Definition of Disability in Group LTD Contracts

A long-term disability (LTD) policy’s definition of disability is the “golden gatekeeper” to the policy benefits – meaning, if a claimant does not meet the definition of disability, he or she is not eligible for benefits and therefore no benefits are payable. Just because an insured employee has experienced a medical condition that may hinder their employment, this does not necessarily mean this employee will receive a benefit. Only by meeting the definition of disability will the claimant be paid a benefit.

In general, the claimant must meet the following requirements:

1. Be unable to perform one or more of the material and substantial duties of their occupation, and,
2. If performing these duties on a modified basis (part-time, partial duties), the claimant must experience an earnings loss of some amount (often 20% or more).

Some policies may only require an income loss or a loss of duties. However, most LTD policies are likely to require both.

Keep in mind that the goal of the employer is to financially protect their valuable employees (and families) while also getting them back to work as quickly, and reasonably, as possible. The goal of the LTD carrier is to protect some percentage of the employee’s income in the event of a disabling condition (usually 50%-66 2/3%) but to NOT provide so much income that the claimant has a disincentive to eventually return to part-time work, full-time work or alternative work.

Here are some important terms and their definitions:

• Material and substantial duties
• Occupation
• Earnings Loss

Material and substantial duties

These are the tasks, procedures, and duties that are required by your employer for you to do your occupation (as defined later). They are not tangential or occasional – i.e., an employee’s going to Starbucks occasionally to pick up his or her boss’s favorite drink is NOT material or substantial!

Also, these duties may be limited by the policy to a 40-hour work week; meaning, if you were working overtime prior to your disabling event, and you can still work 40 hours – but not overtime – then you would not be considered eligible for disability benefits. For doctors who often work 60-70 hours a week, this limitation may be a critical issue (“stressor”) in determining their eligibility for benefits.

Occupation

This is the job you were performing just prior to your disabling event. “Occupation” is typically defined as the tasks and duties normally performed at employers “in the national economy” – meaning, the occupation you are doing in Atlanta is considered to have the same job duties as the same occupation in California. Language may also be included that specifically states that these job tasks are not based on what the employee was doing for a particular employer. Some policies may differentiate between “job” (what YOUR actual duties were) and “occupation” (what is typically done by someone in that job).

Earnings Loss Requirement

This requirement is often stated this way: “You must have Disability Earnings of less than [80%-99%] of your indexed Pre-Disability Earnings.” What’s the potential “stress” with this requirement? Let’s look at each component:

1.    Indexed Pre-Disability Earnings (PDE) – typically includes base W2 earnings; may include bonuses.

2.    Disability Earnings (DE) – generally, income received while disabled.

Keeping in mind that the LTD policy is designed to prevent a disincentive to return to work by providing “too much” money to the claimant, these definitions are very important – and especially to a doctor.  

Definitions of material/substantial duties and occupation are a minefield for most doctors and dentists.

Doctors and dentists are inventive, curious, highly educated, and motivated, and many focus on just one very finite area of medicine. There are 128+ medical specialties and sub-specialties recognized by the American Board of Medical Specialists (ABMS). But there are numerous areas of “focus” that are not yet ABMS-recognized (spine surgery is one example).

Doctors often test the boundaries of their area of focus by creating and implementing new technologies and approaches to help their patients. I once met with one such doctor, a highly skilled ENT specialist, on whose desk was proudly displayed his patent for a medical device he invented for a nasal surgery he created. Was this cutting-edge surgery fully covered by his LTD policy? He didn’t know. And he should know.

This hyper-specialization, however, may create “stress” at claim time when considering what a doctor’s occupation really is. Is it as broad as an MD – Medical Doctor? Is it the limited number of medical specialties (in the 20s) included in the all-encompassing Dictionary of Occupation (DOT) published by the US Department of Labor? Is it their ABMS-recognized specialty or sub-specialty? 

You’ll find in most LTD policies ONE of these definitions of “occupation” (from general to specific):

Own Occupation for first 24-36 months / Any Occupation thereafter / Medical Doctor

If not further defined in the policy, Occupation will be as broad as an MD’s duties. “Any Occupation” typically means ANY job you could reasonably be expected to do, based on education, training or experience, that could provide the claimant (within the next 12 months) 60%-85% of the claimant’s Pre-Disability Income. Another approach is any job that could earn the claimant an income which matches their LTD benefit (so, typically 60% of income, but could be far less for a highly compensated employee).

• NOTE: This definition is problematic for a highly compensated doctor.

Own Occupation for benefit duration / Medical Doctor

If not further defined, it will be broad as an MD’s duties, meaning that if a specialized doctor cannot perform the procedures he was previously doing – but could perform the normal tasks of a general medicine doctor — then he would not be considered disabled.

Own Occupation for benefit duration / Based on DOT list

Better only for those performing the 20 or so specialties listed in the DOT.

Own Occupation for benefit duration / Based on being “certified” in an ABMS specialty and/or sub-specialty

Certification is much like an agent obtaining a CLU designation (a credential designating further education and experience). Allows for the definition of occupation to be more specialized (128 general or sub-specialties) if Board Certified. Also, typically requires more than 60% of income in the two years prior to disability to be earned in that specialty or sub-specialty.

• NOTE: About 90% of all medical doctors are currently board certified. Younger doctors are less likely to be certified.

Based on ABMS Specialty

No certification required

Based on ABMS specialty or sub-specialty

No certification required

Actual Procedures

The doctor’s actual procedures and duties at the practice – based on CPT codes, job description, medical malpractice insurance coverage, etc. – Allows for the definition of occupation to be specific to what EACH doctor or dentist does at their specific practice.

Conclusion

Some of these definitions may meet the needs of some less-specialized doctors. To prevent “stress” at claim time: Ask your doctor client which definition most likely helps them sleep better at night – one that MAY capture their duties and procedures, or one that specifically says – in writing – that it will consider their ACTUAL procedures and duties. 

Keep in mind that this definition of disability may be a little more costly, and it may take a little more information-gathering at claim time. But it is also the definition most likely to match up with their individual disability insurance (IDI) claim experience.