IRS Rules Assisted Living Meals And Lodging Costs May Be Tax Deductible

A private letter from the Internal Revenue Service explains that meals and lodging costs for assisted living may be deducted as medical expenses if the individual is in the facility for qualifying medical reasons. The letter explains the types of conditions that would meet the standards in order to qualify these costs as tax deductible.

For insurance agents and brokers, this is good information to save and share with accountants and tax professionals who may be working with family members with a parent (or parents) residing in an assisted living community.

Here is a copy of the IRS letter dated December 18, 2008

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

Number: INFO 2009-0010
Release Date: 1/2/2008
UIL: 213.00-00
CONEX-149526-08

The Honorable Edward Markey
Member, U.S. House of Representatives
5 High Street, Suite 101
Medford, MA 02155
------------------------------
Dear Congressman Markey:

This letter responds to your inquiry dated December 10, 2008, on behalf of your
constituent (name withheld) who asked about the deductibility of expenses paid
to care for her mother, who is in an assisted care program because she suffers from
Alzheimer’s disease.

As a general rule, taxpayers may not deduct personal, family, or living expenses
(section 262(a) of the Internal Revenue Code (the Code)). However, an exception
allows taxpayers to deduct expenses that they pay for medical care of the taxpayer, the
taxpayer’s spouse, or the taxpayer’s dependent, subject to certain limitations, if the
expenses are not covered by insurance (section 213(a) of the Code). For purposes of
this deduction, medical care expenses include amounts paid for the treatment or
mitigation of a mental illness and amounts paid for qualified long-term care services
(section 213(d)(1) of the Code).

Qualified long-term care services are certain services that a chronically ill individual
requires, and that a licensed health care practitioner prescribes under a plan of care
(section 7702B(c)(1) of the Code). An individual is chronically ill if the individual meets
one of two “triggers.” The first trigger is the inability to perform at least two daily living
activities without substantial assistance from another individual for at least 90 days.
Daily living activities include eating, toileting, transferring, bathing, dressing, and
continence (section 7702B(c)(2)(B) of the Code). The second trigger is a severe
cognitive impairment that requires substantial supervision to protect the individual from
threats to health and safety (section 7702B(c)(2)(A) of the Code).

What level of assistance with daily living activities is required to meet the first of the two triggers—the inability to perform at least two daily living activities without substantial assistance from another individual. In Notice 97-31, 1997-1 C.B. 417, we define “substantial assistance” as either “hands-on assistance” or “standby assistance.”

Hands-on assistance means the physical assistance of another person without which
the individual could not perform the activity. Standby assistance means the presence of
another person within arm’s reach of the individual that is necessary to prevent, by
physical intervention, injury to the individual while the individual is performing the activity
(such as being ready to catch the individual if the individual falls while getting into or out
of the bathtub or shower as part of bathing, or being ready to remove food from the
individual’s throat if the individual chokes while eating).

Notice 97-31 also provides guidance about the second trigger—a severe cognitive
impairment that requires substantial supervision to protect the individual from threats to
health and safety. The notice defines a “severe cognitive impairment” as a loss or
deterioration in intellectual capacity that is comparable to (and includes) Alzheimer’s
disease and similar forms of irreversible dementia, and is measured by clinical evidence
and standardized tests that reliably measure impairment in the individual’s:
Short-term or long-term memory,
Orientation as to people, places or time, and
Deductive or abstract reasoning.

“Substantial supervision” means continual supervision (which may include cuing by
verbal prompting, gestures, or other demonstrations) by another person that is
necessary to protect the severely cognitively impaired individual from threats to his or
her health or safety (such as may result from wandering).

The individual also asked whether meals provided with long-term care services are deductible
medical care expenses. If an individual is in a hospital or another institution because of
a mental illness, the meals and lodging furnished as a necessary incident to medical
care are considered medical care expenses (section 1.213-1(e)(1)(v) of the Income Tax
Regulations (the regulations)). This regulation applies to individuals who must be in the
facility because of a mental illness that makes it unsafe for them to be left alone (section
1.213-1(e)(1)(v)(a) of the regulations).

However, if the principal reason for being in the facility is based on personal or family considerations, rather than the need for medical care, the cost of the meals and lodging is not a medical care expense. Only the cost of the medical care itself would be deductible (section 1.213-1(e)(1)(v)(b) of the regulations). Thus, expenses for meals and lodging that are non-deductible personal expenses at the onset of a mental illness may be deductible medical expenses after the
illness has progressed. For example, expenses for meals and lodging at a minimal-care
assisted living facility are non-deductible personal expenses. However, expenses for
meals and lodging in a constant-care nursing home may be deductible medical care
expenses if the meals and lodging are furnished as a necessary incident to medical
care.

Sincerely,
Kimberly L. Koch
Senior Technician Reviewer, Branch 2
(Income Tax & Accounting)

For more information on long-term care insurance, please visit the Website of the American Association for Long-Term Care Insurance.

2009 Long-Term Care Insurance Sales Achievement Awards Announced

Winners of the 2009 Long-Term Care Sales Achievement Award were announced today by the American Association for Long-Term Care Insurance, the industry's professional trade organization.

"There are some 40,000 insurance and financial professionals who market long-term care solutions nationally," states the Association's Jesse Slome, executive director. "Each year we recognize those deemed the best in the business." The Association awarded some 650 leading producers based on the sale of individual long-term care insurance. Award recipients are ranked nationally as well as recognized on a state-by-state basis.

For 2009, new categories include multi-life long-term care insurance as well as categories for asset-based life insurance and annuity products that include long-term care benefits. "The nation's top producers placed over $500,000 in individual long-term care insurance premium, a significant achievement," Slome explains. "Leading producers providing protection to employer groups and organizations each wrote LTC insurance for over 800 individuals during a single year."

The complete listing of award winners is published in the 2009 Long-Term Care Insurance Sourcebook, the annual compendium produced by the Association. For additional information, visit the Association's website www.aaltci.org or call (818) 597-3227.

2009's Top-10 Long-Term Care Insurance Producers (Based on individual placed premium in 2008)
#1 Gene Cutler
#2 Sean Deveau
#3 David Jeffrey
#4 Sally Calef
#5 Michael Lehrhaupt
#6 Christopher Aguiar
#7 Alan Stuart
#8 Meredith Pensack
#9 Stephanie St. James
#10 Carl Brockmeyer

2009's Top-10 MultiLife LTC Producers (Based on multilife long-term care insurance placed premium in 2008)
#1 Michael VanGavree
#2 Robert DeLorey
#3 Karen Mellon
#4 Ernest Strobel
#5 Derek Miele
#6 Michael Halligan
#7 Anthony Stratidis
#8 Rachel Faiga
#9 Barry Ellis
#10 Michael Russell

2009's Top-10 Life+LTC (Combo Product) Producers (Based on placed premium for life+ltc protection in 2008)
#1 George Leamon
#2 Wendy McLaughlin
#3 Loriann Artzberger
#4 Patricia Bennett
#5 Ronald Mendelzon
#6 Corwin Freeman, Jr.
#7 Robert Jennings
#8 Elaine Todd
#9 Paul Manginelli
#10 Ed Young

2009's Top-10 Annuity+LTC (Combo Product) Producers (Based on placed premium for annuity+ltc protection in 2008)
#1 Darlis Kirchhofer
#2 Edward Pacelli
#3 Dale Boliba
#4 Steve Jacob
#5 Brad Tisdale
#6 Daniel Heacock
#7 Glenn Nitti
#8 Chuck Bahr
#9 Luana Mobley Corral
#10 Elaine Todd

Reserach Reveals Consumers Purchasing More Affordable Long-Term care Insurance

Some 400,000 individuals purchased long-term care insurance protection in 2008 according to a just-released report. The overwhelming majority (84%) of individual buyers in 2008 were younger than age 65 and three-fourths (76%) selected a more affordable approach to this protection by opting for coverage for a specific number of years.

The annual study conducted by the American Association for Long-Term Care Insurance, the industry's professional trade organization, analyzed data on 215,000 buyers of individual long-term care insurance protection. According to the organization's research, some 8.2 million Americans now have long-term care insurance protection purchased on an individual basis (typically through an insurance professional) or through a plan offered by their employer.

"Individuals continue to purchase protection at younger ages," explains Jesse Slome, the Association's Executive Director. In 2008, some 53% of individual buyers were between ages 55 and 64; compared to 50% the prior year. Another 24% were between ages 45 and 54 (2008). "The age of buyers keeps dropping as consumers -- especially baby boomers -- understand the cost-saving benefits of locking in good health discounts and ways to make protection more affordable," Slome explains. In 2000, the average age of an individual buying long-term care insurance was 67.

The number of individuals purchasing long-term care insurance protection for a specified number of years also increased according to the Association study. Just over three-fourths (76%) of buyers in 2008 opted for coverage for a claim lasting five years or less; a slight increase over the prior year (71%). "The most expensive long-term care insurance policy is one with an unlimited benefit period (one with no cap on the number of years benefits will be received)," Slome explains. "Consumers are right-sizing their protection taking into account available savings and retirement income. This cost-sharing approach can reduce the cost of protection by 30 percent or more."

Perhaps in recognition of cost-consciousness, consumers were fairly evenly spread in terms of the level of selected daily benefit. Just under one-third (31.5%) opted for a daily benefit between $100 and $149. "In current dollars, that amounts to between $36,500 and $54,385 in a yearly benefit," Slome notes. "But most policies offer an option so benefits keep pace with rising costs and 15 years from now, the value of the (higher) benefit would be $75,800 a year."

The complete findings of the study are published in the 2009 LTCi Sourcebook available from the American Association for Long-Term Care Insurance. For additional information, call the Association's offices at (818) 597-3227 or visit the organization's website: http://www.aaltci.org/.

Summarized Study Data

Age of Buyers (2008)

Under 45 7%
45 to 54 24%
55 to 64 53%
65 and Over 16%

Daily Benefit (2008)
Less than $100 6.5%
$100 to $149 31.5%
$150 to $199 35.0%
$200 and Over 27.0%

Benefit Period (2008)
2 Years 7%
3 Years 30%
5 Years 24%
Unlimited 13%

Premium Paid (2008)
Age Low High Average
35 - 44 $637 $2,830 $1,650
45 - 54 $1008 $6,440 $1,900
55 - 64 $844 $7,400 $2,150
65+ $1,883 N/A $3,350

Additional information can be found in the Association's Consumer Information Center.

Marketing Long-Term Care Insurance To Affinity Groups

Members of the American Association for Long-Term Care Insurance often submit questions via the organization's members only website. We solicit answers from leading industry experts and post them. I thought it would be valuable to post this one on our blog as well. As sales of long-term care insurance to associations and affinity groups grow, I believe you'll find this of value.

The American Association for Long-Term Care Insurance reached out to a leading national expert in the field, Joseph Pulitano of Advanced Resource Marketing, in Allston, MA.

The Question: I am agent of record for a large affinity group, and am debating whether to continue to use a mailback pro forma or to partner with an LTC specialty Managing General Agency (MGA). My question is, how many times more apps could I expect to receive by using the face to face process, vs the mailback process?

Joe Pulitano's reply: I don't have enough information on your group to give you a quantitative answer but I can certainly give some conceptual ones. In all of the associations and employer groups we market to we see participation rates much higher when the prospect is approached face to face with an agent.

The reasoning - Members/Employees have purchased life insurance and/or DI in the past and have perhaps purchased more than one policy. They tend to understand those products; the role they play in a person's overall financial plan and most people can adequately purchase them over the phone/mail/internet.

The people who have not purchased LTCi will hopefully only need to buy it once. For that to happen a well trained, competent agent who understands how to work affinity leads can guide a prospect through the role LTCi plays in a person's overall financial plan and help them purchase the right product at the right price.

Perhaps the best example of this is AARP. They have been offering LTCi to their membership for over 20 years strictly through over the phone and through the mail. Last year AARP contracted with a nationwide company of career agents to meet members at their homes and sell the product face to face. The results in most areas of the country have been phenomenal.

Yes, there are those prospects who do not want to sit with an agent and want to conduct business over the phone, internet, or through the mail, and as an MGA marketing to affinities we do accommodate those individuals with an on line education process and purchasing system.

When considering an LTCi MGA to handle your affinity there are several items you need to review:

1. What experience does the MGA have in affinity marketing?

2. Does the MGA have a regional of national base of agents who are experienced in working affinity leads?

3. What investment is the MGA willing to make to market to your affinity? Little or no investment means little or no leads.

4. Does the MGA have the ability to structure commissions to flow directly from the carrier to the affinity and the agent of record?

5. Does the MGA have an on line educational program Members can go to and get more information?

When an MGA is considering taking on this affinity project from you they may want to know:

1. What is the affinity between the association and the members?

2. Are other insurance products sold to affinity members?

3. What are the demographics of the affinity? There are some large affinities that will not be successful.

4. What is the retention rate of affinity members?

5. How long has LTCi been offered and what have the success rates been?

Affinity marketing of LTCi when marketed, sold, and administered correctly is a goldmine of opportunity.

Thanks Joe.

The Ask The Experts service is a benefit of membership in the American Association for Long-Term Care Insurance. To become a member, click here or type: www.aaltci.org/join into the address bar of your web browser.

Long-Term Care Insurance Producers Summit Planned

The American Association for Long-Term Care Insurance, the national professional organization, announced plans for the eighth National Long-Term Care Insurance Producers Summit.

The national conference which will focus on the marketing and selling of long-term care insurance as well as life insurance and annuity products that now offer long-term care benefits will be held November 15 and 16, 2009 at the Westin Crowne Center Hotel in Kansas City, MO.

The Summit is the premier long-term care insurance industry meeting for insurance and financial professionals who market long-term care solutions to individuals and the employer marketplace.

The Association is extending a special Pre-Early Registration offer--a $130 discount off the general registration fee of $325. In addition, for those who register before February 18th, the Association will provide two $25 credits toward room charges at the Westin in Kansas City. For details on this limited-time offer, contact Jesse Slome, Executive Director of the organization. Click here of call (818) 597-3227.

Long-Term Care Insurance: What Happens After They Buy

One of the most interesting aspects of my job is compiling the data for the annual Long-Term Care Insurance Sourcebook. This is a compilation of all the most relevant data we can compile ... acquire ... and share with members of the Association.

One of the questions I've been asked is "what happends after someone purchases long-term care insurance? How many people keep their policies? How many drop them? How many die?"

It is important information for several reasons. First, most people who purchase long-term care insurance understand the value of what they have purchased. Compared to other forms of insurance, fewer drop this protection that say life insurance or diability products. Thus, one can assure people who buy, they will likely have and keep this coverage should the need for benefits arise.

The 2009 Sourcebook will provide detailed (cumulative) data on what happens after people buy long-term care insurance protection. Here's what it will note based on data reported by the Indiana Partnership for Long-Term Care. Of some 43,475 policies purchased, some 8,086 have been dropped (35,412 are still in force).

The Indiana Partnership was implemented in 1993. Thus, in the 15 years since sales began, 82% of policies sold remain in-force.

Primary reasons for dropping the policies are:
Voluntary (2,016 or 25%)
Died (990 or 12.3%)
Unknown (2,543 or 31.5%)
Not Taken Up (2,381 or 29.5%)
Converted (78 or 1%)

A little tid bit worthy of including should you ever be asked the same question by a prospect or client.

For more information, visit the Association's Producer Resource Center where we will continually add new audios and information.

If you have suggestions for data you want included, send me an E-mail: Click Here.

Long Term Care Insurance Cost: What People Really Pay

How much did Americans pay for long-term care insurance in 2008? What the average age of buyers? At what ages did long-term care insurance policyholders begin their claims?

Each year the American Association for Long-Term Care Insurance publishes an annual industry Sourcebook that is packed with the best facts and figures we can obtain. Some comes from independent research conducted by the Association, others from studies. Here are some findings that will be included.

Let me begin with a stated opinion. I dislike industry averages. Reporters like them and they use them regularly. But, without context, averages are meaningless. If I told you you couldn't control the temperature of the water in your shower, but that the average would be a balmy 80 degrees ... how would you feel if one minute it was 100 and the next it was 60. You get the picture.

The very same is true when it comes to long-term care insurance. For years, articles and experts talk about the average amount people pay for long-term care insurance. But, half of those who buy pay less than the average (they didn't get inferior protection) ... and half paid more (they didn't get ripped off). Okay, for those addicted to statistics, the average paid for individual long-term care insurance in 2008 will likely be about $1,900. Hope you are happy.

But for those who really want a more relevant perspective, new data that is reported in the Association's 2009 LTC Insurance Sourcebook, sheds more meaningful light. The data breaks down the range of premiums paid into age bands, showing the high and the low amount paid, as well as the mean.

Here are the findings for select age bands (2008 annual premiums paid by buyers in New York State):
Between ages 45-49 the low was $1,008 and the high was $6,445
Between ages 50-54 the low was $989 and the high was $6,407
Between ages 55-59 the low was $844 and the high was $6,939
between ages 60-64 the low was $1,125 and the high was $7,413
Between ages 65-69 the low was $1,883 and the high was $9,496

All information published in the Sourcebook or on this blog may be utilized with credit to the American Association for Long-Term Care Insurance.