A Physician's Guide to Disability Insurance
reprinted from The Journal of Medical Practice Management 16:160 (November/December 2000) with permission of the Journal
Mark D. DeBofsky, J.D.
Daley, DeBofsky & Bryant
1 North LaSalle Street
Suite 3800
Chicago, Illinois 60602
(312) 372-5200
mdebofsky@ddbchicago.com
www.ddbchicago.com
Abstract: Many physicians purchase disability insurance to protect their families and financial resources against unforeseen illness or injury. This article discusses various issues frequently encountered in disability claims and suggests ways of maximizing coverage and avoiding pitfalls that may negatively impact benefit claims.
Key Words: Disability, Occupation, Specialty, Social Security, ERISA
Introduction
During the course of a physician's professional life, issues relating to disability insurance will frequently arise. Although doctors generally have some familiarity with disability insurance, they often do not understand the fundamental question of what is a "disability." Moreover, ignorance of other issues that arise in the context of disability insurance can result in the physician being himself insufficiently prepared should disability strike. This discussion is intended to provide an introduction and to help physicians understand the issues they face.
Types of Disability Insurance/Social Security Disability
Social Security--There are essentially three types of disability insurance available. Workers who are covered by Social Security (FICA) automatically receive disability insurance coverage for themselves and their minor dependents in the event they suffer "disability", which the Social Security Act defines as the "inability to engage in substantial gainful activity" due to a sickness or injury that precludes all work for a period of at least twelve months or is expected to cause death. The Social Security disability insurance program does not require a permanent disability; however, the disabling condition must have a duration of at least one year.
Disability claims under the Social Security Disability Insurance (SSDI) program require total disability; and if the wage earner suffers only a partial disability, no benefits are payable. Social Security also administers the Supplemental Security Income (SSI) program, which provides disability benefits to individuals who meet the Social Security standards for disability but whose financial resources place them below the poverty line.
Despite the stringent requirements of the Social Security Act, one need not be totally helpless to qualify for benefits. So long as an individual is unable to work at a "sedentary" occupation, benefits are payable. The Social Security regulations, as well as the United States Department of Labor, define a "sedentary" occupation as one in which the employee must have the ability to sit approximately six hours out of an eight hour day and be able to frequently lift as much as ten pounds. In this respect, disability guidelines differ from physicians' understanding of the meaning of "sedentary." Thus, in understanding the nature of "disability", the appropriate terminology must be kept in mind.
Individual Disability Insurance-Disability insurance coverage is either "general" or "occupational". "General" disability coverage is similar to Social Security disability insurance and requires the insured's inability to perform a broad range of work as a condition of benefit payment. "Occupational" disability insurance, on the other hand, insures against the inability to perform the material or significant duties of one's own occupation. Obviously, occupational disability coverage is far more desirable in order to protect a physician's large financial investment in professional training and establishment of a practice, which can quickly become worthless in the event of disability. Moreover, occupational disability policies are necessary to protect against circumstances that may not preclude the performance of all work, but would prevent the performance of an occupation or occupational specialty.
In particular, under an occupational disability policy, the insured is entitled to benefits if unable to perform any of the material duties of the occupation being performed at the time disability begins. Thus, a surgeon who develops Parkinson's syndrome is totally disabled even if she is still able to treat patients in a non-surgical setting. Alternatively, benefits would also be payable if the insured is capable of performing all of her occupational duties but at a reduced level. For example, a recent decision involving a trial lawyer ruled that such an occupation requires the ability to work extremely long hours; and even if the insured could manage 40 hours of work, benefits would still be payable.
Residual Disability and Dual Occupations. Many insurance policies contain provisions that provide for payment of a reduced benefit if the insured, despite suffering from a disability, is able to work in a limited capacity, or in an allied occupation or another field. It is ironic that the insured usually pays an extra premium for what frequently amounts to reduced benefits, since, without a residual disability clause, the insured can work in any capacity and still receive full benefits so long as the claimant is unable to perform at least one significant occupational duty or is able to perform the prior occupation, but at a reduced capacity. However, residual disability clauses are designed to encourage a return to work; and they furnish an incentive for insureds to perform work but still receive benefits.
A recent trend in disputed disability claims involves the notion of a dual occupation. Several of the reported decisions have involved doctors, dentists, or chiropractors. In one recent case, an insurer claimed that a dentist who became disabled due to osteoarthritis and degenerative joint disease was dually employed as a "chair dentist" and as administrator or manager of a dental practice. The insured disagreed; and ultimately, a federal appellate court agreed with the dentist that because over 90% of his time involved patient treatment, his single occupation was that of a chair dentist. In another case, a chiropractor injured his back and filed a claim for disability benefits asserting he could no longer perform manipulations. The insurer claimed that the chiropractor was not disabled, arguing he was administering several chiropractic clinics and had actually increased his earnings following his accident. A federal judge determined that the issue would be resolved based on what activities were being performed by the insured immediately prior to the onset of disability, and that if administrative duties were more than a trivial part of the doctor's practice, he would only be entitled to partial disability benefits.
The distinction between claims for total and partial disability benefits is important for a number of reasons. Not only does it affect the amount of benefit paid; it also influences the type of documentation the insurer can request. Under individual policies, if the claim is for total disability, pre-disability earnings are irrelevant-the insured contracts to receive a fixed monthly benefit rather than a benefit calculated as a proportion of income which is generally the case with group disability (see below). Moreover, the insurer has no basis for requesting current financial documentation. However, for partial or residual disability benefit claims, the insurer has the right to request proof both of prior income and monthly earnings reports.
A final point about "own occupation" disability insurance-such policies are becoming difficult to obtain. Most policies currently available will insure for "own occupation" for only limited benefit periods. After the initial own occupation period expires, for benefits to continue, the insured must demonstrate "general" disability. Therefore, if more beneficial coverage is already in place, such coverage should be maintained and even enhanced if additional purchase options become available.
Group Coverage
Group disability insurance coverage is substantially different from individual disability insurance. An individual policy of insurance can be conceptualized as insuring the ability to earn a living. Group insurance, on the other hand, insures against loss of income; and benefits are generally paid out as a percentage of earnings, usually between 50-70% of the insured's base annual salary. Depending on how the policy defines the salary on which the percentage is based, such policies may significantly penalize workers who receive bonus compensation as a substantial component of overall earnings. Also, group disability insurance policies usually place an upper limit on payments such as a maximum benefit amount of $10,000.00/month, regardless of earnings prior to disability.
Group disability insurance also differs from individual policies with respect to coordination of benefits with other sources. Although very few individual disability insurance policies contain such provisions, group policies commonly reduce the monthly payment by benefits received from such sources as Social Security disability, workers' compensation, state disability, other government disability benefits, or other group disability insurance. To illustrate: If a doctor qualifies to receive $5,000.00 per month in group disability benefits, but also is found entitled to receive $1,400.00 per month from Social Security disability, and an additional $700.00 per month in Social Security benefits payable to the doctor's dependents', the disability insurer deducts $2,100.00 from its payment obligation, and pays only the balance of $2,900.00.
Where the potential for offsets exists, such shortfalls could markedly reduce the anticipated amount of disability insurance benefits payable in the event of catastrophic accident or sickness. To prevent such shortfalls, it may be advisable to purchase additional individual coverage which is not offset from group benefits.
Taxation of Benefits
Disability benefits, in some cases, are paid free from taxation. Benefits are tax-free so long as the insured pays premiums with after-tax dollars. However, where benefits are received as part of an employee benefit package, the premiums are usually paid in part or in whole by the employer. If that occurs, benefits are taxable in proportion to the premiums paid by the plan sponsor; i.e., if the employer pays half the premium cost, half of the benefit is taxable. This means that for those who participate in group disability plans, benefits may be worth substantially less due to the effect of taxation.
Specific Types of Claims
Certain issues that arise in disability claims are frequently the subject of greater scrutiny by insurers:
Psychiatric Claims-Because psychiatric claims are not based on the same type of objective evidence, as, for example orthopedic, neurological or cardiac cases, they are frequently subject to greater scrutiny. Moreover, improvements in psychiatric practice and in psychotropic medications have shortened the duration of impairments for many patients, which makes insurers suspicious of those patients who fail to fit within the statistical norms. As a result, the longer a psychiatric claim pends, the greater the level of scrutiny applied by insurers.
To combat lengthy psychiatric claims, virtually all group disability insurance policies and a growing number of individual policies limit the duration of benefit payments for psychiatric claims. Typically, benefits for psychiatric disabilities are cut off after two years. Such action is often unfair to the claimants because it cannot always be determined whether a condition is mental and physical. As pointed out in the introduction to the American Psychiatric Association's Diagnostic and Statistical Manual of Mental Disorders IV, there are many mental aspects to physical illness and many physical aspects of mental illness. Nonetheless, conditions listed in the DSM-IV will often be subject to benefit limitations regardless of the cause of the impairment. However, if the cause of disability such as dementia is due to a proven physiologic process such as stroke; or due to a traumatic accident such as head trauma, several court decisions have barred application of mental impairment limitations in insurance policies.
Other subjective disability claims-Insurers also frequently classify medical conditions whose etiology is unknown as "subjective" and will apply policy exclusions or limitations. Claims arising from chronic fatigue syndrome, fibromyalgia, and myofascial pain syndrome are frequently rejected or classified as mental impairments in order to limit disability benefit payments. The greater the degree of documentation, the care in ruling out other potential causes of symptoms, and specific explanations as to how the diagnosed condition fit within the diagnosis criteria are essential in proving such claims.
ERISA
The Employee Retirement Income Security Act (ERISA) is a federal law enacted in 1974 to protect workers' benefits. The law is extremely broad in scope and applies both to pension and retirement benefits, as well as "welfare" benefits, which the law defines as health, life or disability benefits provided to workers. As a result, just as ERISA has affected health insurance by granting deference to decisions by managed care entities denying medical necessity of prescribed medical treatment, the impact of ERISA has also dramatically affected disability insurance. Ironically, although Congress intended that the law protect employee benefit rights, ERISA has transformed the employee's sword to a shield for employers and insurers. This is illustrated in cases where insurers have successfully argued that "employee benefit plans" include both group coverage and single employee plans; i.e., the physician who purchases a policy of individual disability insurance but premiums are paid by the physician's professional or service corporation. Other cases are to the contrary, though, including a recent federal appellate decision from Michigan holding that a physician who was the sole shareholder of his professional corporation and who purchased disability coverage only for himself was exempt from ERISA coverage.
The way in which ERISA has negatively impacted disability insurance is by taking away significant legal rights--including the right to a jury trial and the right to seek damages in cases where the insurer's behavior is vexatious or malicious. Even more significant, though, is that if ERISA applies, insurers are often granted the same broad discretionary authority normally given to pension plan trustees. That discretion allows broad leeway to interpret policy terms and determine benefit eligibility. The practical effect of such discretion mean that courts have limited authority to penetratingly review insurers' decisions. Thus, rather than weighing the evidence, courts will affirm adverse benefits decisions so long as the insurer's claim file contains some evidence supporting its decision, even if a greater amount of evidence favors the insured. In such cases, benefit denials have been upheld where the only evidence supporting the insurer is the opinion of a reviewing, non-examining doctor whose qualifications are suspect, or videotape surveillance that misleadingly shows a few minutes of a person's daily activities, conveniently omitting much longer periods of pain and disability.
Some Other Troubling Issues
As if the challenge of ERISA were not difficult enough, other issues are frequently raised in an effort to defeat disability claims. Some of the more common issues are discussed below:
Risk of Disability Where the insured works in a highly stressful occupation and is advised that the stress of returning to that job may exacerbate the impairment or create a risk of death, the insured may not be deemed disabled. This is known as "risk of disability" and frequently arises in cardiac cases where the insured may have an essentially normal stress test following angioplasty or cardiac bypass graft surgery. Insurers are more frequently resisting such claims and the courts have yet to definitively resolve the question of whether a "risk of disability" is an actual disability. The way in which such claims can be enhanced, though, is to thoroughly document all of the material duties of the insured's job and whether present restrictions and limitations would preclude a return to that occupation.
Legal Disability There are many situations in which physicians may lose practice privileges that can create significant difficulties in relation to disability claims. Unfortunately, in some cases, the loss of license is due to substance abuse or inappropriate conduct with patients allegedly due to a mental disorder. The success of claims for disability due to those conditions is often dependent on whether the condition precedes or follows a disciplinary complaint or criminal prosecution. Waiting until after the imposition of criminal or disciplinary sanctions will usually be fatal to disability claims, since courts and juries usually cast an unsympathetic view toward criminal behavior or professional misconduct.
Another variant on this issue is where the physician has been diagnosed with an infectious disease such as Hepatitis C or is HIV positive. In such cases, the insured may not be suffering from any physical restrictions or limitations, yet the presence of the condition itself may lead to a loss of privileges to practice. Although some insurance policies specifically preclude payment of benefits in such situations, if there is no exclusion, benefits may be payable, although it should be noted that a federal court recently found in favor of an insurer that refused benefit payments to a physician suffering from Hepatitis C due to a lack of presently existing restrictions and limitations.
"Under the care of a doctor." All disability insurance policies require the insured to be under the care of a physician other than the insured himself or any direct relation. However, after a condition is diagnosed and reaches maximum medical improvement, there is often no reason for further treatment. In such cases, clauses requiring the insured to be under the treatment of a doctor are liberally interpreted. The weight of legal authority interprets those provisions as merely setting forth an evidentiary requirement; and so long as the insured has sufficient proof of disability, nothing further may be required.
Similarly, there are situations where a disability is treatable, yet the insured refuses to undergo treatment. In a well-known case from Chicago, Illinois, an invasive cardiologist with carpal tunnel syndrome was told by his disability insurer that payment of benefits was conditioned on the doctor undergoing corrective surgery. The physician refused, citing the risks of the procedure. A federal appeals court subsequently ruled in favor of the cardiologist, holding the insurer has no right to direct or scrutinize the treatment received by its insureds.
Conclusion
During times of good health, vitality, and professional growth, the thought of a disabling illness or injury is remote. However, in a profession that requires very highly developed skills, even a mild degree of visual impairment, minimal loss of hand-eye coordination, or modest diminution of cognitive ability have profound consequences for an physician. That is the reason professionals purchase disability insurance--the current maximum Social Security disability benefit of approximately $1,400.00 per month cannot substitute for a professional's earning power; and even those benefits are unattainable unless the disability is so severe that any and all work is precluded.
Therefore, physicians need to be aware of the importance of the protection of disability insurance. Not only is it crucial to understand the coverage provided; it is also necessary to comprehend the issues that will be considered by a disability insurer so that evidentiary proof requirements are fully and completely satisfied. The time to gain that knowledge is now before it becomes too late.
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