WHAT HAPPENS IF I LOSE MY MEDICAL AT AMERICAN AIRLINES

[00:01:00]Well pilots welcome back to another episode of Pilot’s Portfolio. It is great to be back after a brief break and recording. My name is Timothy P. Pope. I’m a certified financial planner specializing in the planning needs of the professional pilot. In today’s episode, we are going to talk about all things loss of medical, but specifically this is for you guys that are flying for American Airlines. I’d like to do the major passenger carriers but I wanna do them in separate episodes because number one, each carrier is different. The way that you guys have your benefits and what you have available through your unions are different. So, I’d like to do them in separate episodes and I think it’d be just easier to follow along if we do it that way.
[00:01:44]And number two, if we try to smash all of the carriers and their loss of medical benefits, this would be an extremely long episode. So with your interest in mind, being able to follow along easier a shorter episode, and you knowing exactly which episode pertains to you based on who you fly for. I think that’s what we’re going to do. Alright, so when we think about loss of medical, I know you’ve thought about it and you’ve wondered what protections you have in place and the way that American Airlines does it is with your most recent contract, they said they will give you 50% of your average monthly compensation with no cap if you happen to lose your medical.
[00:02:27]Now, you’re looking for this in your contract, it’s gonna be called your long-term disability plan. And, so the way that they’re going to figure out what your average monthly compensation is, is the day that you go on loss of medical, like you put your disability claim in, they’re gonna have you exhaust your sick leave and your vacation pay. They’re gonna have you run those balances down to zero and they’re gonna look back and they’re gonna say, Hey, over the past five years. What calendar year did you gross, highest in terms of your earnings? And they’re gonna look at that, and I think there’s another calculation as well.
[00:03:00]This one is pretty easy to understand. So, they’re gonna take a five year look back, figure out what your highest 12 months were, and then they’re gonna give you 50% of that number. With all insurance, there’s this concept called an elimination period, and that’s just simply, hey, how long do I have to wait from when I put in my disability claim to when the payments actually start? And with the contract, there’s 60 days after the onset of your disability. And, they also want you to expire your paid sick leave and vacation. So you gotta work those down and then your disability payments are going to start. So,
60 days, that is not that long. If you have a well-funded emergency fund, you should be covered.
[00:03:41]Okay, so, that’s not that long of an elimination period. Now, some of you may have asked, If I’m going to get 50% of my average monthly compensation, is that pre-tax or is that after tax? Because, that makes a difference and if you’ve asked yourself that question, you are absolutely correct. It makes a huge difference whether you take those benefits pre-tax or after tax. The good news is your contract allows you to make a year by year decision whether you’re going to take your long-term disability payments as a pre-tax benefit or, as an after-tax benefit and the way you do that is just during open enrollment, as you’re filling out your benefits, you’re going to elect one or the other.
[00:04:09]And, here’s the difference if you elect to take your long-term disability as a pre-tax benefit, then throughout the year and whenever you’re not on disability, the company is going to pay the disability premiums for you. And no harm, no file. You’re not going to see any, any difference in your pay. If you elect to take it as an after-tax benefit, the company is going to pay those premiums for you, but then you’re going to pay tax on what’s called an imputed income. So you actually didn’t receive any money from the company paying the premiums, but you received the benefit of the premiums being paid, and so you’re gonna pay tax on that. The difference is once you go on disability, if you have a pre-tax, the company’s gonna calculate your 50% of average monthly compensation.
[00:05:13]They’re going to give you 50% of what you’re used to earning, then the government is going to ask for taxes out of that, disability payment. If you take it as an after tax then the same calculations will occur, but then when you get those disability payments, you’re not going to be asked to pay income tax. And so that’s the difference. And, typically what I have clients think about is like, look, let’s see if it makes sense for you to pay the tax on the imputed income while you have cash, while you’re getting, you know, your pay and you are able to fly. So then if you go on disability you don’t have to worry about getting a 50% haircut and then also having to pay taxes on top of that benefit ’cause then that would be a number that’s way less than what you’re used to getting on a month to month basis. So, think about the paying the imputed income while you have the cash flow so you can maximize your cash flow if you go on disability and you’re not flying. Now, if you have other sources of guaranteed income already, and you crunch your numbers and you say, well, it wouldn’t impact me that much if I have to pay tax on my disability benefit, then okay, right? You have that option. Or, if you do not have other sources of
guaranteed income right now, and you select the after tax benefit, and then through your investments and your acquisitions and so forth.
[00:06:38]You develop sources of guaranteed income or other sources of income, you can always turn the imputed income off later, right? So you get a year by year choice. The other thing that I want to talk about is your disability income is not subject to any offsets. Now, this is not true across the board when we think about major carriers in the industry. But this is true for American. And, in subsequent episodes you’ll see who else it’s true for but, right now we’re talking about American. So, I think this is all really interesting stuff and you wanna pay attention to it. Okay. I think the big picture, your disability income is not subject to offset. So we think about workers’ comp.
[00:07:21]So if you got hurt on the job, and American has to pay out for you getting hurt on the job and, they also have to pay out on your disability. Your disability payment is not gonna be offset by your workers’ comp. If you are subject to state disability benefits, I know there’s a couple states that I can think about, like California comes to mind, so if you go on disability and the state is paying you something, then your American Airlines disability is not gonna be offset by whatever the state is providing. It’s also not gonna be offset from if you qualify for Social Security Disability. Now here’s the thing. Social Security disability is pretty difficult to qualify for.
[00:07:55]So if you lose your medical and you qualify for Social Security Disability, it may be safe to say that flying future could be in jeopardy, at least for the foreseeable future, at least for that short term, unless whatever condition you have can be reversed, but it’s pretty difficult to qualify for Social Security Disability. So, if you do though American Airlines is not going to reduce the amount of benefit that they pay for you. The last thing, which I think this is really important is there is no offset to your loss of medical for other earned income. That is huge ’cause we all know that there’s a lot of things that you can do to earn pretty decent money without holding a first class medical. And the fact that there’s no offset for other earned income is huge. So when we think about your loss of medical insurance or, your long-term disability insurance, you know, you’ve probably heard of like surgeons. Or, pianists who insure their hands. ‘ Cause that’s, you know, the way that they earn their income.
[00:08:59]So essentially what you guys are doing with this loss of medical is you’re ensuring your health because the ability to, to keep that first class medical is your ability to go earn income. Now, your contract is not the only disability benefits that you have access to. You also have your union a PA puts out a POD and a PMA. And, we’re gonna dive into that here in a moment.
Before we do, I almost forgot to mention this, which, this always makes me laugh. If you go out on disability, you will continue to receive the company NEC in your 401k. So whatever the calculation is on your average monthly compensation, then you are going to receive your NEC. Right now it’s 17%. It’s scheduled to go to 18% January 1st, 2026. That makes me laugh ’cause that is not real life. So enjoy that.
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[00:10:54]All right, let’s talk about the loss of medical benefits that the APA also offers. So, APA offers a long term and a short term supplement to your, your contractual loss of medical benefit. The long term is called POD, it stands for Pilot Occupational Disability. Now, unlike your long term disability at the company pays for you, these premiums are gonna come right outta your pocket. So, since you’re paying the premiums here, that means that whatever benefit you receive is automatically going to be after tax. And, let’s talk about how you can structure what the company provides you plus this POD supplement to really get a high percentage of your pre-disability income. So, your premiums are going to be based off of the year that you are, you know, January one of that year.
[00:11:40]Matter of fact, I’m gonna put the premium schedule. In the show notes so you guys can take a look at this. As you age your premiums are also going to increase, but you can know what it’s going to be year by year. So the way that the POD or pilot occupational disability works is you can choose a payout from a thousand dollars a month. To $10,000 a month or up to 40% of your average monthly compensation, whichever is less. Now, just like any insurance policy, this also has an elimination period. So that means how long from when I go on disability, do I have to wait before these benefits start to get paid out and. I’ve looked at the language here and it has one option that says, Hey, you’ve gotta wait 12 months from the onset of your disability or the date that you exhaust your sick hours, or any vacation from the company.
[00:12:31]So I would expect, you know, you exhausting your vacation and,any sick hours, probably less than 12 months. So I would expect the elimination period to be less than 12 months here. Let’s say that, you line this up. Maybe it’s a couple of months that you have to wait, then you start receiving payouts and again, these are gonna be tax free payouts because you’ve paid the premiums yourself out of your pocket. So let’s say you’re 40 years old and your average monthly compensation was $240,000 a year. Let’s just use that for nice math. Okay. So that’s going to be, $20,000 a month is what you’re used receiving so, the company is gonna give you 50% of that number. So that’s gonna be $10,000
a month. And, then your POD benefit can provide 40% of that number. So that’s going to be $8,000 a month. So between the company and the POD benefit, you can have $18,000 a month or 90% of your pre-disability earnings and if you chose to use the after tax portion on the company benefit, then you would have 90% tax free of your pre-disability earnings, which when you calculate out what the taxes would be, I would say that you’re not losing any purchasing power there. Yeah, probably for the first year or so, you know, as long as inflation isn’t run away, you’re not losing any purchasing power there.
[00:13:54]So, if you’re 40 years old, January one, in the scenario that I just provided that’s gonna cost you about $102.40 and per month. Okay? And again, I’m gonna put the chart in the, in the show notes, you can kinda walk through and figure out, hey, I’m 40, I want $8,000 of benefit per month, it’s gonna cost me $1.28 per 100. And then you just multiply out so, 90% of your pre-disability earnings, that is not bad. Now, POD it will pay out for five years or up to age 65. It’s not gonna go out to beyond age 65. If you do qualify for Social security, your POD has an option for an extended benefit so, if you qualify for Social Security Disability, can then qualify for an extended benefit option under POD. And, you’ll remember, you know, I just said, hey, if you qualify for Social Security Disability, you’re probably in a pretty tough spot, right?
[00:14:44]From a health perspective, and it’s questionable. How quickly you’re gonna return to flying, And so you get that extended option there on wanna also mention POD does have a carve out for chemical dependency diagnosis. If that kind of diagnosis is why you’re on your long-term disability, POD will pay out for 24 months instead of 60 months. Alright, so two years instead of five years there. So those are the two long term disability or loss of medical. So, a lot of times, you know, I know you guys you listen to other shows, shout out to the 21 5 show, by the way. They got a big sponsor there, Harvey Watt. And I think a lot of times that will prompt questions from 1 21 guys to say, hey, like, do I need to supplement my loss of medical?
[00:15:35]Well, I just showed you, at least at American how you can get up to 90% of your pre disability income. And by the way, that assumes your income is $300,000 less and then you can get up to 90% of your pre-disability earnings by using what the company gives you and then by using what the union gives you as well. Now I would also say if your earnings are above 300,000 and you’re concerned about what would happen if you went on disability. How the company and the union benefit may not, you know, meet your needs then we need to have a conversation about how to structure your portfolio so you have access to cash in the case that you lose your medical and if those benefits aren’t quite cutting it.
[00:16:15]Okay? So that’s gonna be if your pre-disability earnings are substantially above $300,000 per year. Let’s talk about the short term disability options. So the APA also has what’s called PMA or Pilot Mutual Aid. This is a short term disability benefit. It’s designed to pay out for 12 months. Now, they really want you to sign up before you have five cumulative years of service. Okay? So I think there is an option if you’ve passed that then you could do some back pay but, ideally, if you’re looking for a short term option, you’re gonna wanna sign up here before you have five years of cumulative service at American.
[00:16:52]And their open enrollment is August one to August 15th every year. That is different from the company’s open enrollment, which is typically in the October to November timeframe. So the deal with the PMA or the Pilot Mutual Aid is, you know, it has levels. So level one, $1,980 a month, level two you can elect to have $2,970 a month, and then level three is $3,960 a month. And, so if you go out on disability, your elimination period is, you know, 60 days after the onset of your disability or when you’ve exhausted your sick leave and any vacation time, So if you think, 60 days and then PMA will pay out for 12 months. Well, your long-term disability that we talked about was also 60 days, and the POD was also 12 months or, when you exhaust your sick hours and vacation time for the company. So, when I look at the PMA option, you know, I really say, look, if your emergency fund is well funded, I don’t know that it makes sense to do both the POD and the PMA because your emergency fund, in a lot of ways, takes care of.
[00:18:03]The short term loss of income, and then your long term supplement kicks in. So I think when you evaluate that, of course it’s gonna be dependent on your circumstance and probably also dependent on your risk tolerance. But, those are my thoughts when it comes to the POD, the PMA, and then of course, understanding what options you have. Just from the company provided long-term disability. So that’s it. I mean, guys, this is super strong 50% of your average monthly compensation, no cap, no income offsets ability to get up to 90% of pre-disability income if you match the company’s, long-term disability plus the union’s POD, as long as your earnings are $300,000 or less, and then you have to choose pre-tax or post-tax on the company provided benefit. So I think that is extremely, extremely strong and you can supplement that with, you know, a short term benefit. Should you require it? I would encourage you to get that emergency fund up yourself. But there you’ve got it. So in subsequent episodes we will look at Delta, we will look at United, and we will look at Southwest on their loss of medical. If you guys have a company that you want me to, take a look at, you can email in, just shoot me a note. But that’s gonna do it for today’s episode. Thanks for joining, and we’ll see you on the next one.