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The Health Insurance Portability Act of 1996 (HIPAA), was signed
into law August 1996. This new legislation created guidelines for
Tax-Qualified Long-Term Care Insurance (TQ-LTCI) policies. The
provisions define what a TQ-LTCI is, and the deductibility for
individuals and corporations. The bill states that income received
as benefits from a tax-qualified policy, will be received
tax-free.
There was no ruling on policies that are not tax-qualified. So,
the question has not been answered, whether income received from
these policies will be taxable. Since there has not been a ruling,
this puts clients who buy non-qualified policies at considerable
risk.
There were material changes in benefit triggers under the new
TQ laws. Below is a list of those changes:
Federal law requires
that a licensed healthcare professional certify that the need for
care is expected to last 90 days or more. The 90-day
period does not apply to Cognitively Impaired individuals, but
certification of cognitive impairment is required. Nursing
facility benefits will be available if the physician certifies the
insured to be "Chronically Ill".
- Chronically Ill
Individual:
Chronically Ill means, an insured person who has been certified as:
Expected to be
unable to perform, without Substantial Human
Assistance, at least
2 Activities of Daily Living for a period of at least 90 days from
the inception of the illness or injury.
OR
-
Having a Severe
Cognitive Impairment that requires substantial supervision to
protect the insured or others from threats to health or safety.
-
Severe Cognitive
Impairment is defined as
a deficiency in: your short term or long term memory; orientation
as to person, place and time; deductive or abstract reasoning; or
judgment as it relates to safety or awareness. It is established
by clinical evidence and standardized tests that reliably measure
your loss.
At first the qualifying requirements appear stiffer than pre-TQ-LTCI
policies however, many of the better policies have included
language to soften the Substantial Human Assistance, by
adding a Stand by Assistance rider. This rider usually states the
following:
Substantial
Human Assistance means
actual hands on assistance, as well as standby or supervisory
assistance, by another individual.
In other words, instead of someone having to physically touch
the client in order for them to qualify as unable to perform, they
can qualify if someone only needs
to assist them with verbal cues or to stand near them to insure
their safety.
Tax
Qualified - LTCI TAX ISSUES
The other changes associated with TQ-LTCI are directly related
to tax deductibility. As we stated earlier, any income received in
the form of benefits are non-taxable. In addition, there are rules
that allow the premiums to qualify as deductions on your tax
return. They work in the following manner:
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