Effect of Multiple Policies

[Arthur Rudnick]

Scott states:

"The extra $200 would not be taxable. The tax-free per diem allowed by the IRS right now is $290 (and that figure usually increases each year). So, in your example, only $10 would be considerable taxable"

Not true Scott, Not true Scott......
(Said it twice because there are 2 not trues listed)

Not True #1:
It would be taxable. The $290/day tax-free only applies to Indemnity policies.
and,
Not true #2:
For 2011, it's $300/day, not $290.

However, Insurance fraud is correct

 

[Mr_Ed]

Scott states:

"The extra $200 would not be taxable. The tax-free per diem allowed by the IRS right now is $290 (and that figure usually increases each year). So, in your example, only $10 would be considerable taxable"

Not true Scott, Not true Scott......
(Said it twice because there are 2 not trues listed)

Not True #1:
It would be taxable. The $290/day tax-free only applies to Indemnity policies.
and,
Not true #2:
For 2011, it's $300/day, not $290.

However, Insurance fraud is correct

$300 tax-free per day is correct for 2011. I was looking at the 2010 chart. My bad.

However, you are incorrect about the tax-ability.

The IRS form that is used to report LTCi benefits does not differentiate between "indemnity" policies and "reimbursement policies".


Instructions for Form 1099-LTC (2011)

http://www.irs.gov/pub/irs-pdf/f8853.pdf

http://www.irs.gov/pub/irs-pdf/i8853.pdf

 

[Arthur Rudnick]

"The IRS form that is used to report LTCi benefits does not differentiate between "indemnity" policies and "reimbursement policies".

Scott,
There are distinct rules for the IRS on how benefits are paid for LTC payments.

How are they to know if $500/day was paid on a reimbursement or indemnity basis?

If it was a reimbursement payment there's no issue, but if it's indemnity, they'll want to see proof that the extra $200/day was spent for qualified services. If it cannot be substantiated, it's considered taxable income.
- - - - - - - - - - - - - - - - - -
Scott,
You posted a "1099 Instruction Form" to make your case that the IRS does not ask whether payments from a LTC policy are reimbursement or indemnity.

The form specifically states:

Box 3. Check if Per Diem or Reimbursed Amount

Check a box to indicate whether the payments were made on a per diem or other periodic basis or on a reimbursed basis. For accelerated death benefits, do not check a box if you made payments on behalf of a terminally ill person. Per diem basis means payments made on any periodic basis without regard to actual expenses. Reimbursed basis means payments made for actual expenses incurred.

 

[Mr_Ed]

"The IRS form that is used to report LTCi benefits does not differentiate between "indemnity" policies and "reimbursement policies".

Scott,
There are distinct rules for the IRS on how benefits are paid for LTC payments.

How are they to know if $500/day was paid on a reimbursement or indemnity basis?

If it was a reimbursement payment there's no issue, but if it's indemnity, they'll want to see proof that the extra $200/day was spent for qualified services. If it cannot be substantiated, it's considered taxable income.
- - - - - - - - - - - - - - - - - -
Scott,
You posted a "1099 Instruction Form" to make your case that the IRS does not ask whether payments from a LTC policy are reimbursement or indemnity.

The form specifically states:

Box 3. Check if Per Diem or Reimbursed Amount

Check a box to indicate whether the payments were made on a per diem or other periodic basis or on a reimbursed basis. For accelerated death benefits, do not check a box if you made payments on behalf of a terminally ill person. Per diem basis means payments made on any periodic basis without regard to actual expenses. Reimbursed basis means payments made for actual expenses incurred.

Mr. Rudnick,
I stand corrected.

;-)

 

[billberry12]

I'm sure glad you guys have each other to keep straight about things. I sure do learn a lot from you in the bickering process.
bill

 

[Arthur Rudnick]

"BICKERING MAKES THE HEART GROW FONDER"​

I'm not sure who said that.
It might have been Robert Frost or Lady Gaga.......​

​

It's a 148° in NY, the streets are melting, and brains are being fried. Good day to buy a winter coat on sale.

Have good weekend everyone........​

 

[billberry12]

By golly I think you said that Arthur!!

 

[rbrown04]

Interesting discussion - Thanks. LTCi policies that I've read do not include a 'coordination of benefits' clause. The contract appears to be more like a life insurance contract, and there is no prohibition against stacking life insurance policies. Yes, the income over reimbursement would be taxable income to the extent there is no exclusion, but even paying ordinary income tax still put the insured ahead of the game. Now whether this is a particularly good investment strategy, I would question. But if you are stacking policies to protect against a high daily cost (let's say you do not have a monthly policy, but a daily policy), and are accepting of reducing your lifetime benefits by a faster drawdown, it does create cash flow (after-tax). In any case, it provides another level of flexibility in financing long-term care. That's my take-away from this discussion (since those who claim this is insurance fraud can not substantiate any contractual, legal or tax restriction on the practice).

 

[Arthur Rudnick]

Every reimbursement policy has a "non-duplication of benefits" clause. I looked at 4-5 and they all pretty much say the same thing:

Non-Duplication of Benefits
This Policy will only pay covered charges in excess of charges covered under any of the following:
• Medicare (including amounts that would be reimbursed by Medicare but for the application of a Medicare deductible or coinsurance amounts).
• any other governmental program (except Medicaid).
• any state or federal workers' compensation, employer's liability or occupational disease law, or any mandatory motor vehicle no-fault law.

This is why if Medicare is paying for 90 days (as an example) and a policyholer has an elimination period of 30 or 60 days, the policy will not pay until Medicare finishes.

This is true only for reimbursement policies. On cash-benefit policies, payments will start immediately after the elimination period ends, regardless of whether Medicare (or other governmental programs) are paying or not.There is no such statement in cash policies.

​