Many Physicians May Have Inadequate Disability Coverage

March 15, 2014

Rapid changes in the healthcare delivery system can leave physicians with outdated disability coverage. Here's how to determine if your coverage is adequate.

When I speak to physicians, I’m invariably questioned about malpractice: What trends are we seeing? Are costs going up or down? What’s the most unusual case we’ve ever seen? These are hot topics with most physicians.

The topic of disability, on the other hand, evokes a mixture of awkward silence and sudden return trips to the buffet. Most physicians purchased it in medical school as instructed, then forgot about it. With no clear and present danger, it’s not typically top of mind. There’s no courtroom drama, no “out there” patient story to share.

Ironically, with disability, the danger is more present than clear. We know that statistically, more than 40 percent of physicians who are now 40 years old will suffer an injury or illness that will impair their ability to work for at least three months by the time they turn 65. It’s one of those, “this could happen to you” scenarios with high statistical probability.

The constancy of change
In our business, we regularly see situations physicians become disabled, think they are covered, but don't have the right specialized benefits. I’ve noted in past posts that many physicians purchase disability insurance soon after medical school and forget about it. Fast forward 25 years, that same physician now works in a mid-size medical group. She is responsible for driving revenue for the group and her compensation is tied to what she produces. An illness or injury comes along, and she finds, for example, that her benefit is paid on replacing a portion of her base pay, not total compensation including bonuses. The resulting benefit is a fraction of what she is accustomed to living on.

My elevator speech on the disability insurance,  if I can only provide a few quick tips, is as follows:

• Review your current disability coverage! Get with your broker and ensure your coverage is up-to-date and in line with your current situation.
• Scrutinize your disability insurer. Make sure they are still rated “A” or higher. Many carriers that may have been highly rated in the '80s have recently been downgraded. Disability income insurance is a long-term commitment. You want to know that your insurer will be around to pay your benefits, should you ever need them.
• Make sure your insurance contract covers your medical specialty and the specific procedures you provide now (e.g., if you are a specialist make sure your policy covers you for those services and income defined by your leading CPT codes) and the contractual obligations you now have.
• Review the definition of income. One problem many physicians run into after filing a disability claim is that their carrier uses their W2 to define income. However, in today’s marketplace, most physicians are paid through a combination of incentives and bonuses. For some physicians, incentives and bonuses represent up to 80 percent of their reimbursement.
• Think through all the implications of disability, including those outside of immediate income replacement. If you’re not producing, there are revenue implications for your practice or group that need to be covered, retirement contributions to be continued, and malpractice premiums to consider.

Keep up with new developments
The right broker can help you determine if your coverage is adequate, and advise you on the new developments in today’s changing healthcare marketplace. For example, a few years ago a carrier introduced a disability policy extension that reimburses a healthcare professional for professional liability (medical malpractice) premiums required during the first 12 to 24 months of disability. Physicians return to full-time or part-time work at a much higher rate than other professions following a disabling incident, so keeping malpractice coverage in-force is important to facilitate that transition back.

If you have undergone a change in employment or practice structure, you and your broker should carefully review the implications that may influence your disability coverage. For example, you may have an individual policy as well as group coverage through your employer. Group coverage should be completely additive, with no reduction for individual disability benefits. That way, you can maintain your existing individual policy and significantly increase coverage (commonly up to twice the individual limits) at a low relative cost. Another advantage of group coverage is guarantee-issue (that’s insurance industry speak meaning you won’t be required to pass a physical exam to receive coverage).

Our lives have many moving parts. A change in one area inevitably affects another. This is especially true for today’s physicians navigating an ever-changing work environment. You have a challenging job, but expert advice can help ensure maximum opportunity for your professional fulfillment.