Napa’s Health Insurance Guys: Don’t Have Long Term Care Insurance? You may need to pay a fee.

I read your column about the impending tax on people unless they have a long-term care plan in place.

The trouble is, I have quotes for my wife and I and the price is so high! We only made $250 a day, two years, 3% inflation and a 90 day elimination period, but the rewards were through the roof! Anyway, since we don’t have a plan in place, what’s the latest on mandatory coverage?

Kyle: From what we can find, nothing will happen until 2025, although the 15-member committee will meet and should report back in the next few months. The existing plan in Washington state was to begin charging a statewide payroll tax to everyone starting July 1. The rate is 0.5%. California is considering a tax of between 0.40% and 0.60%.

Al: It’s not clear to me whether it’s a tax on everyone’s income or just those on the payroll.

Tom: Pretty sure it’s all of us. The Washington plan has a maximum lifetime benefit of just $36,500, but according to an article I read, the average costs after age 65 are $137,800. So our reader, Bill, will want to consider an annuity or life policy with a long-term care (LTC) rider.

Al: So if California goes the way Washington did, an individual who has an LTC plan could be exempt from the tax. Hence the flood of LTC applications in Washington before the expiration date (so to speak). In fact, some LTC companies have pulled out of Washington entirely.

Unfortunately, Bill, it’s still very expensive.

Kyle: What all of this is leading to, of course, is whether a life insurance policy or an annuity with an LTC rider is enough to qualify for the exemption.

Or one may be according to the IRS. Section 7702(b) of the Internal Revenue Code (IRC) defines a qualifying LTC contract and how to treat it for tax purposes. According to Marc Glickman, CEO of BuddyIns:

A 7702(b) pilot can offer several benefits over a self-contained long-term care policy. It provides multiple benefits in one product: life insurance/annuity plus long-term care coverage. Also, once the rider is purchased, the premium is often fixed and guaranteed not to increase unless the base policy premium increases. The knight may also retain some value for the heirs if the knight’s benefits are not exhausted by a long-term care event.

Tom: The problem for many people buying an annuity with an LTC pilot is that typically the plan requires a large initial deposit. Our usual quote was a $100,000 deposit. Most annuities have a 7 to 9 year period in which you are penalized for withdrawing early. With the LTC pilot, the annuity would offer up to $300,000 in LTC benefits. However, the original $100,000 deposit would go first. So the annuity would lose its value as an inheritance, but would definitely work as an LTC plan.

Kyle: We’re out of space! Later.