By Greg D. Cohen, DO, FACOFP dist.; ACOFP Governor
One in four 20-year-olds will experience a long-term disability and will miss work for at least a year before they reach retirement age. One in 20 working Americans is affected by a short-term disability lasting up to six months each year. So what can we do to prevent something so common from becoming a catastrophe and losing everything?
Last year, I suffered a major illness (detailed in Part 1 of the series). All in all, I was out of work for four weeks and unable to do my full job for 3.5 months. Here are some of the lessons I learned from my own experience.
What is covered and what is not? Prior to the Affordable Care Act, most plans had lifetime limits. Anything above a certain number was no longer covered and was your responsibility. Pre-existing conditions could make you uninsurable.
What is your deductible? Do you have to be “in network” to be covered? These are all things to consider before you need to use their insurance—not after. Supplemental insurances are designed to cover gaps left behind by typical health insurance plans. Medicare supplemental insurance plans are designed to cover deductibles and gaps in Medicare benefits. Other supplemental medical benefit plans provide set amounts for a particular injury or illness, as well as travel expenses, medical equipment, related doctor visits or X-rays.
In some states, including California, Rhode Island, Hawaii, New York and New Jersey, injured workers can get benefits via temporary disability insurance through state-run programs. These programs generally pay partial wage replacement for 6–12 months, depending on the state. If you don’t live in one of those states, many employers carry short-term and long-term disability insurance plans for their employees. The short-term plans typically kick in at 7–14 days, and the long-term plans start at 3–6 months. These private plans pay for 50%–80% of your gross monthly salary until you can work again.
If your employer does not provide this insurance, short-term and long-term disability insurance plans can be purchased privately. This income is taxable if your plan is paid for by your employer and is not taxable in some states if paid for privately. Self-employed physicians may want to carry overhead insurance to cover payroll, rent and inventory purchases. Additionally, if you are part of a partnership, you should have a buy-sell agreement with a buyout insurance plan to be triggered if a partner becomes permanently disabled or dies.
Disability insurance can be very expensive and group rates are often more affordable. Look into what may be available through your professional organizations. Know the details before purchasing. What is the waiting period before benefits start? Know the benefits period. Some may only run 1–5 years, while others last until age 65. Know your income and overhead costs. These may vary greatly from month to month. Most planners recommend using your last three years and dividing by 36, considering a cost-of-living adjustment that allows for inflation.
Health Savings Accounts
If you have a qualified high deductible insurance plan, you should have a health savings account (HSA) to cover these expenses. If not, you or your business may offer a flexible spending account (FSA). For an HSA in 2022, you can contribute up to $3,650 for individual coverage or up to $7,300 for a family. This money can be used for expenses or even toward premiums on qualified plans. At age 55 years or older, an additional $1,000 dollars may be contributed annually, and these funds do not expire at the end of the year.
Flexible Spending Accounts
FSAs are funded by paycheck deductions and are taken out of pre-taxed dollars to cover medical, dental and eye care. Prescription medications and equipment are limited to $2,850 a year. Depending on your employer, they can either allow up to 2.5 months to use leftover funds at the end of the year or allow you to carry over up to $570 for use in the following year, depending on what plan your employer or company offers. Any leftover funds are lost at the end of this period. A separate FSA can be used for child care.
Savings and Assets
For younger physicians often saddled with debt, saving can be difficult but important. For self-employed physicians, this is a necessity. If you have a 401K or similar retirement account or whole life insurance, contact your investment advisor. These assets can be borrowed against with loans of up to 50 percent without penalties. If you have exhausted all options and are struggling to make mortgage or credit card payments, the federal government offers loan modification programs for mortgage payments through the Home Affordable Modification Program, so you should contact your lender prior to defaulting. Credit card lenders and utility providers will frequently work with you prior to default to adjust rates or create an alternate payment plan as well.
Family and Medical Leave Act
The Family and Medical Leave Act (FMLA) protects you if you work for a company with at least 50 employees and if you have worked for a company for at least 1,250 hours in the last 12 months. If you are injured or become ill and can work, they are obligated to accommodate you. This may mean different work hours, special equipment, or time off to recover up to 12 weeks leave unpaid. FMLA typically protects your job for up to 12 weeks of unpaid leave.
While most of us have experienced personal illness, we often do not realize the extent of the issues that may arise when you—the doctor—become suddenly ill or injured for a longer period of time. It can be difficult to go from being a physician to a patient, but it is better to plan ahead. To minimize the risk of losing everything, all physicians should consider and plan for this, working with a trusted financial advisor as needed.