Thinking long-term about health care

Our medical needs don’t get any easier as we get older, so it is increasingly important that we take advantage of the options that are available.

Fall is when open enrollment season begins for health insurance coverage, but retirees and aging Americans also can take advantage of open enrollment for Medicare plans.

The open enrollment period for Medicare runs from Oct. 15 to Dec. 7 and allows plan members to:

• Switch from Original (Traditional) Medicare (Parts A and B) to Medicare Advantage (Part C) or vice versa;
• Switch from one Medicare Advantage plan to another; and
• Switch from one drug plan (Part D) to another.

For those who have Medicare coverage, it is important to revisit your health and drug coverage choices each year since your health needs may have changed since first enrolling. Furthermore, there are some changes to prescription drug coverage and Medicare Advantage plans for 2020. Medicare.gov has launched a new plan finder tool where you can learn more about the plans available. If you are on Medicare or are about to turn 65 and will enroll for the first time, be sure to evaluate the plans closely, not only for cost, but for coverage options and flexibility and availability of health care providers in your network.

One way to help save money on health insurance costs is to select a supplemental Medigap policy that can be used to pay for co-payments and deductibles. The open enrollment period for supplemental Medigap is six months following enrollment in Medicare Part B. Medigap policies are available only for those who have Medicare Parts A and B. It is not available for those with Medicare Advantage.

Looking long-term

It is expected that each of us will need long-term medical care for either ourselves, a spouse or a parent. According to some estimates, half of all seniors will need long-term care.

For those caring for loved ones with long-term care, there are some important tax implications to consider.

Long-term care costs and premiums are treated as medical expenses and may be deducted by individuals as itemized deductions. The deductions can be claimed as long as medical costs exceed 10 percent of your adjusted gross income.

Self-employed individuals, however, can often deduct long-term care insurance premiums, as well as Medicare premiums, as an adjustment to income on Form 1040 without having to itemize.

In order for the deductions to qualify, the insurance policy must meet certain requirements:

• It can cover only long-term care services. The policy cannot be a hybrid policy that combines life insurance with long-term care coverage.
• The policy must be renewable.
• Any cash surrender value cannot be paid, assigned, pledged or borrowed.
• Refunds and dividends under the policy generally must be used to reduce future premiums or increase future benefits.
• The policy cannot pay costs that would be paid under Medicare, unless Medicare is a secondary payer.
• Per diem or other periodic payments without regard to expenses are prohibited.

Long-term care costs can be deducted for persons who are chronically ill, which means that person is unable to perform at least two activities of daily living, such as eating or bathing, without help for at least 90 days. This also includes those suffering from dementia or another severe cognitive impairment.

In order to take the deduction for long-term care, the care must be for medically necessary services that are rehabilitative, diagnostic, preventive, therapeutic, and other services.

The cost of meals and lodging at an assisted living facility or a nursing home may also be deductible if the main reason for being there is to get medical care.

While these costs can be deducted from taxes, the write-off amount is capped depending on a person’s age, with the deduction amount increasing for older taxpayers.

An adult child can claim a medical expense deduction on his or her own tax return for the cost of a parent’s care if that child can claim the parent as a dependent.

Caring for a loved one with a chronic illness can be emotionally and financially draining. Please let us know how we can help you during this time.

Carolyn J. Allen, CPA, is a Tax Manager with Antares Group, Inc. She can be reached at cja@antarescpas.com.