The treatment of physician disability in a physician employment agreement can have a major impact on physicians. Given the nature of their work, I never cease to be amazed at the number of physicians who seem to believe that they will never become disabled. Notwithstanding the superhero persona many physicians have adopted, physicians are just as susceptible to a disability as anyone else.
When performing a physician contract review, I always analyze the physician employment agreement’s definition of “disability” and how this disability is determined. Physician disability should be determined by a physician mutually agreeable to the employed physician and the employer. Since the physician is working for one or more other physicians, it is important that the physician’s boss can’t unilaterally declare that the physician is disabled. Sometimes a physician employment agreement will sidestep this issue by providing that the physician is considered disabled for purposes of the agreement when the physician’s disability insurance treats him or her as disabled. This alternative is better than allowing the employer to unilaterally determine disability, but it is not as good as agreeing that a mutually agreeable physician will make the determination.
It is also important to determine how long the employer will continue the physician’s compensation in the event of a physician disability. I have persuaded some employers to provide, for example, full pay for some period (usually no more than three or four months), then some number of months of half pay, and then some number of months of one-quarter pay. I’ve also been able to negotiate longer periods of full pay, such as six months of full pay, followed by no pay.
When reviewing a physician employment offer, it’s important to determine if the employer offers disability insurance. To analyze what benefits are provided in a physician disability insurance policy, the physician should ask for a summary plan description (“SPD”). Since most employers purchase insurance for long-term (and/or short-term) disability, the employer is unlikely to be in a position to negotiate the insurance provisions. Nevertheless, it is important to determine the nature of the benefits being offered, especially if the physician is reviewing multiple offers. It is also important to determine if it might be necessary to purchase a separate individual policy providing appropriate protection.
The physician should confirm that the disability insurance policy defines a disability as an inability to work in the physician’s “own occupation.” This simply means that a physician is considered disabled (and therefore eligible for physician disability benefits) if the physician is unable to practice medicine. Some policies covering surgical specialties go even further and provide for partial disability benefits based on an inability to perform procedures.
The physician should beware of disability insurance policies that define disability as the inability to hold gainful employment. As a college graduate, a physician may very well be able to manage a McDonald’s restaurant even if that physician can’t practice medicine. If a physician doesn’t believe that getting free French fries for the rest of his or her life makes all their education worthwhile, the physician should avoid relying on a physician insurance disability policy that only covers an inability to hold gainful employment.
In general, if the employer is paying the premium for disability insurance, then disability benefits would be taxable. In contrast, if the physician is paying the premium for disability insurance, then disability benefits would not be taxable. While many physicians are convinced by their insurance agents that escaping taxation is well worth premiums paid, it is important to realize that disabled physicians are likely to be in a lower tax bracket if their only income comes from disability insurance. Accordingly, tax treatment of benefits should not be the deciding factor in determining the prudence of purchasing an individual disability insurance policy.