The U.S. Administration on Aging projects that 70% of Americans currently age 65 will need some form of long-term care in the future, be it at-home care, assisted living, or a nursing home. The average stay in long-term care is 3.2 years, but one-fifth of people will need it for more than five years. The cost of such care is currently hovering at about $100,000 per year, and history shows that the cost will likely continue to increase. Put all these facts together and it is clear that our nation is facing a serious long-term care crisis. The U.S. simply has no system in place to provide help for the tsunami of baby boomers who will need care.
Long-Term Care Insurance
For the middle class struggling with long-term care costs, long-term care insurance can be a financial lifesaver. Unfortunately, even if you meet the health criteria to secure a policy, stiff premiums can put it out of reach. To mitigate the cost and incentivize people to purchase insurance, the IRS allows policyholders to deduct a portion of the premium as a medical expense from taxable income.
The deduction is available only if a taxpayer itemizes deductions. To itemize, your medical expenses must exceed 7.5% of adjusted gross income. For information on the kinds of medical expenses that are deductible, click here. Long-term care insurance premiums are considered a legitimate medical expense, provided they are for a qualifying insurance policy (see below for what constitutes a qualified policy).
Deduction amounts are based on age. For 2024, the tax deductions are as follows:
Age 40 and under: $470
Over age 40 through age 50: $880
Over age 50 and through age 60: $1,760
Over age 60 and through age 69: $4,710
Age 70 and older: $5,880
To take the deduction, your policy must be a qualified policy that meets the following criteria:
- Offer inflation protection.
- Have nonforfeiture protection. This allows a portion of benefits or a partial refund to be paid should the policy lapse because of non-payment of premium.
- Must be guaranteed renewable. This means that as long as you are paying premiums, the carrier may not cancel your policy if you experience any changes in your health status.
- Benefits must commence when the insured person requires help with 2 of 6 activities of daily living, or when there is severe cognitive impairment.
- If the policy was purchased prior to 1997, it is grandfathered in and considered qualified so long as it is approved by the insurance commissioner of the state in which the policy was sold.
If you have any questions about whether your policy is qualified, ask your insurance agent.
Last Resort: Medicaid
For those unable to secure a policy and facing financial devastation, all is not necessarily lost. The Karp Law Firm may be able to help you secure Medicaid benefits before you completely “spend down,” even if your loved one is already in a nursing home and you are facing an immediate crisis. We can also help you determine if you are eligible for “Veterans aid and attendance” benefits. Before you lose everything, call us at 561-625-1100.