Understanding the rules, rates, and risks of physician group LTD will help you create a plan of disability benefits that best meets the needs of your physician groups.
The Basic Rules
Group LTD policies are sold to employers; they are not available to self-employed individuals or individuals who are not active employees of the employer (the policyholder). Most LTD plans only insure active, full-time employees (variously defined as 30, 35, or 40 hours a week). However, with carrier permission, some part-time employees may be considered eligible. Physicians who are 1099 employees, such as some emergency room physicians, are usually ineligible for most LTD plans. The minimum size practice required by LTD carriers varies; some will underwrite as few as three covered employees, while others require 10 or more to be insured.
As an “employee welfare” plan, rules laid down by the Department of Labor pertain to benefit discrimination. It is not legal for an employer to select one or more employees for a higher or better benefit unless the employer can place them in a separate class of employees based on “conditions of employment” — job title, years of service, hire date, income levels, and job location. Using carefully crafted — and legal — employee classifications, an employer can provide higher benefits to physicians, while providing more basic benefits to staff members.
One of the values of a Group LTD plan is the ability for a physician to obtain a relatively high maximum monthly benefit. Most carriers determine the benefit they are willing to offer by using a benefit percentage (typically 50%, 60% or 66 2/3% of monthly income), and an absolute maximum benefit payable (often $5,000 to $15,000 a month — sometimes higher for larger practices). Most LTD carriers determine the maximum monthly benefit payable by averaging the top three to five incomes in the practice. Keep in mind that the higher the benefit percentage and benefit maximum, the higher the rates and monthly benefit cost.
Many Group LTD plans provide most or all of the benefits without requiring medical evidence. Called “guarantee issue,” this allows full-time physicians or employees to be covered no matter their health histories, as long as they are actively at work on the effective date of coverage. Many physicians who have been declined, rated, or “ridered” by individual disability carriers have found coverage through Group LTD plans. Typically, the higher the number of employees covered, the higher the monthly benefit the LTD carrier is willing to offer. And even if some or all of the benefit requires medical evidence, most Group LTD plans require only a short-form health statement, and not the extensive underwriting seen with IDI plans.
Group LTD can be surprisingly affordable, especially considering the high maximum benefits available and the guarantee issue opportunities. Rates are based on the demographics of the covered employees, and are primarily affected by these factors: Specialty/occupation, age of employee, and gender. In general, the more specialized the physicians in the practice, the higher the rate; the older the covered participants, the higher the rates; and the more males in the practice, the higher the rates. Some LTD carriers charge an average rate for all physicians and employees, while others may charge a different rate for physicians and for staff, because of the differing risks. Most LTD rates are guaranteed for the first two years of the policy, and then every 12 months thereafter.
In general, the cost of group LTD per physician is substantially less—perhaps 50% to 67% less—than the cost for an individual disability policy of the same benefit level.
While Group LTD provides high benefit levels at an affordable rate, and often on a guarantee issue basis, it is important to understand that physician group LTD plans may not be as protective of the insured as many IDI plans. Here’s why:
- LTD plans typically can be terminated with 30-90 days notice by either the employer or the carrier.
- LTD plans are difficult to take with you if you terminate employment. Why? The reason is simple: Most LTD plans are provided as an employee benefit, and the employer does not want to provide a benefit to an employee who leaves. Some LTD policies allow conversion to an individual policy, but these conversion policies tend to be expensive and rarely have the same benefit levels and definitions of an employer’s LTD plan.
- Depending on case size and industry, group LTD plans may be governed by the federal Employee Retirement Income Security Act of 1974 (“ERISA”). One aspect of ERISA: If you have an unresolved claim issue, you must sue the carrier in Federal court—and no punitive damages are available.