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Tax Qualified

The Health Insurance Portability and Accountability Act of 1996 (HIPAA Act) also referred to as the Kassebaum-Kennedy Bill became effective January 1, 1997. This new law is an amendment to the Internal Revenue Code and is intended to set standards and provide tax incentives to those in the private sector who take responsibility for planning for their own long-term care needs. Under The Act, long-term care insurance policies that meet certain requirements may qualify you for federal and state tax benefits. Such policies are known as Qualified Long-Term Care Insurance policies.

Qualified

Policies intended as QUALIFIED long-term care insurance contain the following provisions, which differ from the non-qualified policies described later.

Tax Incentives

1. Under the qualified plan, premiums paid for qualified LTC insurance, up to "certain limits," will be tax deductible as an itemized deduction if the premiums and other qualifying unreimbursed medical expenses exceed 7.5% of adjusted gross income. These "certain limits" for the 2002 tax year are: $240 in annual premiums for individuals 40 or less, up to $450 for individuals 41-50, up to $900 for individuals between 51 and 60, and $2,390 for individuals between 61-70, and $2,990 for individuals 71 and over. (2002 figures. These amounts will increase annually by the Medical Consumer Price index.)

2. Benefit dollars paid out from qualified LTC policies (subject to certain limitations) are NOT considered taxable income.

Qualified Benefit Triggers

1. Individuals will be eligible for benefits if they meet the following criteria of a Chronically III Individual under the policy definitions: Chronically III means an individual who has been certified within the previous 12 months by a Licensed Health Care Practitioner (such as a Physician, Registered Nurse, or Licensed Social Worker) as:

• Being unable to perform without substantial assistance from another individual, at least TWO of the six "Activities of Daily Living" (bathing, continence, dressing, eating, toileting, and transferring). The Licensed Health Care Practitioner must certify that an individual will require such substantial assistance for a period of at least 90 days; or
• Requiring substantial supervision to protect such individual from threats to health and safety due to severe Cognitive Impairment (e.g. Alzheimer's Disease, Senility Dementia).

2. Under the Home Care provisions and the Residential Care Facility for the Elderly Rider, benefits are NOT payable for expenses incurred for services or items to the extent that such expenses are reimbursable under Medicare or would be so reimbursable but for the application of a deductible or coinsurance amount.

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