Long-term care and the related insurance to cover the costs is getting increased attention in the United States. As Medicare and Medicaid costs are drastically increasing as the Baby Boomers age, the US government is cutting the benefits associated with long-term care.

A recent survey indicated that one out of every three people over the age of 65 can expect to spend three months or more in a nursing home. One out of every four people will stay at least one year and one out of ten will stay for five years or more. Individuals are now cognizant that they will have to pay for this care themselves.

From discussions which we had with various insurance executives on the Island, we understand that there are not very many choices in Bermuda if you need either long-term care or hospice care. In fact, The Royal Gazette carried an article on the shortage of beds in the local hospital because of the number of elderly patients occupying the beds. Nursing homes costs in the United States run from around $30,000 to $80,000 a year.

The Health Insurance Portability and Accountability Act of 1996 contained changes to the Internal Revenue Code dealing with long-term care services and insurance. The Internal Revenue Service recently issued Notice 97-31 offering guidance with respect to the 1996 legislative changes.

Under the tax law changes, certain payments received on account of a chronically ill individual from a qualified long-term care insurance contract can be excluded from income. Also, certain expenditures incurred for qualified long-term care services required by a chronically ill individual are deductible as medical acre expenses. The term "medical care'' now includes premiums paid for any qualified long-term care insurance product and amount paid for qualified long-term care services.

Insurance companies are now offering a variety of products to assist with these costs. We have reviewed a number of products for clients and offer a word of caution. First, have your tax consultant verify that the product meets the new guidelines so that you can obtain an itemised deduction for payment of the premium. Second, be sure that the policy is comprehensive enough to meet your needs. Some policies have significant limitations on coverage that are not readily apparent. Remember that the person "selling'' you the policy is usually working on "commission.'' Social security As a US citizen resident in Bermuda, you are probably working for a non-US entity and as such are not contributing to US Social Security. We would suggest that you check with Social Security to ascertain that you have enough quarters paid to insure continuing coverage. We recently learned that the US Social Security records have only been computerised to the mid-1950s. If you are working and paying Social Security taxes prior to that time, your earnings record may be incomplete. To ascertain your complete record, you need to call Social Security and ask them to do a by hand search of their paper records to obtain the proper credit. We are aware that some individuals have a concern over not being in the US Social Security system. The government has a software programme that can be downloaded off the Internet which will allow your tax consultant to as certain what your reduced benefit will be. What you are attempting to ascertain is the loss of future benefits versus the expected investment you can achieve by investing the $5,003 you are not paying to the US government as your contribution to Social Security and Medicare taxes.

If you find it preferential to be covered by US Social Security tax and are working in Bermuda for an entity which has a US company which has at least ten percent interest in it, coverage can be obtained by having the US company make a Code Section 3121(1) election which will mandate US Social Security coverage for all US citizens and residents employed by the Bermuda entity.

James Paul Sabo, CPA, is the President of Expatriate Tax Services LLC, PO Box 617, Bernardsville, New Jersey, and is associated with GulfStream Financial Ltd. in Bermuda.