take action
to protect that person but must be given compelling reasons to
do so. In this case the client is educated about the
consequences to those he loves.
•
Equals: A matching of interests.
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Consultative Engagement creates a buying environment.
•
It exists when the buyer believes that you are offering
advice on a subject that is important to him or her - not a
ruse to sell a product.
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If it exists the buyer will pay you the respect you have
earned by accepting it.
•
Please review the dialogue.
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B-3
A Universal Platform
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Please review how Consultative Engagement is used to enhance the
sale of:
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Life insurance.
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Disability income insurance.
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Annuities.
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B-4
The Importance of a Plan
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Please review the plan.
•
Please review how it mirrors a life and DI insurance plan.
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The plan is critical because it leads to the question…What do you think
will fund it?
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B-5
The Three Key Agreements
To permit you to create a plan the client must accept three key
agreements. He or she must:
1.
Agree he could live a long life and if he does could become frail.
2.
Understand the consequences of providing care.
3.
Understand that the only funding source for a plan is long-term
care insurance.
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B-6
Integrated Scenario
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Part C:
What Pays for Extended Care
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C-1
Self-Funding
Not having a plan for extended care is disruptive to every
other plan created to secure financial viability during
retirement.
Review plans that are disrupted.
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A percentage of a client’s portfolio is generally transitioned to produce
income. This is the income portfolio.
•
The remaining assets continue to grow with the income likely
reinvested. This is the investment portfolio.
•
Lifestyle expenses will likely match income, as they did during working
years.
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• Assets don’t pay for care… income pays for care. In fact assets rarely
directly pay for anything.
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Using this approach is enormously helpful in overcoming the
debilitating objection I have enough assets to pay for care.
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Please review You insure your house don’t you? And remember
homeowners and auto insurance have never been considered optional
forms of coverage for anyone let alone the wealthy.
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$1,000,000 now becomes
$50,000
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$1,500,000 now becomes
$75,000
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$2,000,000 now becomes
$100,000
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$3,000,000 now becomes
$150,000
Assuming a 5% return and 100% is in income-producing assets.
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How much of that income is committed to expenses?
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110%.
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Here’s the question…
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How can your client keep his financial commitments and pay for care
at the same time?
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Simple …
I’ll just use my assets
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Agree and then suggest…
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Liquidity.
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Market conditions.
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Taxes.
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Lost investment opportunity.
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Legacy assets.
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Death spiral.
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• This analysis helps the client understand the serious, real, consequences
of guessing wrong.
• It is strongly suggested that whenever possible, the client’s financial
advisor, CPA, or attorney be involved in the initial discussion.
• Who, where, and why take the conversation from finances to family.
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Well if I need care I won’t have much of a lifestyle anyway.
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If you actually believed that why would you sell a client life insurance?
If he dies he won’t be living in his house that much or play golf for that
matter.
•
LTCi is no different than life or DI.
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Michael and Laura are 75
They have $2,000,000:
• $1,500,000 of which is in qualified funds.
• Income: $75,000 per year.
• Social security adds another $40,000.
Commitments:
Helping an adult child; helping to pay for a grandchild’s education; Laura
took up horseback riding; they have a commitment to their church; both
love to travel.
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Michael is diagnosed
with Alzheimer’s
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What’s been allocated from
the portfolio to pay for care?
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• All of it.
• Where else can the money come from?
• By allocating nothing to pay for care, you have placed the client in the
position of having to spend his assets.
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When will the family panic?
A.
B.
C.
When they get the confirmed diagnosis?
When they find out that no federal or state program will pay for his
care?
When the money is exhausted?
The answer is A.
The family has no idea how long the illness will last, who will provide
care, or how much it will cost.
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• Peter, as you know, you and Claire will live on the income generated
from your income portfolio, supported by Social Security.
• Peter responds, sounds right.
• Here’s the problem. I can’t assure you that, should you ever need care,
there will be sufficient cash flow to support your lifestyle and pay for that
care at the same time.
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C-2:
Medicare
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• Health insurance covers medical, not custodial care.
• No time is spent on this since it is rarely suggested as a solution.
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• There are four parts to Medicare
• A and B, so-called Original Medicare.
• C, referred to as Medicare advantage.
• D, referred to as the Prescription Drug Program.
• Medicare’s definitions of “care”
• Skilled care: inherently complex and provided under supervision of
doctor and licensed nursing personnel.
• Rehabilitative care: the goal is to place the individual back to where
he was prior to the intervening medical event.
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• Medicare does not pay for custodial care.
• Medicare has to be discussed because prior to 1998, providers found
ways to classify a person who primarily needed custodial care, as
requiring skilled or rehabilitative care.
• The goal is to quickly answer the objection:
• I don’t need LTCi. Medicare will pay for my care.
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Please review eligibility
•
Coverage
• Inpatient hospital, SNF, home care, hospice, blood.
•
The Prospective Payment System
• Hospitals are paid on a flat fee basis based on a diagnosis, referred
to as Diagnostic-Related Groups (DRG).
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Medicare payment for SNF’s
•
Prior to 1998: Paid on a fee for service
• Medicare pays up to (not a guaranteed) 100 days for skilled or
rehabilitative care.
• First 20 days: no co-insurance. Days 21-100 there is a daily co-pay.
•
1998: Flat fee based on RUG’s
• SNF receives fee in advance.
• Average stay goes from 50 days to 14-21 days.
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Medicare Part B coverage
Coverage
Physicians, outpatient, home care, surgical services, and supplies,
physical and speech therapy, ambulance, diagnostic tests.
Please review Table 2 Re: deductibles and co-insurance.
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Home Care and Medicare
• Skilled and/or rehabilitative services.
• Criteria:
- Confined to home.
- Require skilled and or rehabilitative services under a plan of care
established by a doctor.
- The care must be intermittent.
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Home Health Care re and post BBA ‘97
• Prior to BBA ‘97: fee for service means unlimited amounts of coverage.
Vendors found ways to classify a custodial care patient as needing
skilled or rehabilitative care. Home care business expands rapidly.
• January 1998: system changes to flat fee.
• No more incentive to provide on-going care.
• Medicare audits then indicts many providers.
• Industry contracts by at least 10%.
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•
Frank, do you know what will pay for the plan we discussed to keep you
in the community?
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Medicare.
•
No it won’t.
•
But it paid for my father-in-law.
•
When?
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• Review…
• Medicare Part C.
• Medicare Part D.
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C-3:
The Veterans Administration
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The VA is primarily a health care system.
•
Medical care is given based on the veteran’s ranking in the Priority
Group system.
•
Custodial care services are available in two situations…
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• If the veteran has a greater than 70% rated disability, then nursing
home care is available at no cost (C-26).
• All other custodial care services generally come under the Aid and
Attendance Special Pension.
• Veterans must have served in a declared war (see text).
• The individual must need custodial care as set forth by his/her
physician.
• Annual income must be limited (see text).
• Assets typically must be less than $80,000.
• If eligible, a monthly pension is issued. The funds can be used for
anything.
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• Review the statement from the Office of Personnel Management (OPM)
(C-26).
• Bob, what do you think will pay for the plan to keep you in the
community?
• I am a veteran; they’ll take care of me.
• The VA is primarily a healthcare system. There are limited benefits for
custodial care and they are limited to vets with minimal income and
assets.
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C-4:
Medicaid
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• Medicare…
• Is health insurance.
• Is an entitlement program.
• Receives no funding from the states.
• Does not pay for custodial care.
• Medicaid…
• Is health insurance.
• Means tested program.
• Joint partnership with the states.
• Pay for custodial care, but almost exclusively in a SNF.
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•
Home and Community Based Services (HCBS)
• For those under 55.
•
Program for All Inclusive Care for the Elderly (PACE)
• For those 55+.
•
Review…
• Financial eligibility particularly income.
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Helping people get on Medicaid
helps you sell LTCi
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• Never disparage Medicaid by telling the client he will not get into a
good NH. The response will likely be, That’s not what the lawyer said.
• Never refer to the program as welfare.
• Never focus on NH care.
• Focus on:
• The consequences keeping the client at home has on his family and
finances.
• How Medicaid is of no value during these years.
• The fact that Medicaid is not free.
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Qualifying for benefits
•
Three categories:
• Countable / Non-exempt.
• Non-countable / Exempt.
• Inaccessible.
•
Countable
• Pay particular attention to cash value, annuities, and qualified
funds.
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•
Non-countable assets can be kept by the applicant.
• Primary residences are temporarily exempt but subject to net equity
caps.
•
Inaccessible assets were at one time countable. They can be made
inaccessible in one of two ways:
• Given away.
• Placed in a trust.
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The look-back period
•
Medicaid has the right to look-back for a period of years beginning on
the date of application.
•
The period is 5 years.
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Universal formula to determine ineligibility
•
The total of all gifts made, divided by your state’s average monthly
cost of a semi-private room.
•
The resulting number is the period of ineligibility, counted in months /
days.
•
Ineligibility begins on the date of application, running forward.
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Medicaid treatment of
a married couple’s assets
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•
•
Assets of a couple, regardless of whose name they are in, are
considered jointly held, even if:
• There is a premarital agreement.
• They were never held together.
• The couple lives in a community property state.
Some states, such as New York, will exclude the qualified funds of a
community spouse
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•
•
A snapshot is taken on the date of entry into a SNF of all assets
regardless of whose name they are in (some states exempt qualified
funds).
The community spouse keeps
• No less than a “floor” of $22,728 (2013) and…
• No more than a “ceiling” of $115,920 (2013).
• States can raise the floor anywhere up to $115,920.
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Medicaid qualification: Income
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Individuals
•
All income (Form 1040) is divided by 12 months.
•
In non-cap states, the amount of income is not important, as long as it
is less than the average cost of a semi-private bed.
•
About half of the states “cap” the amount of income an individual can
keep.
•
Review Miller Trusts.
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Income eligibility for couples
• The spouse’s income is not used in determining eligibility.
• However, if she (or he) has less than a “floor” of $1,891 (2013), she can
keep what is needed from spouse’s income, to bring her up to that
amount.
• The state can raise the floor to any amount up to a maximum of $2,841
(2013).
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Case study:
Sarah and Edward Ward
• The couple has $517,920 in assets.
• Monthly Income: Sarah $1,000, Edward $4,500 plus portfolio income
= $81,000.
• Edward applies for Medicaid. Sarah keeps $115,920 and his cash
allowance of $2,000.
• Therefore, she must spend down $400,000.
• Once Edward is on Medicaid, Sarah can keep only $891.00 of her
husband’s income. The balance will go to the facility.
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•
The couple starts with $517,920.
•
Sarah is left with $117,920.
•
The couple starts with $81,000 in annual income.
•
Sarah is left with $1,000 + $891 per month or…
•
$22,692 per year.
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For states that raise the “floor” to $2,841
•
The couple starts with $517,920.
•
Sarah is left with $117,920.
•
The couple starts with $81,000 in annual income.
•
Sarah is left with $1,000 + $1,841 x 12.
•
$34,092.
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Can you annuitize the excess of $117,920?
• Most states allow the community spouse to annuitize the spend-down
into an income stream.
• Issues
• Taxes if funds are qualified or low cost based assets.
• Selling into a down market.
• The state may not allow the annuity or only allow as much needed to
bring her up to MMNA.
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Medicaid planning
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Transferring assets creates both short and long term
tax consequences
• Qualified assets creates an immediate tax.
• Low-cost based assets creates an unnecessary tax when sold vs. free
step-up in the estate.
• Transfer of home:
• Forfeits the capital gain exclusion.
• Saddles children with low cost basis, creating unnecessary taxes.
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Trusts
• Basics:
• Trust is set up by “donor” or “grantor”.
• Assets are held for beneficiaries.
• Administered by a “trustee”.
• The trust can be either:
• Revocable.
• Irrevocable.
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• Revocable trusts do not protect assets.
• Review classic irrevocable discretionary trust used prior to 1985.
• Irrevocable trusts after COBRA ‘85 are invalid if:
• The applicant sets it up.
• Makes himself and or spouse a beneficiary.
• Gives discretion to trustee.
• If above exists, they are referred to as Medicaid qualifying trusts
(MQT’s).
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• Even if they did work…
• Trusts cannot hold qualified funds. Gifting creates an immediate tax.
• The trust is of no value as long as the individual stays at home.
• Once on Medicaid, the community spouse loses much, if not all, of the
applicant’s income.
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• OBRA ‘93 allows the use of income only trusts, but mandates that the
states pursue recovery of the applicant’s taxable estate.
• No lawyer can guarantee that any form of trust will work.
•
Even if they do, they cannot get around the tax and other issues
created when assets go into it.
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• Supplemental needs trusts allow a disabled individual to continue
receiving federal or state benefits.
• How can client keep lifetime commitment to provide for a child if he or
she needs extended care an income has to be reallocated?
• What if there is a second to die policy?
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Review: Overcoming the objection that Medicaid will
pay for care
•
Medicaid attorneys focus on…
•
Protecting assets, not income.
•
Shifting assets not necessarily the tax issues created by doing so.
•
The program paying for nursing home care, not care in the community.
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Long-term care insurance:
The only viable funding
source for a plan
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• Now that every objection as to what will pay for care has been
addressed it leaves only one viable funding source: long-term care
insurance.
• Which of the following statements are accurate: People buy LTCi to
• Protect assets.
• Allow choice.
• Maintain independence.
• Prevent being a burden.
• All of the above.
• None of the above.
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• The correct answer is …
• None of the above.
• Risk Based Selling dictates that you educate the client about risk and
cost of care and what happens to him:
• Loss of independence.
• Being a burden to others.
• Loss of assets paying for care.
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• Long-term care insurance is then positioned as a solution. If he owns
the product he can:
• The fatal flaw is that many clients do not believe care will be needed
therefore,
• Why purchase product?
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• LTCi does exactly what life and disability income do:
• It protects the emotional, physical and financial wellbeing of those the
client. Here is the sequence:
• Your ask the client… what’s important to you?
• You educate the client about the consequences of providing care to
those that are important to the client.
• The client tells you it’s unacceptable.
• The protection is in the form of a plan.
• Since the client asked you to create the plan you have the right to
ask, What do you think will fund it?
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• Financial impact is mitigated.
• By paying for care it eliminates the need to reallocate income to do so.
• Since little or no funds have to be diverted from income, is obviates the
need to go into principle.
• Having a policy in place therefore mitigates the second set of
consequences: The financial wellbeing of the family is protected.
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• In the final analysis LTCi does not protect assets.
• It guarantees income.
• Review summary of low LTCi works vs. what it does.
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Part D
Long-term Care Insurance:
Product Evolution
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• Review current policies (left hand side) and their issues.
• Review NAIC Model regulations of 1993.
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Key Points Model NAIC Model Act
• Review…
• Standardized policy language.
• Benefits paid if insured meets triggers.
• Contracts of adhesion: clients can’t negotiate terms and price.
• No prior hospitalization.
• Unintentional lapse protection.
• No step-down (3 nights) required.
• Renewability guaranteed.
• Time limit on denial.
• Pre-existing conditions and policy replacement.
• 30 day free look.
• Inflation must be offered.
• Coverage of Alzheimer’s confirmed by family doctor.
• Home health and community standards.
• Group policies.
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Standards for benefits triggers
• Review medical trigger for policies prior to HIPAA.
• Current triggers.
• Review physical limitations and ADLs.
• Review cognitive impairment.
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Policy designs
•
Individual.
•
Joint policies no longer are offered. When they were, they generally
had the following:
• One policy, one owner, two insureds.
• One policy, two owners, both insureds.
•
Asset based products:
• Review life (UL or whole life) with LTCi rider.
• Review accelerated.
• Review annuity-based.
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Ideas for those who do not qualify
under traditional underwriting
•
Review LTCi annuity. Only one carrier, State Life offers this type of
product.
•
Review medically underwritten vs. traditionally underwritten (age)
SPIA.
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•
Scope of coverage. Review issues with recommending home or facility
only.
•
Benefit level: $50 to $500 per day.
•
Benefit payment:
• Reimbursement: up to MDB based on compensable claims, not
what the client thinks the policy will pay.
• Indemnity: No longer offered.
• Cash: One carrier, pure cash, those that do offer it pay a % of
MDB.
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• Benefit period.
• Few if any offer lifetime. Generally benefit period is between 3 and
6 years.
• Elimination period: Biggest complaint to the carriers.
• Calendar: No care required simply run days.
• Days of service: Remember it is compensable services that run an
elimination day. Never assume client understands it or the child
who likely will put the claim in.
• Hybrid: 7 for 1 or 0-90.
• Consider 360 elimination period if there is an existing policy with less
benefits.
• Never assume elimination runs with Medicare. If no prior
hospitalization with 3 nights no Medicare Part A.
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Other policy provisions
•
Bed reservation.
•
Alternate plan of care including home modification.
•
Care coordination is perhaps the most important part of a policy for
the wealthy. It eliminates argument that client has sufficient assets by
focusing on his or her inability to make the proper decisions about…
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•
•
•
Who would provide care.
Where is would be provided.
How would it be coordinated over the years.
Since he would not be able to make these decisions, a child or spouse who
may be frail would have to. Who would they turn to?
• Caregiver training.
• Waiver of premium.
• Respite care.
• Restoration of benefits.
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Inflation
•
Review current inflation offerings.
•
Review traditional suggestions for inflation:
• GPO, CPI, Simple, Compound, no fixed premium based on yearly
increases in benefits.
•
Review.
• Options for eliminating inflation at earlier age.
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• Review survivorship.
• Accelerated pay. Few carriers have the option but for those that do it is
either:
• Paid up at 65.
• 10 pay.
• 20 pay.
• Non-forfeiture. No carrier has return of premium at death. The options:
• Paid up with premium being used to support MDB. This option
severely limits the term of the policy.
• Paid up with the policy benefit period remaining the same. This
severely limits the daily benefit.
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Tax-qualified LTCi
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Key points
•
Background.
•
Review requirements.
•
Review definitions applicable to policies.
•
Review consumer protection standards.
•
Hands on vs. stand-by assistance.
•
Pre-1997 policies grandfathered.
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• Review benefit taxability.
• Deductibility of premiums depends on status of taxpayer.
• Non-self-employed.
• Self-employed.
• Partnership.
• S corporations.
• C corporations.
• Review eligible premium based on age:
• 40 or under
$360
• 41-50
$680
• 61-70
$1,360
• 71 or older
$4,450
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• Review non-self-employed:
• Must itemize.
• Subject to 10% AGI rule.
• Individual deductibility:
• Employer paid premiums are excluded from employee income.
• Individual can deduct eligible premium from HAS, HRA.
• LTCi premiums are an above the life deduction for ether a FSA or
IRC 125 program.
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Review self-employed individuals
• Owner subject to eligible premium cap.
• Deduction is on Form 1040 not Schedule C.
• Pay self-employment tax on actual premium.
• Deduct eligible premium based on age.
• Balance subject to income income tax.
• Can deduct actual premium for bona fide employee including spouse.
• Can discriminate by class.
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Review partnerships
•
Partners file as self-employed individuals.
•
Partnership pays 100% of premium and issues a K-1 to partners.
•
Partners report income on 1040.
•
Pay self-employment tax.
•
Deduct eligible premium based on age.
•
Balance subject to income tax.
•
Partnership can discriminate.
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Review S-corporations > 2% shareholders
•
Shareholders file as self-employed individuals.
•
Corporation pays 100% of premium and issues a W-2 to shareholders.
•
Shareholders report income on 1040.
•
Pay self-employment tax.
•
Deduct eligible premium based on age.
•
Balance subject to income tax.
•
Corporation can discriminate.
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Review C-corporations
•
100% of premium deductible to corporation and not reported to
owner of policy as income.
•
Employee:
• Does not report income on 1040.
• Pay self-employment tax.
• Deduct eligible premium based on age.
•
Corporation can discriminate.
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Review Pension Protection Act 2010
•
Withdrawals from non-qualified annuities can, depending on carriers
current interpretation either:
• A withdrawal of principle and therefore non-taxable. However
principle is reduced.
• A partial 1035 exchange with no bearing on principle.
• A percentage of both principle and gain.
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Rate Stabilization and Non-forfeiture
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• Review contingent non-forfeiture.
• Review Long-Term Care Insurance Model Act of 2000.
• Review carriers exiting the market.
• Fewer carriers means higher prices and stricter underwriting, not
dissimilar to the disability income insurance industry.
• The result is that LTCi cannot be sold on price and underwriting but as a
value proposition.
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Partnership
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• Created by a grant from the Robert Wood Johnson Foundation.
• Review stated objectives.
• Notwithstanding best intentions, the real attraction for states is that no
one with any decent policy goes on Medicaid.
• Review basics.
• Partnership may not be the right choice given:
• Mandated inflation eliminates many clients with modest income.
• That income is not protected.
• Review dropping inflation and increasing daily benefit.
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