by Tom Strand on January 15, 2012

Does your employer offer great health-care benefits?  A so-called “Cadillac plan”?  If so, consider yourself lucky—for the most part.  Should the unthinkable happen and you become seriously ill, you’ll weather the financial storm just fine.

Provided you have $18,000-$24,000 in very liquid assets.

That’s the amount you can expect to shell out for out-of-pocket medical expenses.  Sounds rather high, doesn’t it?  After all, in your most recent enrollment period, you signed up for the gold plan; the one with a slightly higher premium, but the lowest deductible obligations.  You might be thinking your maximum out-of-pocket expense won’t exceed $1,500, or $3,000.  Heck, even $5,000 is manageable, if it ever came to that.

“So why do I need $24,000 cash on hand?”  you’re wondering.  Here comes the cute little secret that  your plan administrator will not disclose to you in your Summary of Benefits:  If your condition causes you to be away from your job longer than 6 months (long-term disability), your employer/plan administrator may move you out of their group rate structure, and force you take over the full premium.  This will be called “offering you Cobra”.  And, coincidentally,  it will feel akin to having a large venomous snake in your living room.

You may have thought the Cobra option was something that was offered to people who’ve been laid off.  And after all, you’re technically still an employee—you’re still getting the company newsletter, and invitations to picnics you’re too sick to attend. And you still feel like an employee.  Why would they force you out of the plan, and make you pay the full premium?

The short answer?  Because they can.  And oftentimes do.  It’s simply called “reduction in hours”; and although it feels like discrimination, it’s perfectly legal.  By bumping the sick people out, they are able to keep the rates slightly cheaper for the lucky healthy folks that are still turning wrenches.

Perhaps by now you’re thinking ahead—“this is where the $24,000 in liquidity comes in.” Correct.  A full premium payment for a typical family of four is at least $900 per month.  And get this: they’re not even obligated to send you a premium notice each month, but they’ll gladly cancel your policy if you’re late.   Furthermore, you are not allowed to use credit cards to pay that premium.  The good news?  Once you’re disabled for two years, you’ll be eligible for Medicare.  Now there’s a donut hole you can really sink your teeth into.

Does your plan have a $24,000 donut hole?  There’s only one way to find out:  get with your HR generalist, and pose the following specific question:  What happens to my health insurance premium if I get sick, and I’m out of work longer than 6 months?  Will I be responsible for the full premium?  Be persistent.  Don’t simply take their word for any answer you’re given.  Make them show you the answer in writing.  Perhaps it will be good news—not all employers will bump you off of their group rate.  Good on you if they don’t.  But get it in writing—each year.  You deserve to know all the details about your health benefits so you can plan accordingly.  And on that note, it should be mentioned that  you’ll probably feel a little more secure if you’ve got substantially more than $24,000.  You’ll likely be earning much less on disability than you’ll need.

Sorry…one more poisonous snake:  the Affordable Care Act does nothing to close this donut hole.

{ 1 comment… read it below or add one }

Hugh Morris February 1, 2012 at 1:57 pm

My 44 yr old never smoked wife is in her 15th month of stage 4 lung cancer. She has a great ins. and disability. If it wasn’t for the benevolence of her employer who is picking up her cobra we would be in the donut hole. The other thing you fail to mention COBRA EVENTUALLY RUNS OUT. When this started someone told me You get cancer you go broke. It is so true for us. I am not even mentioning the $100 here and the $200 there monthly. on top of the $3000 annually. While I believe our health care in the us and MN specifically is the best in the world. We do not do well with the catastrophic aftermath. Very good article.

BTW my wife is on what at the time was a experimental drug called Crizotnib that is working.
So now I find myself pro big pharma, pro animal use in testing and some other compromises
that also need to to be kept to myself. Up to this point I saw everything in black and white never change terms. I find myself FAR more tolerant to other peoples ways.


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