The Premium Squeeze: Keeping LTD Off the Cut List
The Premium Squeeze: Keeping LTD Off the Cut List
When the health renewal comes in high, what’s the first benefit your client wants to cut?
It’s rarely the medical plan itself. The administrator raises the deductible, shifts more of the premium to staff, and then scans the rest of the benefits budget for ways to manage the increase.
Long-term disability (LTD) can come under scrutiny when employers look for savings, particularly when its value isn’t always top of mind. Yet for physicians whose ability to earn a living depends on their ability to practice, disability coverage is an important part of their financial security.
Call it the quiet cut. The consequences may not become apparent until a doctor can no longer work and discovers that an important layer of income protection is missing.
And 2027 renewals are on track for the biggest health cost jump since 2003 (Marsh). For brokers serving medical groups, that makes this the time to help clients evaluate their options, understand the trade-offs, and keep LTD off the cut list.
The Squeeze Is Getting Tighter
The numbers help explain why employers are looking more closely at their benefits budgets.
Family health premiums averaged $26,993 in 2025, up 6% from 2024. Wages rose 4% over the same period, while inflation ran at 2.7% (KFF). Health benefits are consuming more of employers’ budgets, while employees are also feeling the effects of rising costs.
The outlook for 2027 adds to that pressure. Employers expect health benefit costs per employee to rise 8.2%, the largest increase since 2003, even after planned cost-cutting changes. Without those changes, projected increases reach 11%, according to Marsh. Large employers surveyed by Business Group on Health put the median 2027 trend at 9.2% before plan changes.
Employers are preparing to respond. In the Marsh survey, 59% said they plan to make cost-cutting changes to health benefits in 2027.
Smaller medical practices often have less flexibility than larger organizations. At employers with 10 to 199 workers, covered employees already pay 36% of the family premium, compared with 23% at larger employers. Their average single deductible is $2,631, compared with $1,670 at larger organizations (KFF).
When a practice has already raised deductibles or shifted more costs to employees, finding additional savings becomes harder. That’s when administrators may start examining ancillary benefits, including LTD.
For brokers, the challenge is helping clients distinguish between expenses that can be reduced without significantly changing their benefits strategy and coverage that protects employees against substantial financial risks.
Why LTD Can Become a Budget Target
Three characteristics can make long-term disability vulnerable during cost-cutting discussions.
It represents a relatively small expense. In June 2026, private employers spent $3.48 per hour worked on health insurance and five cents on long-term disability, according to the Bureau of Labor Statistics. Compared with medical coverage, LTD can look like a manageable line item to eliminate. But a small premium can support meaningful financial protection when an employee experiences a prolonged disability.
Its value is less visible during normal operations. Employees interact with their health plans regularly, while LTD typically comes into play only when someone cannot work because of a qualifying disability. That doesn’t make it less important. It means employers may need to do more to understand and communicate its value before a claim occurs.
The employer-paid premium may go unnoticed. When the practice covers the full cost of LTD, doctors may not see a separate deduction on their paychecks. Eliminating the benefit may not immediately affect take-home pay, but it removes coverage employees could need in the future.
The real question isn’t whether LTD is used every year. It’s whether the practice is comfortable leaving physicians without that protection to achieve a relatively modest reduction in expenses.
Four Moves to Keep LTD Off the Cut List
Brokers can’t prevent health renewals from increasing. They can, however, help clients make informed decisions about where to find savings and what those savings may cost in the long run.
1. Size the cut against the increase, not the budget
When administrators evaluate LTD against the entire benefits budget, it can appear expendable. A more useful approach is to compare the potential savings with the actual increase driving the discussion.
Consider the national averages. If health insurance costs rise 8.2% on the $3.48 per hour that private employers spend on health insurance, the increase would be approximately 29 cents per hour worked. Eliminating LTD entirely would recover five cents per hour, covering less than one-fifth of that increase.
The comparison makes an important point: removing a benefit doesn’t necessarily solve the financial problem that prompted the discussion. And once the coverage is gone, it cannot be cut again to offset future increases.
Of course, national averages are only a starting point. LTD premiums for physician groups depend on factors such as covered payroll, benefit design, and the plan’s pricing. Brokers should use the practice’s actual invoices to compare its LTD premium with the dollar amount of the health renewal increase.
Conversation starter: “Before we cut anything, let’s put the disability premium next to the health increase. If we eliminated the coverage completely, how much of this year’s increase would it actually offset?”
2. Change who pays before changing what’s covered
If the practice still needs to reduce expenses, consider whether changing the premium contribution arrangement could preserve the coverage.
Group LTD doesn’t have to be entirely employer-paid. Depending on the plan and applicable requirements, the practice may be able to share the cost with employees or shift the premium to them while maintaining access to group coverage.
There may also be tax advantages to changing who pays. The IRS generally treats LTD benefits differently depending on how premiums are funded. When an employer pays the premium, benefits are generally taxable to the extent attributable to the employer’s contributions. When employees pay premiums with after-tax dollars, benefits are generally tax-free. If employees pay through a cafeteria plan using pre-tax dollars, the premiums are generally treated as employer-paid for this purpose, and benefits may be taxable (IRS Publication 525).
That distinction can matter when physicians evaluate the true value of their coverage. A premium paid with after-tax dollars may support a benefit that is received tax-free if a qualifying disability occurs.
Before recommending a change, brokers should confirm two things:
- Participation requirements: Ask the carrier what percentage of eligible employees must enroll if the plan becomes employee-paid.
- Ownership and tax considerations: Partners, self-employed physicians, and S corporation owners may face different rules. Recommend that physician-owners confirm the tax treatment with their advisers.
Shifting the premium isn’t the right answer for every practice, but it may offer a way to preserve important coverage while addressing the employer’s budget concerns.
Conversation starter: “If the practice needs to reduce expenses, could your doctors keep their group disability coverage and pay some or all of the premium themselves? Let’s evaluate that option before eliminating the benefit.”
3. Protect the contract, not just the rate
Another common response to rising costs is to shop for a lower LTD premium. Competitive bidding can be worthwhile, but comparing rates alone can lead to a costly mistake.
A less expensive policy may have a narrower definition of disability, more restrictive earnings calculations, or less favorable limits on mental health and substance abuse claims. The coverage may remain in place, but its value could be significantly reduced.
For physician groups, the details matter. How does the policy define covered earnings? Does it account for bonuses or K-1 income where appropriate? How does it address physicians who can perform some duties but cannot continue their own specialty? What restrictions apply to recurring claims?
These provisions can make a meaningful difference when a physician needs to file a claim. A lower premium isn’t necessarily a better deal if the contract provides less protection when it matters most.
MGIS explores these trade-offs in Lower Price, Less Policy, which outlines seven provisions to compare before a group switches coverage.
For physician-owners, the earnings definition deserves particular attention. A policy based only on base salary may not reflect the full income a physician stands to lose. The Partner Penalty explains how salary-only definitions can leave doctors underinsured.
The goal is to find sustainable pricing without sacrificing the contractual protections physicians are counting on.
4. Get there before the health renewal does
Timing can determine whether LTD becomes part of a thoughtful benefits review or simply another line item on a cost-cutting list.
Once a renewal arrives and the administrator is under pressure to find savings, defending an individual benefit can be difficult. Brokers who start the conversation earlier have more opportunity to review the existing plan, identify potential alternatives, and explain the consequences of different decisions.
That means discussing LTD before the health renewal is finalized, not after the practice has already decided where to cut.
Come prepared with the current premium, the projected health increase, and a clear explanation of what the LTD contract provides. If a funding change or plan redesign could help, evaluate those options in advance.
Budget season is one of the seven trigger moments when practices may be ready to discuss disability coverage. MGIS’s Q4 playbook also explores ways to protect ancillary benefit reviews when renewal volume peaks.
Proactive conversations position brokers as strategic advisers who help medical groups manage costs while protecting the benefits that matter to their physicians.
Coverage Worth Keeping
Ultimately, the strongest case for LTD isn’t that it costs very little. It’s that it protects against a financial risk that can have serious consequences for physicians and their families.
For medical groups seeking income protection tailored to the realities of physician practice, Disability Guard for Doctors™ offers specialized coverage designed to complement existing individual disability policies.
The program defines disability based on the procedures each doctor regularly performed during the 12 months before disability. It accounts for bonus and K-1 income in pre-disability earnings, applies mental illness and substance abuse limits per occurrence rather than per lifetime, and includes no self-reported condition limitations or maximum capacity language. Eligible doctors can obtain coverage without medical or financial underwriting, subject to program terms.
These features can help address gaps that a standard group LTD policy may not fully cover. As with any disability plan, brokers should review the policy provisions, eligibility requirements, and limitations to determine whether the coverage meets the practice’s needs.
This year’s health renewal may leave clients searching for savings. Brokers can help them take a closer look at the numbers, consider alternatives to eliminating coverage, and evaluate the protection behind every premium dollar.
When your client starts the cut list, ask the question before LTD is crossed off: What would dropping disability actually save, and what financial protection would the practice and its doctors lose?
Sources
KFF, “2025 Employer Health Benefits Survey,” October 22, 2025. Read the survey
Marsh, “Employers expect health benefit costs to jump 8.2% in 2027, and the impact will likely be felt by workers,” September 2, 2026. Read the release
Business Group on Health, “Cost Volatility Forces Employers To Reassess Healthcare Strategy,” August 25, 2026. Read the release
U.S. Bureau of Labor Statistics, “Employer Costs for Employee Compensation — June 2026,” September 9, 2026. Read the release
Internal Revenue Service, “Publication 525 (2025), Taxable and Nontaxable Income.” Read the publication
