Long-term coverage eligible for tax breaks

Nation's Business, Feb, 1997 by Peter Weaver

Since the passage of the Health Insurance Portability and Accountability Act of 1996 in August, insurance companies have been reporting record sales of long-term-care policies to small businesses.

This type of insurance picks up most expenses when a policyholder is in a nursing home or an assisted-living facility or requires extensive home-care services. Small firms that buy such policies generally cover all of their employees.

"Sales are being driven by the tax benefits in the new law and by a growing awareness among business owners of the need for long-term-care coverage," says Stephen K. Meahl, senior vice president for long-term care with Unum Life Insurance Company of America, in Portland, Maine.

"The new law makes premiums paid by employers deductible as a business expense," says Richard W. Garner, a vice president and actuary with CNA Insurance Cos., in Chicago. The law "treats long-term-care insurance like other health insurance."

This means that benefits are tax-free and any premiums paid by employees may be tax-deductible if the taxpayer has unreimbursed medical expenses that exceed 7.6 percent of adjusted gross income.

The self-employed, partnerships, and S corporations (with some restrictions) may deduct 40 percent of premium costs this year and 45 percent in 1998 through 2002. Thereafter through 2006, the deduction will rise in stages to 80 percent.

C corporations can handle long-term-care premiums just as they deal with other health-insurance costs, deducting them as a business expense.

Premiums are based primarily on an individual's age. For example, Unum offers a policy for a group of 20 or more that pays $3,000 a month for up to five years, stipulates a 90-day waiting period before benefits can begin, and has a benefits escalator of 5 percent compounded annually for inflation. It costs $400 a year for a 40-year-old, $688 for a 50-year-old, and $1,314 for a 60-year-old.

An individual policy with such term would cost $911 a year for anyone under 55. The premium is higher for each year beyond that; a person who is 60, for example, would pay $1,336.

Susan Polniaszek, an insurance consultant and authority on long-term coverage, offers a caveat: "Some policies and some companies are a lot better than ethers." Check with an independent insurance agent who represents a number of companies or with a financial planner to find the best long-term-care insurers.

Also, long-term-care insurance may not be a good buy for everyone. "There's a rule of thumb," Polniaszek says, where individuals with more than $1 million in assets may be able to self-insure and those with less than $100,000 may eventually be covered by Medicaid."