Taxes on benefits
If a physician is covered by a group plan, the premium was likely paid by the employer with pre-tax income. That means benefits from a group plan are usually taxable, significantly reducing the benefit amount a disabled physician might receive. Individual policies that stand alone or supplement group plans are paid for with after-tax funds, meaning the benefits are tax-free.
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Coverage under a group plan
Physicians covered under an employer group plan should request a detailed description of the policy and read it carefully, says Pearson. “A lot of times what people think is getting covered is not actually what’s getting covered,” she says. “Companies don’t have to give you the fine print unless you ask for it.”
Pearson speaks from experience. When she was injured, her group plan did not cover injuries suffered on the job (a rare exclusion). Fortunately, she had supplemental individual LTD coverage.
Losing a physician to a long-term disability can be crippling for a small to mid-sized independent practice: A chunk of income disappears, while the practice’s overhead remains the same.
This means that in addition to individual coverage, physicians and partners in smaller practices may want to consider “key-man” disability insurance, which pays the practice should an important employee become disabled, or business overhead insurance, which covers operating costs should a physician go out on disability.
“A lot of docs in private practice probably haven’t thought about that,” says Jim Dahle, MD, FACEP, founder of the WhiteCoatInvestor.com, a website that seeks to educate physicians on financial matters. “Eventually if you’re long-term disabled for years and years, your practice is going away. But if you’re only disabled for nine months, it sure would be great to have a practice to come back to.”
The drawback for these products is the price. When Davis and his partners were growing their practice in Missouri, they bought key-man insurance on each other. “It was breathtakingly expensive,” he says. “As we got larger and larger, the need for that disappeared because you could share the loss around a greater number of doctors, so eventually we just discarded it.”
Because LTD insurance is expensive and can include wide varieties of coverage, riders, exclusions and terms, physicians need to educate themselves, says Keller.
“You might not ever be an expert,” he says, “but you should have a really good idea of what it is you’re buying.”