long-term care insurance

Tax Treatment of Long-term Care Insurance a Game Changer

By Tom Strangstalien, Insurance Advisor

We put my dad into a nursing home on Monday. My mom had been his caretaker since he was diagnosed with a somewhat rare neurological disorder. My mom has been superwoman, a real- life example of a family member caring for a loved one. However, even superwoman has a kryptonite, hers being a diagnosis of breast cancer with an impending dual mastectomy this Friday. In need of her own care, our family had no choice but to concede to the fact that dad needed continuous care from qualified professionals. The cost? $8,000 per month, and that does not include costs for prescription medications and other needed skilled medical treatments. My parents are faced with a common long-term care phenomenon, which asset do we liquidate first?

As part of our financial planning, we should all anticipate being faced with this conundrum. Which asset should we set aside to be liquidated first in the event of the need for exorbitant long-term care expenses? In considering the tax treatment of “qualified” long-term care insurance products, we may be able to make this decision much easier.

Qualified long-term care insurance premium deduction

First, the IRS allows a tax deduction for qualified long-term care insurance premiums. These premiums could be in the form of a traditional long-term care policy or for the prevalent “hybrid” life insurance with long-term care benefits available today. In essence our premiums can be combined with our unreimbursed medical expenses to the extent that they do not exceed 7.5% of our adjusted gross income. The maximum we can deduct is subject to age limits, but this by itself can be significant, especially if we combine the sum-total over a respective number of years. If we do not claim the deduction on our Federal return, we can claim the expense of our premiums on the State of Wisconsin income tax return. All states vary with how these premiums are treated, so you need to check with your individual state.

The 2024 federal IRS deduction limits are:

Age 40 and below       $470

Age 41-50                    $880

Age 51-60                    $1,760

Age 61-70                    $4,710

Age 71 and over          $5,880

How are long-term care insurance payments for care treated by the IRS for tax purposes?

When determining which asset to liquidate first, this can be the determining game changer! If the policy is “qualified” per IRS guidelines, typically the payments for any level of care including home health care, assisted living or skilled nursing home care are not taxed. For my parents that would mean an estimated $96,000 in annual benefits received that would not be taxed. If assets were set aside and allocated to a taxable investment for future long-term care, it likely would need to achieve a significant rate of return to compete and almost certainly involve volatility and risk. I would say most of the time it makes much more sense to purchase “tax qualified” long-term care protection. My grandmother was in a home with cognitive impairment for 12 years. In her case at an average nursing home cost of $100,000 per year, she would have received $1,200,000 in tax-free benefits. Can a savings account or investment compete with that? And how will inflation and supply and demand affect future costs?

Using a Health Savings Account for long-term care insurance premiums

Another tax consideration worth mentioning is that qualified long-term care insurance premiums can be funded with Health Savings Account (HSA) assets. As we know, our health savings accounts accumulate on a tax-free basis, are deductible for individual contributions and can be funded with employer contributions. This fact can further enhance the benefits of purchasing long-term care protection.

I work with insurance planning for our physicians every day. Yet, the value of proper planning still resonates with an abrupt wake-up call when faced in real life. How much expense will accrue with my dad’s nursing home stay? Only the future holds the answer. One fact is undisputable, knowing which asset we will liquidate first should be planned well in advance. That asset may very well be and should be a tax qualified long-term care insurance policy.

For help with your insurance planning, contact Tom Strangstalien at 608.442.3730 or the WisMed Assure team at insurance@wismedassure.org, complete this quick online form or call 608.442.3810.

Note: This article is for informational purposes only and should not be considered as insurance advice related to your specific policy or situation. Please consult with a qualified insurance advisor or professional before making any policy decisionsFull disclaimer and contact information.

Peace of mind this holiday season

By Martin Hurst, Insurance Service Representative

The agents here at WisMed Assure do not focus solely on revenue, our agents go that extra mile to address individual and specific concerns and provide coverage within each customer’s budgetary needs. By putting clients’ needs first, our agents demonstrate their commitment to providing excellent service and building trust with physicians. Their expertise and attention to detail enables them to guide physicians through the complex world of insurance, explaining terms, conditions and benefits clearly and transparently. Ultimately, our agents strive to empower physicians with the knowledge and coverage necessary to protect their health and peace of mind.

As I navigate my first year here at WisMed Assure, the agency has prioritized providing me with direct training with our agents. Tom Strangstalien is one of the agents I have had the opportunity to sit down with to discuss Life and Disability policies. Recently, Tom and I reviewed disability quotes for a physician. Tom carefully considered the physician’s lifestyle, occupational practice and potential risks to tailor the policy to their unique needs.

Additionally, he broke down the various policy options, highlighting the specific benefits and limitations of each. He focused on the importance of comprehensive coverage that would provide adequate support if the physician ever faced a disability, without worry of the financial burden. After reviewing the quotes for this physician, he noted that the physician was concerned the monthly premium was exceeding their budget. This was to be expected as their initial meeting was to create the “ideal policy” without worrying about the premium cost. With this concern in mind Tom navigated to the riders page with the cost for each listed next to the rider and asked what I would keep or remove from the policy to reduce the overall cost. We went back and forth on keeping or removing certain riders, we looked at 90- or 180-day elimination periods, possibly decreasing the time covered in relation to retirement age of 65 or 67, to see the impact this would have on premiums. At the end of our meeting, we were able to give this physician several options that had the potential of saving them $4,000 in monthly premiums. This is an example of what each agent does here daily and is the reason I am grateful to work alongside so many unique and caring individuals.

As you’ll see in this edition of the Antidote, the WisMed Assure and WisMed Financial team is focused on building and maintaining relationships with clients, and always keeping the best interest of the client at the center of all we do. These real client stories help illustrate the WisMed difference. Contact us at 608.442.3810 or insurance@wismedassure.org.

Note: This article is for informational purposes only and should not be considered as insurance advice related to your specific policy or situation. Please consult with a qualified insurance advisor or professional before making any policy decisionsFull disclaimer and contact information.

Finding insurance and financial advisors I trust

By Tim Bartholow, MD

I have several connections to our Wisconsin Medical Society, and I’d like to share some good and bad experiences with on the street financial advising and insurance advising, and how WisMed Financial and WisMed Assure cut through market confusion.

Like many physicians, I’ve worked around insurance for many years and have served as Chief Medical Officer and quality advisor for several health insurance companies. You’d think that I would know a sturdy amount about insurance and personal finances. Don’t get me wrong, I live modestly, save aggressively and have been very fortunate, but for three decades, I didn’t have advice that allowed me to be assured  that I had the right insurance and personal finance solutions.

When I was in residency, I was approached by an agent from a reputable insurance company who signed me up for long- and short-term disability coverage at a price that I could afford. As I saw colleagues have accidents, become unable to practice or displaced from their employment, I learned how important it is to have a policy not tied to an employer. I bought a significant life insurance policy from that same agent, which I continued for 30 years. At about 15 years in, the agent approached me about buying whole life, which she made to sound like great security for my family despite its high cost. I mentioned this to an investment advisor who didn’t try to sell me something else, but made it clear I was about to make a mistake.

So now what? Which investment advisor was giving me the best advice? Which insurance agent was working for me, not themselves or the company quota they were required to meet? I just wanted independent advisors who would authentically fulfill their full fiduciary duty to me and my family.

So, for the next decade and a half, I squirreled away savings with various investment advisors – some large houses, some smaller practices. Several of these advisors offered to take care of all of my savings, but I couldn’t put my full faith in any one of them. I wasn’t sure that their motives were to keep my costs of investing low. And on the insurance side, I didn’t know if I needed the expensive policies that that I had carried for 30 years, the small one I had purchased from a door-to-door salesman or my work’s plan, which if I left, I wouldn’t be able to continue. It was simply confusing.

Then, at our Wisconsin Medical Society, I met Tom Strangstalien of WisMed Assure and Mark Ziety of WisMed Financial. On the insurance side, Tom helped me understand my choices and needs for long-term care and life insurance. He steered me away from some products and towards others and we landed on a solution that is appropriate for me and my family. Mark walked me through how my investments in many accounts were costing me fees that eroded their savings potential. While I’ve had advisors assess my risk tolerance, I’ve not experienced financial advising nor insurance agents that studied my concerns and goals so comprehensively and helped me to understand which choices made best sense for me to do next. I’m not a wealthy person, but Mark saved me approximately $9,000 in annual fees. I wish I had known that a decade ago!

I asked to provide this testimonial, WisMed Assure did not approach me. Whether you’re a medical student or close to retiring, I want our physicians to make great financial choices so they can worry about their patients, not about their risks and retirement. My quick advice is this: find someone you authentically trust for your financial advising and find someone away from your employment (if you’re not a governing partner/practice owner) to advise you about insurance for you and your family. And if, like me, you’re having trouble placing your full faith in what you’re being advised to do, WisMed Assure and WisMed Financial are more than capable of providing you with a second opinion or reaction to what you’re being told. They are there to serve you, and because their efforts support our Medical Society, there is no confusion about whose interests come first. I am probably biased by my several connections to the Wisconsin Medical Society and my pride in MetaStar, WISHIN, WHIO and WPS, all of which the Wisconsin Medical Society helped start. So do what works for you, but personally, I’ve never been so reassured and confident that I am doing the right thing for me and my family.

Contact the WisMed Assure team at 608.442.3810 or insurance@wismedassure.org and contact WisMed Financial at 608.442.3750 or info@wismedfinancial.org.

Note: This article is for informational purposes only and should not be considered as insurance advice related to your specific policy or situation. Please consult with a qualified insurance advisor or professional before making any policy decisionsFull disclaimer and contact information.

Winter 2023 Issue

Long-term care insurance – but what if I don’t need it?

By Tom Strangstalien, Insurance Advisor

We all know the risks of a long-term care event devastating our family’s finances as well as our mental and personal well-being. Roughly half of those who reach the age of 65 will require some form of long-term care assistance during their lifetime.

Read more…

Rising health insurance premiums

By Chris Noffke, GBDS, CSFS, Vice President of Employee Benefits

Health insurance premiums are constantly on the rise. According to the Centers for Medicare & Medicaid Services, “U.S. health care spending grew 2.7 percent in 2021, reaching $4.3 trillion or $12,914 per person.” Everyone from employees to employers are feeling the squeeze of high-cost premiums.

Read more…

Exercise your financial muscles to get financially fit

By Mark Ziety, CFP®, AIF®, Senior Advisor, WisMed Financial

“Those who work their land will have abundant food, but those who chase fantasies have no sense.” This ancient advice from Proverbs illustrates the importance of financial fitness.

Read More…

Medicare questions to ask

By Mary Krueger, Medicare Specialist

Before enrolling in Medicare, there are several decisions Medicare recipients need to make regarding their existing coverages or changes in their health insurance needs.

Read More…

Small business claims that can be surprisingly expensive

By Society Insurance Human Resources, reposted with permission from Society Insurance

While running a small business, there’s a decent chance that throughout its course you’ll have to file some sort of insurance claim (often unexpectedly). Whether due to fire, theft, on-site injury or other incident, some experts estimate that 75% of small businesses faced an insurance-worthy incident just last year.

Read more…

Long-term care insurance – but what if I don’t need it?

Tom Strangstalien

By Tom Strangstalien, Insurance Advisor

We all know the risks of a long-term care event devastating our family’s finances as well as our mental and personal well-being. Roughly half of those who reach the age of 65 will require some form of long-term care assistance during their lifetime. What this means for a married couple is likely one of them will incur costs for long-term care. Because of the astronomical odds, the cost of long-term care insurance is certainly not inexpensive.

Despite the odds, the biggest objection that I receive when formulating a plan for one of our members when it comes to long-term protection is, “If I don’t use it all the money that I spent will be wasted.” Plus, we’re all invincible superheroes anyway, right? “It will never happen to me, so I’ll just save and invest the money and take my chances.” Thankfully, with the evolution of long-term care planning over the past few years, there is another alternative that makes a great deal of sense!

The life insurance industry has existed much longer than long-term care insurance. Actuaries, as it pertains to life insurance, have these statistics down to microscopic precision in calculating how long on average a person will live and what sums of monies will be paid out and when. When it comes to long-term care, this really isn’t the case, and is in part why the costs of protection are high. As consumers of life insurance, we also know that without a doubt the benefits will be paid out, and what we have paid for the benefits. In addition, we have the added benefit that the proceeds will likely be income tax free.

Are you aware that there are now policies where some or all of the life insurance benefits can now be utilized for costs incurred for long-term care while you are alive? And on a tax advantaged basis? All proceeds of the policy will be paid either in the form of long-term care protection or a life insurance benefit to named beneficiaries. If the policy is in force, the money is guaranteed to never be wasted!

These policies can also involve some dual planning, such as a charitable gift or estate planning scenarios if the proceeds are paid out in the form of a life insurance benefit. Lastly, these plans are priced attractively, as actuaries know exactly what benefits will be paid out and on average when.

I am a big advocate of this relatively new concept in planning for long-term care. If you haven’t addressed long-term care as part of your overall financial portrait, I would encourage you to promptly do so. You may be very pleasantly surprised by the cost to benefits ratio! At WisMed Assure, we are always here to help!

Reach out to me and my team at WisMed Assure at insurance@wismedassure.org, complete this quick online form or call 608.442.3810.

Hybrid Policies Shine in Addressing Long-term Care Concerns

Tom Strangstalien

By Tom Strangstalien, Insurance Advisor

It’s not a secret that the rapidly increasing cost of long-term care is driving dramatic increases in long-term care (LTC) insurance premiums. You may also have been victim or witness to a dramatic increase in long-term care insurance premiums on a policy purchased years ago.

In the 1990s and early 2000s, people realized the potentially huge benefit of buying long-term care insurance. Along with advances in medicine and the benefits of nutrition and exercise, life expectancy increased. Coming with that was the demand for long-term care services, assisted living facilities and home health care. Popularity in long-term care insurance grew exponentially and consumers bought policies with lifetime premiums, ten pay premiums or even single premiums at an affordable price.

Actuaries calculate statistics with acute precision to guide insurance companies to make their profits. However, this is one of very few instances where they missed the mark. Typically, with life and health insurance, a significant number of people will not hold the policy for their lifetime, and the policy will lapse. This lapse rate was miscalculated, as people who purchased these policies held on to them. Furthermore, inflation for this sector of health care was severely under calculated. Simple supply and demand economics manifested cost increases well beyond the costs of other consumer goods and services. Exacerbating the situation was the decrease in interest rates, as long-term bonds are purchased to provide the future benefits.

Now, consumers are experiencing the results of this perfect storm. We are seeing shockingly increased premiums, lowered benefits or even offers by insurance companies to buy-out or provide a dramatically lower paid-up benefit. Thankfully, actuaries have learned the impact of past transgressions and traditional long-term care policies are now priced properly. But what does this mean to you? A very expensive insurance protection, along with the risk that it may never be used, so what should you do?

What happens if you pay for LTC insurance but never actually need it?

Despite long-term care insurance being so costly, I remain steadfast that long-term care protection is paramount to your financial plan! The facts speak for themselves; longtermcare.gov and the AARP agree, 70 percent of people 65 and older will require long-term care and meeting that need will continue to become more expensive.

Genworth’s Cost of Care Survey shows national annual median costs increased across the board for assisted living facilities (6.1%), home care (4.3-4.4%) and skilled nursing facilities (3.2-3.5%). The median monthly cost of an assisted living facility is $4,051, a home health aide costs $4,385 and a private room in a skilled nursing facility $8,517 a month. Genworth estimates these costs will almost double over the next 20 years.

There’s a new option for long-term care planning: hybrid life insurance long-term care policies. Actuaries have been properly pricing life insurance policies for decades. They now know the amount that will be paid out in benefits and when that benefit will be paid. In these hybrid policies, the life insurance benefit can be paid out early if needed for long-term care. If benefits are not used for long-term care, the life insurance amount is paid upon death to the policyholder’s beneficiaries. This addresses the concern of never using the policy. Benefits will not be taxable if paid out for long-term care and the life insurance benefit is paid out income tax free. In the majority of cases, this type of plan outperforms self-funding.

Hybrid policies have a lot going for them:

  • They offer flexible premium payment options. You can make one lump-sum payment, pay over ten or twenty years, or pay premiums over time.
  • It is often easier to qualify for coverage as the insurer knows what will be paid out in benefits.
  • A hybrid policy can also pay for home health care, assisted living, adult day care and even respite care for a loved one.
  • Permanent life insurance policies build cash value that can be cashed out in the future if you feel there’s no longer a need for long-term care protection or independent wealth negates the benefit.

You have options…lots of options to choose from

Hybrid life and long-term care policies come in several shapes and sizes.

  • Linked benefit policies are true hybrids that link a life insurance policy to a long-term care policy. With these, the typical long-term care benefit amount is close to or equals the life insurance amount. The greater the life insurance amount, the greater the LTC benefits.
  • You can also get a long-term care rider on a life insurance policy which only allows you to add LTC coverage at the time you buy the life insurance policy – you can’t add it later.
  • There are chronic illness or critical illness riders that let you accelerate the death benefit to pay for care if you have a qualifying chronic lifetime illness.

If you currently own some form of LTC insurance and want to compare which coverage may fit best into your current financial plan, we are here to comprehensively explore all the options and make sure your plan is suitable and won’t blow up at a time when you may need it most.

If you do not yet have any form of LTC insurance, the longer you wait, the more expensive it will become. I highly recommend exploring a hybrid life insurance / long-term care policy and getting it early. The younger and healthier the better! Avoid crisis mode or future exorbitant premiums.

As your financial partner, your WisMed Assure team is here to take care of your personal financial security so that you can take the best possible care of yourself, your family and your patients.

Contact me today to protect your tomorrow.