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In one of your answers, you suggested looking into buying a small plan from an insurance company to supplement the insured’s CalPers plan and to decrease the benefits on the CalPers plan when there is another rate increase. That is exactly what I’d like to do. I have reduced my lifetime protection to 10 years and am looking at modest plans to supplement the CalPers plan. However, even though I have been paying CalPers LTC premiums from almost the first day of its inception, CalPers is telling me that my CalPers plan would always be secondary to the new plan. And, the LTC insurance broker is telling me that the plan that has been in effect the longest would be the primary. What can I do in this situation?
That is an excellent question. Even though that’s unusual, I don’t see any problem with it operating that way. It would be like having a primary and secondary health insurance that many couples have, or with Medicare, Medicare pays first and a Medicare Supplement pays 2nd. You would file the claim with the new policy and then send the Explanation of Benefits to CalPers when you file with them so CalPers could pay the balance up to the benefit level you have with CalPers. However, you want to compare what it would cost you at your current age to buy a supplemental policy vs. accepting the CalPers rate increase. LTCI costs a lot more now plus you are older. If you do pursue a supplemental policy, you might like a plan that pays at least part of the benefit in cash so you can use the money however you need it without providing proof of services. Some companies that allow a partial cash benefit in California are MedAmerica’s FlexCare product (50%) Transamerica’s TransCare II (30%) and John Hancock (15% in addition to the regular benefit).
I did confirm that CalPers does indeed intend to be secondary to anything except MediCal (Medicaid), so your CalPers contact is correct. You can look this policy language up in your CalPers policy…should be under Exclusions…but here’s the gist of it:
“We will not pay benefits which (1) duplicate payments from any insurance coverage or (2) are payable under Medicare or would be payable….etc. We will pay the difference between Your actual expenses and the benefits payable by all other sources (except…MediCal/Medicaid…), but our payments will not exceed the amount we would have paid in the absence of other coverage. ….”
Our company is an S Corp, and I believe there are special rules for them. I own 100% of the company and my wife works for the company. The company is going to contribute 50% to the premium for my policy and all of our employees. Will this 50% contribution be deducted as a business expense for the policies for my wife and I, or will the deduction be disallowed? If yes, I’m thinking I could pay our premium from our Health Savings Account to purchase with pre-tax dollars. Do you know?
I have included a link below that answers this question thoroughly but here’s the short answer. You can deduct the age-based premium for yourself and your wife on Line 29 of Form 1040, which is where you deduct your health insurance. The only difference is that health insurance is 100% deductible and LTCI goes by the age-based amounts that generally grow each January. However, just like the health insurance, these age-based amounts will be added back to your income since you are a greater than 2% owner of an S-Corp. This is good for your personal cash flow though as the premium is paid from the business checking account, not your personal checking account. So having said that, you may prefer to pay the age-based amounts out of your Health Savings Account so they will be truly paid with pre-tax dollars and not added back to your income. You are fortunate to have this choice. This is one of the many reasons I’m a big fan of health savings accounts. Of course, you should confirm this information with your accountant.
Here is the link to the more detailed explanation.
So the 50% contribution is irrelevant for owners of an S-Corp. You can deduct the entire age-based amount for you and your wife as a self-employed health insurance expense, or you can pay the age-based amount out of your health savings account for each of you with pre-tax dollars. Please note that the age-based amounts for 2012 and 2013 are in the above article so you can see approximately how much they change each year. As the amounts grow and as you and wife grow older, eventually you will be able to deduct/pay 100% of your premium through either one of these methods if you can’t already.