Looking Into a Medical Association Disability Plan for Physicians? A Must Read
While there are many differences between an association plan and a private disability insurance plan (premium structure, policy features, claims processes, etc.) today, we would like to solely focus on the premium structure differences between the two types.
Medical Association Disability Insurance Premiums:
Most medical association plans provide a very low initial premium when you are entering into the plan; however, with any “cheap” alternative, the devil is usually in the details.
Did you know that every medical association plan has increasing premiums? A typical medical association plan’s premiums will increase when you turn 30, 35, 40, 45, 50, 55, and so on. The longer you stay in the plan, the higher the premiums become. In fact as you get into your 50s and beyond, the premiums can become cost prohibitive. So pay close attention to the medical association marketing brochure. If you look carefully, you will notice buried language that reads “your premium will be determined upon your age as you enter a new age range”.
More worrisome than the scheduled guaranteed premium increase every five years, is the carefully placed language in the marketing materials it states, “the carrier reserves the right to increase the plans premiums, over and above the scheduled planned premium increases, at any time with a 30 day written notice.” To be fair, please know that the carrier can’t isolate you out for a premium increase. They get to do it to everyone that is entering the new age range in a given state.
Private Disability Insurance Premiums:
After agreeing upon your custom doctor disability coverage type & definitions, your benefit amount and supplemental Riders, we arrive at your physician’s disability insurance premium. That is the premium you will pay for the life of your policy…that’s it… This class of policy is called non-cancelable as the carrier can neither cancel the policy nor increase premiums until age 65. Yes, these policies are typically more expensive than their association counterpart.
So Isn’t Cheaper Better?
A more appropriate question is, “How can the Medical Association disability insurance premium structure potentially harm you as a physician?” Here’s an example:
You are now 53 years old, with a recent type 2, well controlled diabetic diagnosis. Even though the disease is well controlled, you have now likely become uninsurable from a private carrier or a medical association plan. You are stuck with your association plan, which you noticed is becoming much more expensive than you remember it being. Now you turn 55. Happy Birthday, except you just get your birthday premium notice for your new age, gulp . . . a 65%-80% premium increase. You might like to shop around for a more competitive plan, but your health now precludes you from being able to go that route. So what are your options? Either keep the medical association disability plan and deal with the rate hikes, or cancel the policy altogether because it is no longer cost effective. The insurance carrier hopes you choose the latter, so that once you reach the age when you most likely need the plan benefits, you no longer have the coverage and they are “off the hook”.
This works out well for the insurance carrier, but not so well for you and your family. Without the coverage in your later practicing years (because you can no longer afford it), should you be rendered unable to perform the duties of your medical specialty any longer, unfortunate things are likely to happen. Usually a physician who has dedicated over 30 years building their practice and nest egg will be forced to begin liquidating their IRA’s, Pension Plans, their children’s 529 college funds, selling their retirement home, etc. just to get by. This happens all too often, and doesn’t need to.
So How do I know Which is Better for Me?
Everyone’s situation is unique and requires a custom solution. When you compare your relatively cheap medical association plan to a private disability plan, you may want to consider looking closely at the value of the private plan’s fixed, guaranteed level premium all the way to age 65. Typically, when you look at the life of your disability insurance, purchasing a private disability is more expensive at first, but, running the numbers through the life of the policy can easily show a savings of tens of thousands of dollars. For example:
A 35 year old surgeon in Florida covered under a disability insurance plan from The American College of Surgeons would pay an initial quarterly premium of $340 for a $10,000 monthly benefit. That same 35 year old surgeon, with the same benefit amount, would pay $878/quarter under a private, non-cancellable and guaranteed renewable disability insurance plan, with fixed premiums, to age 65.
As time goes on, that 35 year old surgeon, under the ACS plan, would proceed to pay $860.00/quarter at age 45 (slightly lower than the private counterpart) and $2,744/quarter at age 55 (more than triple the private premium!). The actual cost for the “cheaper” alternative, including increasing rate hikes at least every 5 years, is over $173,000 over the next 30 years. Compare this to the private carrier’s cost of $105,000 over the same time period. This is a savings of over $65,000 during the 30 year time frame. And this association plan doesn’t even provide the true own occupation definition of disability (for a later conversation).
Beyond savings, there are pertinent intangible benefits. You can count on this fixed premium, you can budget for it, it is predicable, but most important, you won’t be forced to cancel it at the exact time you and your family need it most. You’re paying for stability, you’re paying for security, and in the long run, you’re paying less.