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Backers of long-term-care (LTC) insurance hope that its time has finally come. A new federal law, effective this year, promotes it in four major ways.

But whether this federal backing will impel you to buy depends on your income and circumstances. Here's what's new this year:

1. Employers can now offer group long-term-care policies and tax-deduct any contributions they make to premiums.

Employers might give you access to LTC coverage that you buy yourself. Typically, you'll pay less than if you bought independently. Your premium will be based on your age but not on your state of health.

At larger companies, you may not even have to fill in a health questionnaire. At smaller firms, questionnaires are usually required; employees are charged an average price based on their collective health.

But check what happens when you leave the company. You want to be sure that you can take the policy with you, at no increase in price.

If your employer switches to a new insurer, stay with the old one if you can. That way, your premium won't go up. If you switch to the new insurance company, your premium will probably rise, because you're older than you were when you took the previous policy out.

Employee plans might offer LTC coverage to your spouse and even your parents. They'll have to fill in a health questionnaire, says David Martin, a specialist in group long-term-care coverage for the Boston-based insurance company, John Hancock.

2. Whether you buy employee coverage or an individual LTC policy, part of your premiums qualify as a deductible medical expense.

The size of your write-off depends on your age. At 40, you can deduct $200. At 70, you get $2,000. These write-offs will rise every year to reflect increases in health-care costs.

To make use of this tax break, you have to itemize deductions. Only 29 percent of us do, according to the Internal Revenue Service.

You will also need high medical expenses. Qualified expenses can't be deducted unless they exceed 7.5 percent of your adjusted gross income. Retired people might find it easier to meet this test than working people, Guy Bertsch, a risk manager at UNUM Life Insurance Co. of America in Portland, Maine, told my associate Kate O'Brien Ahlers.

3. If your LTC policy reimburses you for your actual expenses, you get the benefits tax-free. If you're paid a flat per diem rate, regardless of the size of your actual expenses, the benefits are tax-free up to $175 a day. That cap will be indexed to health-cost inflation.

There's good news and bad news here. The good news: The law confirms general practice. Beneficiaries haven't been paying taxes on LTC benefits anyway.

The bad news: Every LTC carrier will have to issue 1099 forms for the insurance benefits paid, Bertsch says. You'll have to report them as income on your tax return, then deduct your actual LTC expenses. But no one knows yet how this will work. Taxes will be owed by a few recipients of per-diem benefits.

So ... a fresh tax mess. Every time Congress passes a tax break, it further complicates returns.

4. When you spend your own money on your personal long-term care, it counts as a tax-deductible medical expense. You're covered for qualified home-care and community-care expenses as well as nursing-home expenses.

This creates a dandy deduction for people whose LTC policies cover only part of their costs. You get an even larger deduction if you have no insurance at all. The size of your uninsured LTC expenses could reduce or eliminate your taxable income.

The new tax breaks apply to two types of LTC policies: those that meet new federal standards and those in existence prior to Jan. 1, 1997, whether they meet the new standards or not.

Some insurers are currently issuing nonstandard LTC policies, because their new ones aren't ready or haven't yet been approved by the state. These policies don't qualify for the new tax breaks.

If you buy such a policy, get the following promises in writing: (1) You'll be able to swap for a tax-qualified policy sometime this year (you have until Jan. 1, 1998) without paying another sales commission; (2) If the insurer misses the deadline, you will get your premiums back.

Do not be talked into switching a pre-1997 policy for a new one, based on its alleged tax advantages. You've got the tax break already. All you'll be doing is paying another sales commission.

Next time: What to look for in an LTC policy.

Nursing home news

If you have ears to hear, listen to what the government is telling you about nursing-home care. You cannot expect continued expansion in the programs that help pay the bills.

The Medicaid program is being shaved. It will still be there to help nursing-home patients who run out of money, but your benefits may be limited.

What's more, Congress will keep cracking down on middle-class people who hide their assets in order to go on Medicaid earlier than they should.

Over the long run, you're going to have to cover these expenses yourself through personal savings, a reverse mortgage against your home, or with long-term-care (LTC) insurance. Nursing-home costs are running from around $30,000 to $80,000 a year.

If you're considering LTC insurance either individual coverage or a policy offered through your employer here are some of the options to evaluate:

- Your age. The younger you are, the cheaper the insurance is. If you buy at 50 and hold for 35 years (to age 85), you'll pay one-third less than if you buy at 75 and hold for just 10 years, even counting what that early money could have earned if it were invested elsewhere.

- How much coverage you need. At a minimum, insure for the difference between how much you can afford to pay and what the nursing home costs. If you could pay $50 a day and the nursing home costs $120, you might buy a policy worth $70 a day. Many people insure for the entire daily cost.

- How long you need coverage. A five-year benefit costs about 15 percent to 20 percent more than a three-year benefit. But that's money well spent, just in case you're one of the unlucky 10 percent who will stay that long.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.

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