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Turnaround/Cash Strapped business - medical insurance policy

Rick Bigelow's Profile

I am working with an extremely cash strapped business that is operating week to week with cash receipts, payroll and A/P.  The company has made major strides on restructuring salaries, benefits, payable terms and general op-ex, but the sales are still not supporting the business.  That said, the medical insurance is a huge month to month burden that can no longer be carried.  In fact we are now deliquent on the May bill with June due in a week or two.

My question is what are the options or consequenses of not paying the medical premium?  I understand the policies will lapse, but are there legal ramifications?  Can we suspend the policy?

Your comments are appreciated.



Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

The obvious is that the health insurance company will cancel the policy.

On the positive, the employees may be eligible for COBRA (you should check with both the carrier and your attorney)

On the down-side, the carrier may come after you for unpaid premiums (law suit).

Have you talked with the carrier?

Topic Expert
Brenda Morris
Title: Board of Directors, Audit Committee Chai..
Company: Boot Barn
(Board of Directors, Audit Committee Chair, Boot Barn) |

If the policy is brokered you can often have the broker have a dialogue with the insurance company and if you can show a plan to catch up the premiums (if you can of course) based on the work that has been done to restructure they may work with you. At a minimum as Wayne mentions I would start a dialogue to ensure you can maintain the policy and relationship (assuming you want to) and reduce legal issues which will just add to all your headaches! If you think this is an expense that needs to be eliminated for now based on company finances I would be proactive and communicate that with the broker, insurer and employees so there are no surprises for anyone that could also make your job tougher!

Scott Cadora
Title: Vice President
Company: Pinnacle Business Solutions, Inc.
LinkedIn Profile
(Vice President, Pinnacle Business Solutions, Inc.) |

I understand the cash flow situation is crucial but you should be concerned with the impact on employees. If you don't pay the June premiums, the insurer will cancel the policy all the way back to the end of April and will cancel payment for medical procedures that have occurred since then. The medical providers will eventually come after the employees for the difference. And that is when the wheels will come off the wagon, as they say.

If the employees are worried about the firm now, panic will take hold in earnest when they start getting cancellation notices from the insurance company and collection notices from their doctors. Most of the good employees will bail at that point, which will further exasperate the company's downward spiral. And employees will come after the company for the incurred medical expenses.

The bottom line is that if you can pay the insurance premiums, it's best to do so. If you must cancel the policy, proactively communicate this to the employees now, rather than having them learn about it via cancellation notices from the insurer. If you do cancel the insurance, try to reimburse employees for any incurred health expenses. These steps will go a long way to retaining your key employees as you set the company back on track.


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