Posts Tagged disability

What are the Misconceptions of Disability Income Protection?

What are the Misconceptions of Disability Income Protection?

There are plenty of common misconceptions about disability insurance:

  • “Disability insurance pays me if I can’t work, regardless.”
  • “My group disability will take care of me.”
  • “My business partner’s DI coverage will fund our Buy-Sell agreement.”
  • “I can pay my staff out of my DI proceeds to keep the doors open.”

Pay Attention! Not All Contracts are Built the Same

Understanding the key contract features can help you avoid the very thing you are trying to insure — loss of income.

The definition of disability and the number of ways a DI policy pays a claim is most important if there comes a time when you need to use the coverage you purchased. A strong definition of disability is, “if you are unable to perform the material and substantial duties of your occupation.” That’s it. This allows you to go to work in any other occupation and you still receive your claim payments from your previous occupation you are no longer able to perform.

For example, Dr. Brown is a neurosurgeon. He’s in a skiing accident and has damage to his fingers on his left hand. Even with proper rehab, he sustains permanent nerve damage. A pure own-occupation definition allows him to continue in practice, earn a high salary and still collect on his DI policy because he can no longer operate as a surgeon.

The definition of residual/partial disability can also vary. The best contracts will consider a 20 percent loss to be residual and will pay from 20 to 80 percent losses. Anything below 20 percent loss is considered full disability.

In addition, if you go on claim for a period of time and then return, and incur an immediate reduction in income, the best contracts will pay the difference until you have regained your previous income level.

A great DI policy pays in four ways: total disability, partial disability, catastrophic disability (cannot do two of the six activities of daily living) and supplemental (six times monthly benefit lump sum for cancer, heart attack and stroke). In addition, the better contracts will pay a presumptive benefit in a lump sum, in addition to the monthly benefit for loss of limb(s), sight and hearing. A good advisor can help you navigate the key contract features.

Don’t Get Lost in the Herd

Most of you have a Group Disability plan. For many of you, it may be the only coverage you own. Don’t get lost in the convenience of these plans. Here are the obvious advantages and some of the disadvantages of a Group DI Plan:

Advantages

  • Minimal cost to the employee
  • Coverage is available for all eligible employees
  • Easy to administer
  • May cover up to 60 percent of base pay

Disadvantages

  • Only covers base pay and no incentive comp or K1
  • Benefits are taxable when employer-paid
  • Monthly caps can reduce the percentage of income replacement well below 60 percent for high-income earners
  • Two-year own occupation definition of disability
  • Benefits are reduced by SSDI and workers comp
  • Cost of the plan goes up each renewal and can be significant if there are claims in the group

The answer to a comprehensive personal disability plan is to supplement the group coverage with a quality individual plan. That way you cover all income, not just base salary. The benefits are received income tax-free, and the policy pays in four ways (discussed earlier) and includes own occupation definition to retirement age.

Benefits and premiums are both guaranteed to retirement age. Done properly, your guaranteed coverage increases overtime to keep up with inflation. Here’s a big one: the contract is guaranteed to be portable, and the discount follows you no matter where you work.

Don’t Just Take Our Word for It

Many professionals have been grateful they had income protection when facing difficult and unexpected illnesses and injuries:

Note: This is a sampling of all physician claims. The information above is for illustrative purposes only. It is not a complete representation of circumstances surrounding the claims, a representation of all claims or a promise to pay any specific claims.

This Isn’t Working; It’s You, Not Me

Disability Buyout Coverage is all too often either ignored or misunderstood. Many of you are likely in some form of partnership or ownership relationship and have executed a Buy-Sell Agreement.

All properly written agreements include a clause for this protection. The top three events that trigger the execution of a buy-sell agreement are death, disability and divorce. Yet only 2 percent of buy-sell agreements are funded with disability buyout insurance.

Typical buy-sell language states that after 365 days of disability the sale of that partner’s interest is triggered. A Disability Buy-Out policy would pay a tax-free lump sum after the 365 days to the other owner/owners to use for the buyout of the disabled owner’s interest.

This works very much like life insurance and provides a smooth buyout of a partner that can no longer work and contribute to the practice or business. The only real difference is the waiting period to allow the disabled partner time to recover and get back to work if that is still possible.

The risk of disability is far greater than the risk of death and yet the funding for this risk is seldom put in place. And as a function of the insurance budget, this is a very reasonable cost. Again, a professional advisor can walk you through the process and coverages quite easily.

Turn the Lights Back ON! My Staff Is in There!

Individual DI policies are used to protect your income for your personal fixed expenses (family, mortgage, food, bills, etc). Business Overhead Expense is used to protect the expenses of your business if you can’t work for a specified period of time.

If your business/practice does not have other employees/physicians capable of doing your duties, and contributing to the overhead costs, you need BOE. Most practices allocate a share of those costs equally among the staff physicians based on their percentage of ownership and cost commitment.

If you are expecting your personal DI coverage to pay for these costs you could be coming up woefully short on your personal living expenses.

BOE would pay up to $50,000 a month of overhead expenses:

  • Staff salaries
  • Advertising/marketing
  • Utility bills
  • Employee benefits
  • Equipment loans
  • Insurance premiums
  • Leased equipment
  • Rent
  • Office supplies
  • Professional fees

In addition, if you are a high wage earner it is possible that domestic coverage will only be able to protect you for 50 percent loss or less. But you can also obtain additional monthly coverage through specialty programs. Again, your professional advisor can share that option with you.

Bottom line, have one of our professional advisors do a full review of your overall disability risks, and the most cost-effective ways to mitigate them.

Article contributed by Cobbs Allen. Cobbs Allen is an official partner with the Medical Association. For more information about disability insurance, contact Cobbs Allen at (800) 248-0189 or www.cobbsallen.com.

Posted in: Insurance

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Three Common Mistakes in Transferring Ownership of a Medical Practice

Three Common Mistakes in Transferring Ownership of a Medical Practice

Physicians spend their careers building top-quality practices, but many devote too little attention to the architecture and terms by which the practices will be transferred at their retirement, death or disability. In our experience, there are three areas, which if neglected, will lead to problems at the crucial point when the ownership of this valuable asset changes hands.

Determining Value

Our clients are most concerned with the value of their practice. While some practitioners underestimate the value of their practice, many overestimate the amount which can be captured in the sale of the practice interest they own. A common mistake is to use a value that was read or heard about from a transaction elsewhere. That transaction price might have been determined by a purchaser who was limited in the amount they could pay, such as a hospital. The transaction might have occurred in a state with a higher managed care payer mix than your practice, or in a state with different non-compete laws regarding health care professionals. Practice valuations vary widely and for many reasons. Two practices in the same city and same specialty could have much different values. The terms of the transaction are another powerful force on sales prices and are rarely publicized. Even if you get the value accurately determined, there are still ways to create problems in the monetization of your practice value.

Clear Conversations

The documents relative to the transfer of a group practice ownership percentage should reflect the plan to sell at a future date, and the design of the manner by which the price will be determined. Even for valuable practice interests absent a clear design, potential buyers may feel tricked by a plan to transfer your share of the practice if it is developed late in your career. The time for this understanding is when younger doctors are brought in to the ownership. Buy-sell agreements and cross-purchase agreements serve to clarify expectations at the time of their drafting but should be reviewed every few years for relevance to the current situation, and any needed changes made. The greater the price desired for a practice, the more the need for clear design, pricing and terms. With a good legal architecture and a fairly determined price, your practice liquidation is almost ready for your time to sell, except for one additional issue.

The Fine Print

The legal obligation to pay the fairly determined price is often accomplished by the purchase of life and/or disability insurance on the selling practitioner. That can become a problem if the policies are never obtained, or the premiums payments are halted. In this situation, the buyer has a responsibility to pay a price agreed but with no funds to pay it. No one will be pleased with the outcome of this situation. Compound this problem with the common mistake of letting the practice price be set by the amount of life insurance proceeds, which could be afforded when the transfer architecture was designed, and you have a purchaser obligated to pay too much and with nothing but after-tax dollars from their future earnings. The CEO, chief emotional officer, at home will not respond well to this deal.

If you have a valuable practice, and you negotiate a fair price and terms for its sale, this can be a valuable way to exit your professional career and move to your next endeavor of success. It takes a little planning and periodic monitoring to gain top value.

Article contributed by Warren Averett CPAs and Advisors, official Gold Partner with the Medical Association.

Posted in: Management

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What You Need to Know About Section 1557: The ACA Nondiscrimination Provisions

What You Need to Know About Section 1557: The ACA Nondiscrimination Provisions

The Affordable Care Act prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs or activities. Section 1557 builds on long-standing Federal civil rights laws: Title VI of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, Section 504 of the Rehabilitation Act of 1973 and the Age Discrimination Act of 1975. Individuals may either file a complaint with the Office of Civil Rights (OCR) or the law creates a private cause of action.

Who must comply?

Physicians receiving financial assistance from HHS (except solely Medicare Part B).

When?

By October 16, 2016

What must be done?

Post notices, taglines, and take steps to provide meaningful access to individuals with limited English proficiency. This may mean you need to enter into a contract with a call center.

What does Section 1557 require?

By October 16, 2016, all covered entities must post notice and taglines in the top 15 languages in conspicuously visible font size for individuals with limited English proficiency (LEP). The rules require language assistance for persons with LEP. A provider may not require an individual with LEP to provide his or her own interpreter. The Office of Civil Rights website contains sample notices, statements and taglines in multiple languages. (See link below). The rules require using a “qualified translator” when translating written content. The rule itself is lengthy and specific. Any physicians, hospitals or entities receiving any financial assistance with HHS, including Medicare Parts A, C & D; Medicaid grants; loans; subsidies; meaningful use payments; payments for research offered through NIH; payments for any health program administered by HHS; etc. must comply. If a physician’s only financial assistance from HHS is to receive Part B, he or she is not covered. If a physician or entity is principally engaged in health care then all of the operations are covered minus certain limited exceptions.

Covered entities must offer a qualified interpreter to an individual with LEP when oral interpretation is a reasonable step to provide meaningful access. The interpreter need not be licensed under state law, but must have relevant proficiency. Simply having above average familiarity with speaking or understanding the relevant foreign language does not necessarily qualify him or her as an interpreter. HHS has regulations that apply to covered entities choosing to provide interpreters through remote video. See 45 C.F.R. § 92.201(f)

What are the basics?

  1. Do not discriminate on the basis of race, color, national origin, sex, age, or disability. Treat men and women equally in healthcare and treat individuals consistent with gender identity. Provide language assistance. Provide auxiliary aids to those with disabilities. Make newly constructed or altered facilities accessible to those with disabilities.
  2. Sign a form with HHS that you will comply – HHS-690 Form.
  3. Entities with 15 or more employees must appoint a compliance coordinator and establish a grievance coordinator.
  4. “Taglines” and statements must be included on “significant” documents and communications. HHS is working on guidance as to what is a “significant” publication. Information on services or treatment, or the administration of drugs, is considered significant.
  5. Post notices of nondiscrimination. A sample notice is available from the link set forth below.
  6. The entity must take reasonable steps to provide meaningful access to LEP persons.

What is a tagline?

All covered entities must post short statements written in non-English informing individuals that language assistance services are available free of charge. These taglines should be posted in the top 15 languages spoken by LEP persons in that state. (See list below). The entity should post the taglines in physical locations with interaction with the public, websites and other significant communications. The top two languages should be posted in small sized publications.

Is there guidance?

OCR has translated a sample notice of nondiscrimination and the taglines for use by covered entities into 64 languages: www.hhs.gov/civil-rights/for-individuals/section-1557/translated-resources/index.html

HHS has provided a training guide (http://www.hhs.gov/sites/default/files/section1557-presenters-guide.pdf and http://www.hhs.gov/sites/default/files/section1557-training-slides.pdf).

What are the current top 15 languages for Alabama?

  • Spanish — 75,000
  • Chinese — 5,405
  • Korean — 4,554
  • Vietnamese — 3,708
  • Arabic — 1,440
  • German — 1,411
  • French — 1,278
  • Gujarati — 888
  • Tagalog — 856
  • Hindi — 818
  • Laotian — 681
  • Russian — 586
  • Portuguese — 516
  • Turkish — 505
  • Japanese — 484

http://www.hhs.gov/sites/default/files/resources-for-covered-entities-top-15-languages-list.pdf

Posted in: Legal Watch

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