The passage of "The Health Insurance Portability and Accountability Act of 1996 signed by President Clinton last August is a clear signal that there is new thinking in Washington about who should pay for LTC - a new partnership with government, private insurance and you.

The bill popularly known as the "The Kennedy- Kasselbaum Bill", named after its chief sponsors, makes the government's role regarding LTC insurance crystal clear. The government is now going to provide tax incentives for purchasing LTC insurance to encourage Americans to protect themselves from devastating costs of LTC. Why should this be a concern to you? Because your current medical insurance policy or Medicare won't pay for most of your LTC expenses. Therefore, the burden is on your shoulders to pay LTC costs that can exceed $40,000 annually.

The bill also criminalized the transfer of personal assets for purposes of meeting MediCal (Medicaid outside of California) eligibility for payment of LTC expenses. For the Government to pay for your LTC expenses you must "spend down" your assets to $2,000 (excluding home & auto). It is now a criminal offense to transfer assets to avoid paying for LTC expenses so that you can qualify for MediCal.

The State of California has been a leader in this LTC movement with the establishment of the "California Partnership for Long Term Care" linking private LTC insurance plans and public education with Medical LTC programs.

California Partnership LTC insurance policies have the added benefit of sheltering some of your personal assets from the $2,000 "spend down" requirement to qualify for MediCal. One dollar of asset protection is provided for each dollar paid out by a California endorsed insurance policy. The protected assets are important to the surviving spouse and children's inheritance but also for the improved quality of care for the LTC patient. The next issue of the Rubins Report will highlight the California Partnership for Long Term Care including California's ability to seek recovery of LTC expenses by selling the deceased's primary residence.

Without this change, the government was headed towards a fiscal disaster worse than the Social Security mess. It is also a wake-up call to all of us to include planning for LTC along with retirement and estate planning.

Tax deductions are now available for both LTC insurance premiums and uninsured costs for care in your own home or a nursing home effective January 1, 1997. To get the deductions, your policy has to be "Tax Qualified" (TQ). Most policies issued prior to Dec. 31, 1996 are grand fathered as TQ. New policies issued after January 1, 1997 must meet specific benefit requirements to be TQ.

In California you have a choice of three types of LTC insurance policies. One is TQ and the other two are Non-Tax Qualified (NTQ). The two NTQ policies are authorized by the State of California and promoted by consumer groups (CA SB 1943 & CA Partnership policies).

As with any financial decision, look beyond the tax benefits before buying. Most people, particularly younger adults, won't be able to utilize the tax deduction for LTC insurance premiums because it is based on age and the 7½ % limitation on itemized medical expenses.
 

To use the deduction you have to itemize the medical expenses on schedule A of your tax return and exceed 7½ % of your adjusted gross income (AGI) to have any tax benefit. Most people won't be able to use the tax benefit unless they are sixty or seventy years old and have many medical expenses.

A more compelling reason to purchase a NTQ policy over a TQ is their liberal definition of qualified services that are covered by the LTC insurance policy. Both California authorized NTQ policies have a more lenient definition of "medical necessity," don't require a 90 waiting period, and add the ability to walk to the list of activities of daily living (ADL's) that could help trigger benefit coverage. These policies have more generous home care benefits but are not tax deductible. Both TQ and NTQ policies offer benefits for people who have major "cognitive impairment" such as Alzheimer's.

Recent California legislation requires insurance companies and agents to inform consumers they have a choice and must provide side-by-side comparisons of the major differences among the 3 policies.

The issue of whether to purchase a LTC insurance policy is a "middle-income" problem. The poor can't afford it and the wealthy can pay for care without depleting their assets. Based on real first hand experience in my family and those of clients and friends, the financial burden is significant. Both your regular medical insurance policy and Medicare for seniors do not cover LTC costs. The financial responsibility is yours until you have spent down your assets to qualify for Medi-Cal. Not a pleasant process for you or your heirs. Then there is the problem of "quality of care" because of the lower payments. Not all facilities accept Medi-Cal patients and the payments are always subject to funding cuts.

Someone in your family may face the need for LTC in the future so LTC insurance is an approach to consider in planning for your, or your parents, retirement.