Is the American Medical Association (AMA) Disability Plan Worth It?

If you find yourself on this page, chances are you're weighing the decision to purchase the American Medical Association Disability Insurance plan. Let me begin by emphasizing that every physician should seriously consider acquiring disability insurance unless they are financially independent. However, it's crucial to recognize that not all insurance companies and contracts are created equal.

Unlike life insurance, where the payout is straightforward—you must be deceased—disability insurance offers various avenues of compensation. It's imperative to ensure that your policy will provide coverage in the event of illness or injury that impedes your ability to perform the essential duties of your medical profession or results in a reduction in income due to disability.

In this post, we'll delve into the mechanics of the AMA plan and compare it with offerings from the Big 5 disability carriers. We'll discuss reasons why you might find the AMA plan appealing and reasons why you might opt for an alternative. We'll provide a comprehensive overview, highlighting aspects of the AMA plan to consider.

Can the AMA Plan Rates Change? Can My Disability Coverage Be Canceled?

The simple answer is yes, the rates of the American Medical Association (AMA) disability insurance plan are subject to change, and the policy can be canceled. The Big 5 disability insurance carriers (The Standard, Guardian/Berkshire, Principal, Ameritas, and Mass Mutual) have a provision called “non-cancelable and guaranteed renewable” that offers protection against this. The AMA insurer retains the authority to adjust policy features and increase premiums at its discretion on the plan anniversary. The AMA could decide to cut ties with the insurer, and that could leave all the association members who purchased association coverage vulnerable and without coverage. For this reason alone, strongly consider shopping for an individual disability policy with one of the five major disability insurance carriers.

When initially comparing the rates of the AMA to those of the Big 5 disability carriers, the AMA is likely to appear less expensive. Moreover, the AMA provides discounts for its members, further reducing the cost. However, it's important to note that the premium structure of the AMA plan is banded in five-year increments, meaning premiums increase every five years. Those rates can’t be guaranteed or predicted. With the Big 5 carriers, though, individuals can lock in their rates through the non-cancelable and guaranteed renewable provision in the contract. It’s good to look at all options when comparing the AMA plan to the major disability carriers.

Does the AMA Offer an “Own Occupation” Definition for Disability?

The AMA offers an upgraded version of its “Own-Specialty” definition of disability—dubbed the “True-Own-Specialty” definition of disability—for an extra cost. It does protect a physician in their given medical specialty, but there are rules to qualify that will be discussed in the next section. The AMA-sponsored plan, underwritten by New York Life, allows physicians the ability to protect the income they earn in their specialty, even if they decide to work in another medical field. It reads like some of the other Big 5 disability carriers' definitions of specialty-specific language on the surface, but if you read closer, there are differences.

The Potential Deal Breaker with the AMA “True-Own-Specialty” Total Disability Definition

This is a big one! You've got to meet the elimination period with continuous days of being totally disabled before you’ll qualify for “True-Own-Specialty” total disability. If you happen to step back into the hospital or your practice to work during those 90 days (if that is your elimination period), you’ll likely have to start the elimination clock all over again. In addition, during the waiting period, you must be considered totally disabled and unable to work in “any occupation.” However, if you manage to meet that requirement and are, in the AMA's words, “incapacitated due to injury, illness, or organ donation, completely preventing you from carrying out the essential duties of your regular job, the policy will still kick in, even if you're working in a different field,” the policy will pay. It’s the requirement of continuous days of total disability during the elimination period that makes the AMA plan not the best choice compared to what else is available in the marketplace.

How does the AMA definition stack up against the Big 5 disability carriers? To begin with, they all provide a version of the “True Own Occupation” definition of disability or something similar, which pays out if you're unable to perform the material and substantial duties of your occupation. Most also offer a definition specific to your specialty. More importantly, unlike the AMA, none of them require continuous days of total disability during the elimination period to qualify for benefits. Each carrier has what they call an “accumulation period,” or a timeframe, you’re given to meet the elimination period, ensuring you're not penalized if you return to work for a short period of time without having to worry about the elimination period being reset. The AMA does not offer an accumulation period.

More information here:

Own Occupation Disability Insurance — A Key for Doctors

Does the AMA Offer Residual or Partial Disability Benefits?

When I first entered the insurance business, my mentor taught me about residual and partial benefits, sharing how they are paid out. It was an eye-opening experience, as I realized that these benefits weren't solely about working part-time; rather, they addressed the gradual onset and recovery from illness. In reality, most people who fall ill don't suddenly become totally disabled; instead, they endure a gradual decline in health over time. Consequently, their income may slowly diminish as their efficiency wanes. Regrettably, the AMA plan imposes a period of total disability requirement for qualifying for residual (partial) disability payments. Essentially, this means that one must first be completely disabled, receive payments for total disability, and then become partially disabled to receive any residual (partial) disability payments.

Consider the case of Dr. Sarah, a 45-year-old family practice physician diagnosed with Parkinson’s. At first, Sarah could manage her symptoms and continue working with minor adjustments. Over time, her condition worsened, and she found it increasingly difficult to meet the demands of her job. Despite her determination to work, Sarah's efficiency declined, and so did her income. In the eyes of the AMA plan, Sarah wasn't eligible for residual disability benefits because she hadn't experienced a period of total disability. This left her in a precarious financial situation, struggling to make ends meet while coping with her worsening health.

It's worth noting that, unlike the AMA plan, the Big 5 carriers do not require a period of total disability to qualify for residual disability benefits. This flexibility is especially important when considering partial disability insurance for individuals grappling with degenerative diseases like Alzheimer's, Parkinson's, or Multiple Sclerosis. Understanding the nature of these conditions is imperative. Degenerative diseases entail a progressive deterioration in physical or cognitive abilities, often resulting in partial disability rather than sudden incapacitation. Consequently, enforcing a period of total disability requirement on a disability contract wouldn't be appropriate for such illnesses. This requirement may inadequately address the challenges faced by individuals dealing with fluctuating symptoms or gradual decline.

Instead, a more adaptable approach to partial disability insurance is essential, allowing individuals to receive benefits based on their drop in income and/or capacity to work, even without experiencing a period of total disability first. This approach acknowledges the intricate and evolving nature of degenerative illnesses, ensuring that individuals receive the necessary financial support.

What Happens If You Recover from a Disability But Continue to Suffer a Loss of Income?

The AMA plan falls short in one significant aspect—it doesn't offer any income protection or return-to-work incentive for physicians after recovering from a disability. This poses a particular challenge for practice owners or independent contractors (1099), as well as W2 employees who might face a drop in income due to performance-based incentives. If you’ve been out of the workforce or your business for several months, chances are there will be a significant drop in income for some time after returning to the workforce. In contrast, all of the Big 5 carriers offer a recovery benefit, addressing this gap.

I once encountered a situation that shed light on this issue. I was working with Dr. John, who shared a story about how he assisted a fellow doctor in keeping his practice running while the doctor was sick. For a year, doctors from nearby communities came together to support their colleague. It was truly heartwarming to witness. However, Dr. John revealed an unexpected outcome: some of the disabled doctor's patients started developing professional relationships with these other doctors, including Dr. John. It made me realize that patients will ultimately choose their own care providers. When the disabled doctor eventually recovered and returned to his practice, he found that many of his patients had stayed with the replacement doctors, including Dr. John. This experience highlighted the importance of income protection, particularly emphasizing the need for a recovery provision in disability insurance policies.

After recovering and returning to work from a disability, you may still suffer a loss of income. It's important to consider a policy that has the “Recovery Provision” in a disability contract.

The Big 5 offers those recovery benefits. The AMA doesn't.

Does the AMA Cover Disabilities Related to Mental Nervous/Substance Abuse?

A 2023 survey conducted by The Physicians Foundation found concern for the mental well-being of physicians. The results unveiled a distressing trend over the previous three years with six out of 10 physicians reporting frequent burnout. This marked a significant increase from the four out of 10 physicians who reported similar feelings in 2018. It's not just established physicians feeling the strain; the phenomenon of burnout extends to residents and medical students as well, with a staggering seven out of 10 students grappling with these emotions.

That being said, the AMA limits mental nervous coverage. On its website, it states, “If you are disabled due to mental, nervous, or emotional disorders before age 69, benefits under this policy are limited to 24 months. At ages 69 and 70, benefits are limited to 18 and 12 months, respectively. This limitation does not apply to any period in which you are institutionalized in any treatment facility.”

When purchasing an individual disability policy with one of the Big 5, it is possible to buy unlimited mental and substance abuse coverage with a few exceptions. Certain specialties—including anesthesiologists, CRNAs, ER physicians, and pain management physicians—may be subject to a mandatory 24-month mental nervous/substance abuse limitation with all carriers (gynecologists and OB/GYN with Ameritas). General dentists (Guardian, MassMutual) and pharmacists (Principal) might also face this limitation with specific carriers.

It's crucial to note that some carriers impose limitations on all contracts in particular states like California, New York, Louisiana, Florida, and Nevada. Furthermore, those eyeing a Guaranteed Standard Issue Disability contract should be aware of the mandatory 24-month limitation on those types of policies. As you can see, this benefit is not something to be taken lightly, considering its nuances.

More information here:

Go Buy Disability Insurance!

How Much Disability Insurance Should You Buy?

Does the AMA Offer a Future Increase Option Protecting Future Earnings?

The AMA policy states:

“If you are under age 40, this option may allow you a future increase in benefits with no health questions or medical exams required if your income increases and you remain actively at work. This one-time option must be exercised within the first three years of your original effective date and before your 40th birthday. The rate you will be charged for any future increases in coverage will always be based on your original issue age, saving you money.”

When you purchase coverage with the AMA will determine whether you’ll qualify for more benefits, because the rider will be financially underwritten. If you’re not at your full earnings potential within three years of taking out the policy, then you’ll be left exposed and have to go through medical underwriting again down the road to get more disability income protection.

However, when buying a policy with one of the Big 5, there are two different options to choose from to protect future earnings and insurability: the Future Increase/Purchase Options and the Benefit Purchase/Update Rider. Both options will give you more than one opportunity to increase your coverage in the future, so if your health changes, you're not stuck with just one opportunity to increase.

The AMA Plan's Monthly Benefits

For individuals at various stages of their careers, the AMA and the Big 5 offer disability insurance options. First, let’s address the AMA. Those under 55 can access a plan providing up to $15,000 in monthly benefits, while coverage is also available for individuals aged 55-60 with reduced benefits capped at $5,000 per month. Medical residents under 40 can qualify for up to $5,000 in monthly benefits. It's very similar to the Big 5 carriers. For those in medical school, the AMA provides $1,000 in monthly benefits.

As for the Big 5, they offer similar monthly benefits early on, but once you're an attending, the amount of potential available coverage doubles compared to the AMA.

The Bottom Line

Securing the appropriate disability insurance is paramount for safeguarding your financial well-being in the event of unforeseen circumstances. While association plans like the AMA's offer initial affordability and convenience, they might not always provide the tailored coverage needed to fully protect your livelihood as a physician.

By exploring individual disability insurance policies, leveraging available discounts through affiliations, and working with specialized agents who understand your profession's unique demands, you can ensure comprehensive coverage that aligns with your specific needs, goals, and budget. Ultimately, investing the time and effort into researching and comparing policies and carriers is essential for securing the peace of mind and financial security you deserve throughout your career.

Have you used the AMA for disability insurance? What are your thoughts? Do you feel comfortable eschewing an individual policy for an association policy? 

 

The White Coat Investor may receive compensation from White Coat Insurance Services, LLC; licensed in all states including MA and DC; CA license #6009217; NY license #1758759 (exp. 6/2025); Registered address: 10610 S. Jordan Gateway, #200 South Jordan, UT 84095. This does not affect the cost or coverage of insurance.