Professional associations like ACEP offer benefits, such as insurance policies, to their members for various reasons. First, they understand that these are important financial products for their members to purchase. When physicians become disabled without disability insurance, especially early in their careers, a financial catastrophe often occurs. Second, some doctors have a difficult time obtaining disability insurance on the open market due to health problems or dangerous habits.

You must use extreme caution when dealing with your professional society and your finances, though. This is especially true when dealing with disability insurance.

 

Disadvantages of Association Group Disability Policies

Association group disability insurance policies generally have significant flaws. While some of this post will focus on the plan offered by the American Academy of Family Physicians (AAFP), underwritten by New York Life Insurance Company, the majority of association plans have similar limitations associated with them.

 

It Is Not Non-Cancelable and Guaranteed Renewable

While New York Life cannot cancel the master policy as long as the Academy continues to endorse the plan and doesn't offer another similar disability product, the premium rates for the plan are not guaranteed. Once approved, you can continue your coverage to age 70—as long as you pay all premium contributions when due, you remain working full-time, the group policy remains in force, and you do not enter active duty in the Armed Forces. Additionally, benefit amounts are not guaranteed and are subject to change by agreement between New York Life Insurance Company and the AAFP.

Ideally, you want to purchase a policy that is non-cancelable and guaranteed renewable to avoid the potential problems described above—especially if you are a young physician with a long career ahead of you.

 

The Premium Rates Are Not Guaranteed

The cost is based on your gender and your initial age when insurance becomes effective. The cost increases as you grow older and enter a higher age bracket (every five years when your age ends in a “0” or a “5”). Premium contributions may be changed by New York Life Insurance Company on any premium due date and any date on which benefits are changed. However, your rates may change only if changed for all others in the same class of insureds under this association-group insurance policy. For example, a class of insureds is a group of people with all the same issued age, gender, waiting period, tobacco/nicotine use, and/or state of residence.

 

It Does Not Include an “Own Occupation” Definition of Disability

“Totally Disabled” means you are completely and continuously unable to perform the material and substantial duties of your profession or occupation for pay or profit due to accidental bodily injury or sickness—provided you are not otherwise working for pay or profit.

Ideally, your policy should state that Totally Disabled means that, solely due to injury or sickness, you are not able to perform the “material and substantial duties” of Your Occupation (note, it does not include any language related to not working in another occupation). This means that if you become Totally Disabled from your regular occupation and choose to work in another occupation, you'll receive full benefits, regardless of the income you earn from the other occupation.

Remember, at the time of this writing, only five companies offer this own occupation definition of Total Disability to physicians: Berkshire (Guardian), The Standard, MassMutual, Ameritas, and Principal.

 

You Must Be Totally Disabled First Before You Can Collect Residual Disability Benefits

To be considered disabled, the disability must occur while you are insured under the policy, and you must be under the regular care of a licensed physician (other than yourself or immediate family/household member) during the period of disability.

This policy has been designed to encourage you to return to work as soon as you can. Therefore, if you return to work after having been Totally Disabled for at least 30 consecutive days and your income-earning capacity has been diminished by as little as 25%, you can receive what is known as residual benefits. Residual benefits end when your earnings rise to the point that they exceed 75% of your pre-disability income. Full benefits are payable if your earnings loss is 75% or greater.

In an old article by the late CFP Peter C. Katt, a fee-only insurance adviser, he wrote, “Do not buy a disability income policy that has a qualification period. There are too many diseases that are progressive and have no Total Disability at the beginning. Under such circumstances, a qualification period of, say, 30 days would prevent the insured from receiving any residual benefits.” Ideally, your disability insurance policy should not require that you be Totally Disabled prior to collecting residual disability benefits.

 

There Is No Recovery Benefit

Consider the example of a private practice family physician whose income is based solely on the number of patients that they see. What if the doctor had been Totally Disabled and returned to their practice on a full-time basis after one year, performing all of their job duties. But what if their patients had gone elsewhere? After all, they depended on the doctor for medical advice and disease management, but the doctor had not been there. Additionally, referral sources with whom they had built relationships had no choice but to refer patients elsewhere. Obviously, it would be very difficult to take the business away from the practitioner that had been providing these services during their absence.

As a result, rebuilding their practice and income level might take years. Without a recovery benefit, the doctor would no longer qualify to collect any benefits at all as they are no longer under the regular care of a physician. The recovery benefit is designed to assist with financial recovery following a disability—even if an insured has recovered and returned to work on a full-time basis. For a self-employed physician, a recovery benefit is extremely important, and the AAFP plan does not include one.

 

Limitations Exist for Claims Related to Mental or Nervous Disorders and “Self-Reported Symptoms”

Under the AAFP plan, benefits will be paid for up to three years for disabilities related to mental or nervous disorders, alcoholism or drug addiction, or Self-Reported Symptoms. Self-Reported Symptoms are defined as the manifestations of a condition that are reported to a physician but which are not verifiable using tests, procedures, or clinical examinations. Self-Reported Symptoms include but are not limited to: headaches, pain, fatigue, stiffness, soreness, ringing in ears, dizziness, numbness, and loss of energy.

In his book, Robbery Without a Gun: Why Your Employer’s Long Term Disability Policy May Be a Sham, attorney Benjamin W. Glass submits that after a claim with this policy provision included is denied, the carrier will state that “there is no objective evidence that you are in pain” or there is no objective evidence that you are really fatigued. Therefore, the diagnosis is being made upon your own report of pain or fatigue and, thus, we are going to either not cover this benefit or limit it severely.

Glass goes on to declare that “there are many well-recognized and documented diagnosable conditions related to pain and/or fatigue. There are physicians that are experts in their field(s) who make these diagnoses after exhaustive testing. The fact that there is sometimes not any one test or lab study that can be done to ‘make the diagnosis' should not be a reason for an insurance company to limit or eliminate benefits.”

Ideally, your policy should not have a limitation for Self-Reported Symptoms. In fact, no individual disability insurance policy that we have ever seen has this limitation. As for mental and nervous conditions, some individual policies will cover these types of claims in the same fashion as other disabilities. Others, however, will limit these claims to a lifetime maximum of 24 months if the primary cause of disability was solely a psychiatric or substance abuse disorder or diagnosis, including but not limited to post-traumatic stress syndrome, anxiety, depression, and/or alcohol abuse/addiction. Although many physicians will opt to purchase a policy with the fewest number of restrictions, some may willingly accept this limitation with its attendant cost savings.

 

There Is a “Cap” on the Inflation Protection Option (COLA Rider)

The Inflation Protection Option on the ACEP plan is designed to increase your benefits while you are disabled to help prevent your dollar’s “buying power” from being eroded by inflation. If you become disabled prior to age 63, your benefits can increase annually starting on the first anniversary of your Total Disability. Increases are based on the Consumer Price Index for Urban Consumers (CPI-U). The maximum increase is 7.5% a year, with an overall maximum increase of 100% of your original monthly benefit.

In addition, a “catch-up” feature allows disabled members to receive benefit increases in excess of the 7.5% annual maximum if a prior year’s inflation adjustment was less than 7.5%. Ideally, there should be no “cap” on the increases to the monthly benefit as a result of the Cost of Living Adjustment (COLA) Rider.

Keep in mind, many association plans do not offer COLA so the ACEP plan is unique.

 

The Guaranteed Future Purchase Option Is Extremely Limited

professional association group disability insurance

Under the policy’s Guaranteed Future Purchase Option, you will be offered $100 or $200 (depending on your current monthly benefit amount) of additional monthly benefits at six separate intervals. You can accept this additional coverage regardless of your health, provided you are at full-time work, your total monthly benefits do not exceed the plan maximum of $10,000 a month, and you make timely premium contributions. Guaranteed purchase dates are ages 31, 34, 37, 40, 43, and 46. Most individual policies make increase options available more frequently—in larger amounts (typically a multiple of the initial monthly benefit, not to exceed the specific company’s issue limit) and for a longer period of time.

 

Recurrent Disabilities

If you suffer a recurrence of the same or related disability within three months of returning to full-time work (within 12 months if the disability is due to a mental disorder, drug addiction, or alcoholism), your benefits will resume without the need to satisfy a new waiting period. Depending upon the individual disability insurance carrier, most consider a recurrent disability to be within six or 12 months of returning to full-time work, regardless of the cause of disability.

 

Are There Benefits of a Disability Insurance Policy from Professional Associations?

Association policies often ask fewer health questions; do not generally require a physical; and rarely ask about dangerous hobbies, such as rock climbing, scuba diving, flying, or skydiving. For these doctors, the association policy may be their only opportunity to get the coverage they need or want at a reasonable price. People in these situations see these offerings as important benefits of the association, and they are more likely to join if these benefits are offered.

 

Initial Premium Rates Are Low

One of the few arguments that one can make for purchasing association disability insurance coverage is the low premium rates they offer. However, is that actually the case? Let’s assume that a 35-year-old male family practice physician in the state of New York is considering the following options:

  1. Purchase $5,000 per month, payable after 90 days, to age 65 with the Inflation Protection Option from the AAFP for its “affordable rates.”
  2. Purchase $5,000 per month, payable after 90 days, to age 65 with an Enhanced Residual Disability Rider and a 3% Compound COLA Rider from MetLife.

Let's assume he is a non-tobacco user and is in occupational class 6M and that he gets a 10% association discount for MetLife’s Income Guard policy.

From age 35-39, his premium with AAFP would be $1,090 per year. But it would rise to $1,558 when he turns 40 and $2,152 when he turns 45. Every five years, that premium would increase by several hundred dollars until the age of 65 when he would be paying $3,398. Meanwhile, if he had gone with MetLife, he would have paid $1,576.35 per year from age 35-64.

The total amount of premiums paid: $74,250 for the AAFP plan and $47,290.50 for MetLife (this does not factor in the time value of money). The total cumulative premium for the MetLife plan is $26,959.50 or 36.3% LESS THAN the AAFP plan! So, other than for the first five policy years, where are the savings?

 

Potential Conflict of Interest

What cynics would also point out is that the insurance agent or company selling these policies is generally sharing revenue with the association. Unfortunately, that conflict of interest ensures the association may not give you unbiased advice on these topics. While an association group policy may be your best option, you need to shop carefully before actually purchasing it. You will often find an association policy is neither the best nor the least expensive option.

 

What Is the Real Cost?

Note that even though individual plans are vastly superior to group plans, even those through medical associations, there may be reasons why you may wish to purchase a policy in a group plan. Dr. Jim Dahle, at one point, owned a policy of each type for these reasons.

Still, while we can all relate to the price of purchasing an item, we typically don’t take its cost into consideration. Think about it: how often have you really wanted to purchase something that you could afford, didn’t want to spend the money, purchased something inferior as an alternative, and subsequently purchased what you originally wanted due to the product’s lack of quality and/or durability? It often ends up costing you more money than if you just purchased what you should have from the beginning. It's the old “buy nice or buy twice” philosophy.

Association disability insurance coverage is a great example of this. While we are led to believe that the price is favorable, generally, this is not the case. The true “cost” of purchasing this coverage is accepting policy provisions that are less liberal and/or more restrictive compared to those found in individual disability insurance policies. As a result, the real cost of buying disability insurance through a medical association is that you may collect fewer benefits under any of the policy provisions found in your association plan compared to the individual disability insurance policies available.

 

Have more questions about insurance and what kind of policies would be the best for you? Hire a WCI-vetted professional to help you sort it out.

 

What do you think?  Have you purchased a group disability policy and later regretted it? Are you happy with your group disability plan?  Comment below!