Reviewing Your Employer-Sponsored Disability Plan
The Employed Physician
According to a survey conducted by the American Medical Association, 2018 was the first time that the number of employed physicians outnumbered those who were self-employed. The study concluded that 47.4% of practicing physicians were now employed.
Employer Compensation Benefits
According to our article published in the Orlando Medical News, the trend of employed physicians has increased since 2018 and physicians are being offered disability benefits as part of compensation packages that many physicians assume is sufficient to cover them if a sickness or injury prevents them from working in their specialty.
What is Own Specialty Disability Insruance?
A True Own-Specialty Disability policy pays you a tax-free income should a sickness or injury prevent you from working in your medical specialty. Under a True Own-Specialty definition of disability, you will continue to receive your full tax-free benefit even if you elect to work in another occupation.
How Own Specialty Works
Under a True Own-Specialty policy if you were working as a Hospitalist earning $300,000 per year and you suffered a disability that prevented you from working in the Hospital, a ‘True’ Own-Specialty disability policy would pay your “full” tax-free disability benefit, even if you were earning the same income working in another occupation, like telemedicine or as a Urgent Care Physician.
How Does My Employer-Sponsored Disability Plan Work?
Through your employer-sponsored disability plan, if you were working as a Hospitalist earning $300,000 per year and you suffered a disability that prevented you from working in the Hospital, your employer plan would pay you your after-tax disability benefit, however, if you continued to work in an alternate occupation like Telemedicine or Urgent Care, you would no longer be eligible to receive your full disability benefit from your employer plan.
Is My Employer Disability Plan Taxable?
When disability plans offered through your employer are paid by the employer, the benefit you would receive when suffering a disability would be subject to both state and federal income tax. Coupled with being restricted from earning another income, could seriously impact your ability to continue to provide for your family and maintain your current lifestyle.
Does my Employer Plan Cover Partial Disabilities?
Your group policy may offer you a 90-day elimination period before you are eligible to receive benefits under a total or partial disability, however, that waiting period must be met over 90 ‘consecutive’ days. Statistically speaking, most disability claims develop gradually over time making 90 consecutive days of missed work nearly impossible to satisfy if you are only partially disabled. Under an employer plan, in order to qualify for partial disability, the insured must technically be totally disabled and then return to work on a part-time or limited basis.
Does my Employer Plan offer Inflation Protection?
What a dollar pays for today will be different from what it can pay for tomorrow and if you suffer a disability between the ages of 25 – 50 inflation can seriously impact your ability to provide for your family if you are disabled and relying on your disability policy as a source of income replacement. It is uncommon for Employer-Sponsored Disability plans to include protection against inflation.
How Much of my Income is Protected under my Group Disability Plan?
Through your Employer Disability Plan, your income is not fully protected. Employer plans typically only cover between 50 – 60% of your BASE income up to a specified cap amount.
If your base income is only $100,000 per year but you earn a total income of $300,000 per year with bonuses, even if your Employer Plan Cap amount is $20,000 per month in coverage, you will only be eligible for $5,000 per month of coverage because your employer plan only covers up to 60% of your BASE income.
$100,000 base income x 60% = $60,000 per year/$5,000 per month
Is my Group Disability Plan Portable and Is the Coverage Guaranteed?
If you change jobs or if you choose to go back into private practice your employer disability plan is likely not portable. If you are employed with a group that allows for portability the premium is often expensive because your policy is no longer subsidized and discounted through your previous employer.
Although group plans are usually free and every employee can potentially qualify for coverage regardless of their health history, the plan you are eligible for today might not be the same plan you have tomorrow. Coverage limits, policy provisions, and benefit eligibility may vary from year to year based on your employer’s benefit elections. Your employer may also have the right to discontinue offering coverage at any time. If you are solely relying on your group disability benefit as income protection this may put your financial wellbeing at risk.
"My Human Resource Department Says Our Group Offers Own Specialty Coverage"
The truth is that the phrase “Own Specialty/Own Occupation” means something different within the inner circles of insurance language than it does in the mind of a physician.
Most employers are unaware that “True” Own Specialty Disability Insurance exists because it is not a plan that is offered to them through typical employee benefit packages. Your employer is responsible with providing benefits that work for every employee, not just their physician employees. Therefore, the benefits provided to physicians are typically the same as the benefits provided to the executives, nurses, orderlies, and general staff.
A disability plan that restricts a nurse or general hospital staff member from earning another income might be suitable for them, but it is typically inadequate for physicians.
Employer-Sponsored Disability Plan Conclusion
- The coverage is usually free.
- Coverage is usually offered to you regardless of your health.
- The ability to work in another occupation is restricted.
- The benefit you receive is taxable.
- Only your base income is protected – bonus income is not covered.
- Because the 90 or 180 day waiting period must be satisfied through consecutive missed days of work, the ability to collect your benefit for a partial disability is difficult.
- Inflation protection/(COLA) benefits are not included.
- Coverage is not guaranteed from year to year. Your employer may change benefit limits, eligibility requirements, are discontinue offering coverage at any time.
- Coverage is likely not portable if you change jobs.
As a physician, your most valuable asset is your continued ability to earn an income. According to Life Happens.org, you have a 1 in 4 chance of suffering a long term disability that last greater than 90 days prior to your age of 65.
Employer-Sponsored Long Term Disability Insurance is not considered a “True” Own-Specialty benefit and therefore physicians should never rely solely on their group disability benefit as an adequate source of income protection.
Own Specialty Disability Insurance Can Only be Purchased Individually
Only 7 Carriers offer “True” Own-Specialty disability insurance to physicians: Ameritas, Guardian, MassMututal, Mutual of Omaha, Ohio National, Principal and The Standard.
Rates vary based on physician specialty, age, sex, benefit amounts, health history, and applicable discounts.