On call: insurers are making some big--and enticing--changes to disability insurance for physicians, but there's still an untapped market in need of the coverage.
Travers was born with osteogenesis imperfecta, commonly known as brittle bone disease--a genetic disorder characterized by bones that break easily, often from little trauma. By age two, he broke 10 bones; by age 16, the number of broken bones totaled more than 130. After spending years in hospitals, he knew his life's passion--to become a doctor. Several years later that dream became reality.
But Travers couldn't imagine that in a moment that dream could shatter. Upon waking one morning, he discovered that his rare disease manifested in the bones of his ears and he suffered significant hearing loss. Because of his inability to perform such tasks as listening to a stethoscope, the West Warwick, R.I., doctor was no longer able to practice medicine. Faced with mounting bills and no income protection to help pay them, he lost his home and his car, defaulted on his student loans and suffered bad credit, in addition to emotional strain.
That's now changed. Travers had surgery to restore some of his hearing, he's become an adviser with financial services firm MW Financial Group Ltd. and he's Financially turned his life around. Now he's sharing his experience with other physicians and resident physicians to help them avoid not being financially prepared for an unfortunate event or illness.
Travers' lack of awareness about the need for disability insurance isn't unusual. He said many physicians aren't cognizant of the importance of such coverage and there continues to be an untapped market in need of the protection.
Insurers are trying to change that. A changing health-care environment is leading carriers to make long-term disability insurance more attractive to physicians. Changes include revised definitions of disability, a return to lifetime benefits, higher monthly coverage amounts and more optional coverages.
Highs and Lows
The physician disability market suffered through some turbulent times over the past two decades.
Prior to the early 1990s, the market saw attractive policy terms with liberal benefits, but it soon changed with a shift in health care. "Managed health care, along with talks about national health care in the early '90s, started to disrupt the marketplace and threaten physicians, who were starting to question where health care was headed," said Ron Gendreau, head of underwriting for Hartford's Group Benefits Division. "Where they used to practice medicine and take care of patients, they now had to deal with insurers and others and were frustrated about its impact on practicing medicine." Suddenly, disability insurance results in the market turned bad, he said, and the industry, particularly on the individual side, saw significant losses and market deterioration.
The risk profile evolved. No longer were physicians considered the good risks and many companies downgraded them, said Matt Gottfried, director of individual disability income for Berkshire Life Insurance Company of America, a wholly owned stock subsidiary of Guardian Life Insurance Company of America.
The early 1990s also were a period of tremendous claims losses, said Thomas Petsche, president of Brokerage Solutions Inc. and a member of the Society of Financial Service Professionals. Reacting to the uncertain changes in health care and its effects on their abilities to practice medicine, some physicians discovered they could take advantage of the liberal definitions of disability, which proved costly to carriers.
Changes instituted by insurers included lower caps, more conservative definitions of disability, and moving away from lifetime benefits. But it didn't play in everyone's favor and the market's financial instability prompted many carriers to leave the market.
Now there's another shift in the market, and "we're coming back to middle ground," said Chuck Krugh, president and chief executive officer of Doctors Disability Insurance Inc. in Lake Forest, Calif.
More carriers in the market are willing to cover physician firms today than in the late 1990s, said Liz Wade, product portfolio manager for employee benefits marketing for Standard Insurance Co. "We're also seeing more activity from a few nationwide trusts that are switching carriers and/or third-party administrators."
As a result of greater competition, some carriers are enticing physicians with less stringent limitations in disability policies.
"We're seeing monthly coverage limits come back up from being very conservative after the fallout from managed care," said Mike Simonds, vice president of marketing and product development for UnumProvident Corp. "We are more willing to look at richer plan designs, especially if physicians have both individual and group coverage with us. It gives us a chance to look at the whole disability picture." He said UnumProvident writes nearly one of every three physicians in the United States. "It is a critical disability market for us, but one that demands an underwriting approach that is thoughtful and sustainable over the long term."
Limits on monthly coverage amounts are becoming more favorable. Berkshire Life recently increased its issue limits for physicians to $15,000 a month. "With the evolution of the market with income stability and growth, along with improved job satisfaction, we're now in the position to liberalize the practice," said Gottfried. "This includes improving the definition of disability and issuing more coverage."
But that's not enough for some physicians. With large salaries at stake, physicians are looking for even more coverage if they were to become disabled, said Hartford's Gendreau. He said the company receives requests as high as $30,000 in monthly coverage.
Group coverage also is changing. "Some companies now will participate up to $15,000 to $20,000 including the group benefits, so physicians can receive an additional $5,000 to $10,000 a month on top of their group coverage," said Brokerage Solutions' Petsche.
The group market continues to flourish, at least that's a trend UnumProvident is seeing, said Simonds. While group policies generally provide benefit to 60% of income to a maximum amount, some physicians opt to purchase additional coverage. Some industry experts say individual policies, however, offer several advantages over group coverage including portability and the security of not being cancelled by an employer at any time.
Residual riders for partial disability are popular. Berkshire Life offers such a benefit to age 65. "For physicians purchasing as much as $10,000 to $15,000 of coverage, the residual rider may continue to pay benefits even if the income loss should fall below 20%," said Gottfried. He said that's unique in the industry with many competitors cutting off benefits when loss falls below 20% of income.
The definitions of disability are being overhauled.
Popular pure own-occupation policies, once commonplace, are less available.
However, the demand continues--even with often higher price tags attached to them. Pure own-occ policies provide coverage if physicians, due to illness or injury, are unable to perform their duties, and considered totally disabled. However, under the policies, physicians can choose to work in another specialty and benefits aren't reduced by income earned from another occupation. For example, a surgeon who can no longer perform surgery because of a nervous condition can still earn flail disability benefits if he or she pursues a career in teaching medicine.
A few carriers haven't shied away from own-occ policies. Berkshire Life recently made some occupational class improvements for nearly 50 professionals in the medical market, including rate decreases for some classes and a better definition of total disability for surgeons and other invasive specialties. "All physicians and dentists are eligible for pure own-occupation disability insurance to age 65, with medical specialty language in the definition of total disability," Gottfried said.
Two of Hartford's coverages include own-specialty and own-subspecialty definitions. "Typically, most companies offer own-occ for two years or until age 65. We offer an own-speciality definition because under own-occ if a surgeon, for example, loses use of his or her hand, technically they could perform other duties of a physician in another field or teach," said Gendreau. "With specialty own-occ, we would treat that individual as if they were totally disabled. That's something important to the physician marketplace." He said the definition of coverage applies to all medical specialties and adds an extra layer of protection and applicability to the physician field. "It's a specialized field with different demands on different specialties," he said.
Some carriers are moving to more limited own-occ definitions of disability. In a five-year limited own-occ policy, for instance, a physician receives full benefits during the first five years of being disabled. After five years, if the physician enters another occupation fitted for by education, training or experience, said Brokerage Solutions' Petsche, that person would move to a residual claim in which a percentage of lost income would be paid.
Some carriers offer a long-term modified own-occ policy in which a carrier pays total disability as long as a physician is disabled and can't perform his or her duties and isn't working in another occupation. "In the '90s, we educated physicians to believe that they needed the true own-occ definition, or they might be forced to take a more menial job in the event they became disabled and could no longer practice as a physician. That's what many physicians still believe today," said Petsche.
Changes also have been made to lifetime limits. Independent agent Jeffrey Benowitz said there are only two carriers that now offer a lifetime benefit. "If someone is sick or injured before age 46, they get the full monthly benefit forever; if after age 46 they are sick or injured, regardless of age, then they receive the full benefit until 65. When they turn 66, depending on the age the disability occurred, they receive a percentage of the benefit from age 66 until death."
There is a growing need for disability insurance. "Fifty-percent of all home mortgage foreclosures, small-business failures and personal bankruptcies each year are caused by a disability," said Brokerage Solutions' Petsche. "But only 20% of all American workers have disability insurance," he said.
While the number of physicians in the United States continues to dwindle, there's still a significant market for long-term disability protection. According to the 2006 edition of the American Medical Association report, Physician Characteristics and Distribution in the U.S., there are nearly 885,000 physicians in the nation.
Often knowledge about disability insurance is learned early on--during medical school or a residency program." [Physicians] are very smart and savvy, and know insurance and its need," said Gendreau of Hartford.
However, Travers believes the picture is much more grim. "I recently spoke with a chief resident about giving a lecture to his department on disability insurance and [he] responded 'disability insurance ... what's that?'," he said.
Why is this coverage important to physicians? The answer is simple: student loans," he said. "Often physicians' training programs provide them some disability protection but where they fall short is that they don't bring the need for coverage to physicians' attention. I don't want anyone to go through what I did because of lack of education," he said.
Berkshire Life offers disability insurance to residents and medical students in hospitals. "Guardian offers group coverage on residents and after they complete the program, they can convert that policy to Berkshire's individual coverage without any additional medical underwriting," said Gottfried. "It creates a cycle that young physicians in the medical market recognize the importance of the coverage, and financial planning professionals have access to reinforce its awareness."
The Cycle Continues
"To be successful in this market, companies need to have an appetite for more risk and assess risk properly and make sure they manage claims effectively," said Hartford's Gendreau.
Numerous companies have set up specialized claims teams to effectively manage claims. Over a decade ago, Standard created such a team to handle the complex claims of highly-compensated professional groups, including physician firms, said Wade. The teams includes a claims manager, full-time vocational consultant, nurse case manager, internal medicine specialist and psychologist, as well as scheduled time with a certified public accountant.
Disability carriers say physicians will remain an attractive market for them. But some changes may be needed.
"In the '80s, there were many companies competing for physicians and because of the climate, physicians were well compensated and rarely submitted disability claims so the market was a cash cow for carriers," said Krugh of Doctor Disability." But I think companies lost sight of good product design and good underwriting guidelines and were a little too aggressive and that came back to hurt them."
Insurers may continue to slowly liberalize policy benefit limits as physicians' incomes increase, said Petsche.
A factor that will affect disability insurance for physicians is consumer-driven health care. UnumProvident's Simonds said the carrier is watching to see what impact it may have on physicians. "If it imposes frustration and complexity, it may have an adverse impact on the market," he said. "However, to the extent that it contributes positively, it will make the disability market even more attractive."
Berkshire Life Insurance Company of America
(a subsidiary of Guardian Life Insurance Company of America)
A.M Best Company # 07409
Distribution: Agents and brokers
Hartford Life Insurance Co,
A.M. Best Company # 06518
Distribution: Independent agents, brokers, banks and wirehouses
Unum Life Insurance Company of America (UnumProvident)
A.M. Best Company # 06256
Distribution: Independent brokers and agents, corporate marketing agreements,
benefits consultants, direct sales force
Standard Insurance Co.
A.M. Best Company # 07069
Distribution: Benefit brokers
For ratings and other financial strength information about these companies, visit www.ambest.com.
Carriers that offer comprehensive employee-benefits products and services, as well as retirement plans tailored to professional firms and/or to key employees, have an advantage in today's market, according to Liz Wade, product portfolio manager for employee benefits marketing at Standard Insurance Co.
"Highly compensated professional firms, including physicians, are often willing to purchase long-term disability policies with additional coverage options that increase benefit amounts for severely disabled employees," Wade said, noting that additional coverage for family care, education expenses or benefit payments that extend for a longer duration are among those favored.
Hartford Life Insurance Co. recently added an accelerated elimination period to its coverage. "Often, physicians work for a number of hospitals and clinics and may not get their income from one source. Many times contracts require loss of earnings if a physician becomes disabled and unable to perform duties. In this incident, a physician might still be receiving earnings for several months because of previous work, so the true definition of loss of earnings isn't met," said Ron Gendreau, head of underwriting for the company's group benefits division. "We would begin the elimination period based on loss of duties only. Once a physician is through the elimination period, benefits and loss of earnings would immediately kick in, and at least through the period they're not penalized for receiving earnings for previous work."
Physicians carry significant debt that also needs to be protected, such as capital expenditures if they purchased a business, medical school loans, and other expenses, said Matt Gottfried, director of individual disability income for Berkshire Life Insurance Company of America. "There are layers of need with disability insurance, such as the need for overhead expense insurance protection and the need in small practices for disability buy-out and financial obligations like a loan," he said.
There's been a resurgence in business overhead-expense insurance that reimburses a physician's practice for specific overhead expenses if the business-owner physician becomes disabled. It covers such expenses as advertising, employee benefits, equipment loans, insurance premiums, mortgage or rent payments, and utilities. In addition, disability buy-out coverage also is gaining some attention, if a physician owns a significant portion of a practice, the coverage reimburses the other shareholders or the business for buyout payments to the disabled shareholder.
Physician groups also are interested in protecting their retirement income during periods of disability, said Wade. "Group carriers often offer pension contribution benefit options within their long-term disability policies to help physicians continue to fund their retirement plans while receiving long-term disability payments," he said.
Additionally, the incidence of disability claims stemming from mental health and behavioral issues is rising. Recent changes that reflect those health claims include limiting the benefit payments from stress, anxiety, depression and other mental health issues to a maximum of 24 months.
Physicians also run the risk of being exposed to various infectious and contagious diseases. Hartford, for instance, offers a benefit that provides income loss to physicians, even if they are still able to work but stiffer a loss of earnings caused from contracting an infectious or contagious disease identified by the Centers for Disease Control and Prevention.
* After being burned by market changes in the 1990s, writers of disability insurance for physicians restricted the coverage limits.
* Now, some carriers are revising definitions of disability, raising monthly coverage amounts and bringing back lifetime benefits.
* Physicians continue to demand pure own-occupation policies but many carriers have moved away from or modified the policies.
BEEN THERE: As an adviser with MW Financial Group Ltd., Dr. Brian Travers, who had to stop practicing medicine because of hearing loss, shares his experiences with other physicians to help them prepare for unforeseen events or illnesses that may cause disability.
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|Title Annotation:||Health/Employee Benefits: Disability|
|Comment:||On call: insurers are making some big--and enticing--changes to disability insurance for physicians, but there's still an untapped market in need of the coverage.(Health/Employee Benefits: Disability)|
|Date:||Jul 1, 2006|
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