Q: I regret getting long-term care insurance. If I don’t need it, the money I’ve paid goes to waste. Is there a way to convert this into a life insurance or hybrid long-term care policy?
A: With traditional long-term care insurance policies, unfortunately, the answer is likely no. It is “use it or lose it,” says Barbara Franklin, founder of Franklin & Associates in Charleston, South Carolina, which provides long-term care and Medicare planning. “There is no return if benefits are not used and no provision for converting to another type of policy.” An exception is if your original policy has a “return of premium” rider, which will pay your beneficiary a death benefit equal to the premiums you’ve paid, but they’re uncommon.
That doesn’t mean your money is wasted. Think of long-term care insurance the same way you do any other insurance. If you need the protection, it’s there, but it’s not a waste of money if you don’t.
Q: How are the Medicare adjusted gross income ranges calculated for premium surcharges for Parts B and D, and when do these become available? Is this based on the same cost-of-living adjustment that Social Security uses for retirement benefits?
A: The Social Security Administration uses the CPI-U — the Consumer Price Index for All Urban Consumers — to calculate the income ranges that determine your Medicare premiums, says Jim Blankenship, founder of Blankenship Financial Planning in New Berlin, Illinois. This index reflects the effects of inflation for about 87% of the U.S. population, he adds. The agency typically releases the following year’s adjusted gross income ranges in October. To determine the annual cost-of-living adjustment for benefits, Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. It accounts for the effects of inflation on about a third of the U.S. population. “The two are similar, but not exactly the same,” Blankenship says.
Q: I was downsized last year, but my employer will pay for my health care until I turn 65 this December. I have a health savings account medical plan, and the company continues to pay me part of my salary. But it won’t deduct money from my salary to fund the account. I know I can contribute directly to the HSA, but can I deduct my contributions on my 2021 tax return?
A: You can make and deduct those contributions (up to $4,600 for people age 55 and over) through the month before you turn 65. After that, the IRS prohibits funding an HSA while on Medicare, which has a six-month lookback policy to your 65th birthday. Use IRS Form 8889 to record the contributions on your tax return and include that information on Schedule 1 of your 1040 when you file your 2021 taxes, says David Levi, senior managing director at CBIZ MHM in Minneapolis. That way, he says, you should also get the benefit of the deduction on both your federal and state returns.