Your hands are your livelihood. In a flash, a career that took decades to build can come to an end. Meanwhile, the monthly bills keep rolling in and financial obligations mount.
This is an unpleasant, but important topic for all surgeons.
Disability policies come with lots of moving parts. It is worth your time and effort to get the right policy in place for your protection.
Generally speaking, there are two types of disability claims: short-term and long-term. Short-term disability is used when a physician will be out of work for a short period of time. Longer-term disability is when you cannot return to work at all.
If you purchase a disability policy, you still may not be fully covered. If you scuba dive on occasion, that may not be a big deal. If you scuba dive in caves at night, 100 times a year, insurance companies are likely to exclude you or decline you altogether. Other exclusions may include active war, airline pilot, and frequent indulgence in risky hobbies.
“Make sure the policy has very specific definitions to protect you and your own occupation,” says Jason O’Dell, a managing partner at OJM Group in Cincinnati.
For example, “You want it to say ‘the inability to perform the substantial material duties of your occupation,’ period,” O’Dell says.
Then you have residual definitions. Will your insurance carrier pay you in the event that you can work part-time? Is there a cost-of-living adjustment?
You also want to make sure that monthly benefit increases with the consumer price index, which is the cost-of-living adjustment.
DO THE MATH
If you are no longer capable of performing surgery, you could work in another field. This type of insurance policy will offset payment to you based on this new income. This is not ideal because if you can’t do your job, you want to be paid no matter what job you’re going to do. A policy specific to your occupation can increase the cost. Look at the monthly benefits the policy will provide based on your income.
“The higher your income goes, the less percentage of it you can get insured,” O’Dell says.
Insurance companies think, the more income you’re making, the more you should be saving. Plastic surgeons with incomes in the six- and seven-figure range have the ability to get their income insured through companies like Lloyds of London once they outgrow traditional markets.
“The philosophy that we use at our firm is to insure what you have in terms of expenditures on a monthly basis, not what you earn,” he explains. “What is your budget on a monthly basis, not what you earn; let’s insure your budget.”
The self-proclaimed Tax Goddess, Shauna Wekherlien of Scottsdale, Ariz, says one of her favorite things is learning how to play chess with the Internal Revenue Service’s rules to get the maximum deduction. If a practice takes the disability policy as a deduction at the business level (meaning they are paying for all of it, and the employee/physician is not paying for any of it), the company can deduct the premium as an employee benefit. It is not taxable income to the employee. That said, any benefits from employer-paid disability are taxable to the employee to the extent of the medical expenses.
“Place the onus on each individual person,” she says. “This is one of the best ways to try and deduct the premiums, but not necessarily pay tax on the income when you use it.”
Moreover, you can design a plan to really describe the disability insurance that you are going to be giving your employees as a company. In the plan, you are allowed to state each year if the individual is allowed to pay these premiums pretax or post-tax. You can also choose whether or not you are going to deduct those benefits each year. If an employee becomes disabled in a year that he or she has elected to pay the coverage with your own funds (post-tax), any benefits of that are tax-free.
“If you have a doctor that is at a 40 percent rate and their insurance premiums for the year are $10,000, that is a $4,000 tax shelter,” Wekherlien says.
“You really want to hold your annual meeting on December 31. That way you will know in that year did you become disabled or not.”
STAKE YOUR CLAIM
Filing a disability claim can be burdensome. Your insurance company is going to request a lot of information, including when the incident occurred and all medical records from the attending physician. The insurance company will also want such financial documentation as your past tax returns and updated financial records for the current year.
“It is a long, cumbersome process to get a disability policy to start to pay. There is a waiting period before your benefit would kick in,” O’Dell advises. “File as soon as you think there is a chance of going out on a claim.”
Michael J. Sacopulos is the CEO of Medical Risk Institute (MRI) and serves as General Counsel for Medical Justice Services. Additionally, Mr. Sacopulos is the Legal Analyst for several national publications, including Plastic Surgery Practice. He can be reached via [email protected]