The ABC’s The ABC’s of of

Limited Pay Limited Pay Long Term CareLong Term Care

Statistical Review

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The Growing Need for LTC

Source: “65+ in the United States” Special study by Frank Hobbs and Bonnie Damon

1994

2030

1 in 8 was age 65+

1 in 5 will be age 65+

The Growing Need for LTC

Source: “65+ in the United States” Special study by Frank Hobbs and Bonnie Damon

Of people age 85 and over, one out of four live in a nursing home .

Facts at a Glance

In 2003, the national average daily rate for a private room in a nursing facility was $_______________.

In 2003, the national average hourly rate for a Home Health Aide was $__________ .

Source: MetLife Mature Market Institute 2003 Survey

Facts at a Glance

In Minneapolis, the average cost of an assisted living facility is $__________ a month.

In St. Paul, the average cost is _______ than the average cost in Minneapolis.

Source: MetLife Mature Market Institute 2003 Survey

0%

5%

10%

15%

20%

25%

1900 1940 1995 2025 2040

% of America’s Population Over 65

Source: Will America Grow Up Before It Grows Old?, Pete Peterson

24.0%

19.9%

12.5%

4.1%6.9%

Demographic Trends

Demographic Trends

2.23

4.36

78.8

13.8

18.9

0

5

10

15

20

1980 1990 2000 2010 2020 2030 2040 2050

Population Age 85 and OlderIn millions

Source: U.S. Bureau of Census, 1995

Major Causes of Disability Leading to LTC Benefits

Source: UNUM’s Total Claim Block as of 10/23/98

All Others34%

Dementia12%

Neoplasm12%

Trauma not Hip 10%

Neuro not CVA 7% CVA

10%

Cardiovascular 8%

Hip Fx 6%

What is Meant by a Loss?

Activities of Daily Living– Bathing – Dressing– Eating – Toileting– Transferring – Continence

and/or

Cognitive Impairment

NS1047-99-58

Medical community has long used six standard ADLs. Further, they have found that 93% of the time, ADLs are lost (and regained) according to a specific hierarchy *

1. Bathing 4. Transferring

2. Dressing 5. Continence

3. Toileting 6. Feeding

* Activities of Daily Living: Tools to Measure Functional Loss by Paul R. Bell; Journal of Insurance Medicine, Volume 24, No. 4

Activities of Daily Living

Cognitive Impairment

Loss of: short or long term memory orientation to:

• person (where you are)• place (your location)• time (day, date, year)

deductive or abstract reasoning

NS1047-99-60

Employer Provided Plans

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Tax Treatment of Insurance Premiums

Treated as health insurance after 1-1-97 Allows individuals to deduct premiums as

itemized medical expenses. Self Employed deductions available. Fully deductible for C-Corps and non-

owner employees of other business forms. All of above must be Tax Qualified Plans.

1

Eligible Premiums Are...

6

For an individual with anattained age before theclose of a taxable year

Age 40 or LessAge 41 - 50Age 51 - 60Age 61 - 70

Older than Age 70

In 2004, amount that counts as an allowable medical expense deduction.

$ 260$ 490$ 980$ 2,600$ 3,250

Minnesota State Tax Credits

A credit is allowed for long-term care insurance premiums during the taxable year equal to the lesser of (1) 25% of premiums paid to the extent not deducted in determining federal taxable income; or (2) $100.

What Deductions are Available for Personal Income Tax?

Premiums paid by the insured are deductible as a medical expense deduction on Federal Income Tax Return=> Expense deduction subject to dollars

over 7.5% of adjusted gross income

=> Subject to premium limits established by law

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Deductions for Self Employed

Fully deductible with no discrimination testing (subject to eligible premium limits and maximum indemnity amount of $230 a day in 2004).

Benefits tax free to recipients.

Deductions for C-Corps

Fully deductible with no discrimination testing (subject to daily indemnity benefit maximum indemnity amount of $230 a day in 2004).

Benefits tax free to recipients.

Establishment of a formal plan suggested.

Limited Payment Plans

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Reasons for Limited Payment Plans

Take Advantage of Employer or Self Employed Deductions While They Are Available.

Plan for Premiums While You Are Working and Can Better Control Income and Expenses.

Reasons for Limited Payment Plans

Insulate The Plan From Future Rate Increases.

Transfer of Money From “Business” to Personal Use and Leverage Return of Premium Options.

Avoid Lifetime Premium Commitment.

Types of Limited Payment Plans

Double Pay First Premium.

Reduced Pay at Age 65. Paid Up at Age 65.

10 or 20 Pay. Single Pay.

Double Pay First Year

Notes

Reduced Pay at Age 65

Notes

Paid Up At Age 65

Notes

10 or 20 Pay

Notes

10 or 20 Pay – Premium Example

Plan Design:

MetLife Ideal Plan

$180 a Day

100 Day EP

Unlimited Duration

5% Compound Inflation

Return of Premium Option

Home Care Plus Option

Age 55 Insured and

Spouse

Life Pay Premium

10 Pay Premium

Preferred Rating

$5,297.22 $12,925.20

Total Premiums over Life

Expectancy* (28 Years)

$148,322 $129,252

Source: Life Expectancy of All Races and All Genders – Table 27 National Center for Health Statistics - 2003

10 or 20 Pay – Corporate Plan

“Tax Effect” cost to implement a 10 Pay LTCI plan.

10 Pay Premium

After Tax

10 Pay Premium

10 Pay Premium Before Tax

$21,542 $12,925 $7,755

$215,420 $129,925 $77,550

Assumption of 40% Combined Federal and State

Single Pay

Notes