Perhaps more than any other professional organization, physicians and group medical practices understand and appreciate the need for disability income protection. Maybe that’s because, at its heart, the practice of medicine is a personal service industry. Unlike with manufacturers, the widgets don’t keep pouring out the door when the physician is disabled, and losing one’s ability to work virtually assures a significant loss of income.
But in many practices the long-term disability (LTD) plan is poorly structured. It doesn’t protect each class of employee most appropriately. Among the oversights is the improper understanding of the contract language used in LTD policies.
LTD is different
To properly design your LTD plan think through exactly what you want to accomplish. As the old saw says, “If you don't know where you’re going, you won’t know when you get there.” And LTD plans offer you much more freedom of design than you have with other benefit plans. You can affect the protection you want.
Other coverages are pretty much plain vanilla — what’s good for the staff goose is good for the physician gander. Sure, you can nibble around the edges with dual option plans and such, but everyone pretty much has the same health care needs. Likewise, life insurance is life insurance, dental is dental, and short-term disability is short-term disability.
But LTD is different. What constitutes a disability for a surgeon might not be considered disabling for an internist. And what constitutes a disability for virtually any doctor is different from what constitutes a disability for the receptionist or the medical assistant.
The typical LTD carrier gives you the flexibility to be able to adapt to those needs by offering different benefits for different classes of employees. It’s important to remember that you do have more flexibility. Set out to determine how best to use it to your advantage. Think about these questions:
Under what circumstances will the employee be able to collect benefits?
What risk is there of the employee losing his or her benefit while still “disabled?”
How will the LTD plan impact other aspects of an employee’s life, i.e., his or her retirement plans, health care costs, cost of living, etc?
That question about being able to collect benefits refers to the typical definition of what constitutes a disability. For example, one real-life example states that the definition of disability is: “… due to an Injury or Sickness the Insured Employee is unable to perform each of the Main Duties of his or her Own Occupation…” and has “…suffered a loss of income of at least 20%.”
That’s called the “Own Occupation” period, and while that definition is in effect, being unable to perform the main duties of your occupation and losing 20% of your income means you’re disabled.
There is often a time limit placed on that definition — two years, five years or age 65. After that initial two or five years passes, another definition of disability applies — usually one more difficult to meet.
This time restriction is probably acceptable for staff workers. By and large, if a secretary or other support worker can’t do the job they’re doing, two things will immediately happen:
1. Their income will be fairly dramatically reduced
2. They probably can’t do much of any other job.
So they’ll collect. But a physician is different. He or she may be able to teach or consult or do some other form of (lower-paid) work. The result is that if the physician were subject to a more restrictive definition of disability, he or she might — despite suffering a 40%, 50% or 60% cut in income — be deemed NOT to be disabled.
Different coverages for different classes
So the first thing we should consider is whether we ought to offer two different coverages to two different classes of employee. For physicians we might select an Own Occupation period that goes to retirement so as to give them maximum protection.
But for the rest of the staff, we might select a two-year Own Occupation period. They don’t run as great a risk of non-qualification as physician do; therefore, the two-year Own Occupation contract doesn’t expose them to the same level of risk as physician.
And that point is where most brokers stop analyzing the LTD contract, but that’s where the mistakes begin to build. In fact, that traditional contract language quoted above dramatically shortchanges a large portion of physicians in several ways. We’ll discuss those considerations next.
Part 2 | Part 3 (coming soon)
Part 2 | Part 3 (coming soon)
Jim Edholm is president and founder of BBI Benefits of Andover, MA. BBI has been guiding Massachusetts employers to cost-effective benefit selection and design for more than a quarter century. More information is available by emailing Jim at JimEd@bbibenefits.com or calling (978) 474-4730.