Healthcare professionals should secure a disability policy that allows them to choose whether or not to return to part-time work as they recover from a disability. Many traditional group long-term disability (LTD) policies force the claimant to return to part-time work if their physician deems them able, or they will lose their benefits entirely.
This power is gained through harmful policy provisions that can include maximum capacity or “optimal ability” language. In effect, when this language is included in the contract, the carrier maintains the right to assume how much a claimant can work and then can offset their benefits accordingly.
A better disability policy includes language that allows the disabled healthcare professional to decide when or if they can return to work. Some professionals are ready to return to part-time work as soon as they are physically able, while others need more time to prepare mentally or physically for a return. Here are some key areas to check in the LTD contract.
The “Return to Work Incentive” (RTW)
Many LTD policies include a return to work incentive or a work incentive benefit. This language allows a claimant to return to work (with physician approval) and still receive full LTD benefit payments – just as if they were not working. Most contract provisions define the amount of time the claimant can work part-time and still receive their full LTD benefits. Ideal contract language would include:
- A 24-month return to work incentive, allowing partially disabled claimants to receive full benefits for up to two years
- No offsets, as long as the benefit plus earnings/income does not exceed 100% of pre-disability earnings
A strong group disability contract will give healthcare professional policyholders the ability to maintain their full LTD benefits for quite a while, even if they choose not to return to work while partially disabled.
The Post-RTW Formula
LTD carriers often change their partial benefit formulas after the RTW period has ended, which can negatively impact healthcare professionals who wish to continue working part-time. There are two commonly used formulas, and an ideal policy will offer a “best of both worlds” calculation by using both formulas and then paying out on the higher of the two. Here is an example for a physician with pre-disability earnings of $180,000/year (an average of $15,000/month) who is working part-time and earning half of their prior income.
- The proportionate loss formula multiplies the percentage of income lost due to disability with the LTD benefit amount. So if the monthly LTD benefit is $9,000, and the physician has lost 50% of their income while working part-time, then 50% x $9,000 equals a $4,500 monthly benefit after the RTW period has ended.
- The 50% offset formula takes the physician’s part-time earnings and divides it in half, and then deducts this amount from the monthly benefit after the RTW period has ended. So a physician with a part-time income of $7,500/month and a monthly LTD benefit of $9,000 would receive a slightly higher benefit amount after the RTW period using this calculation. This is because 50% of $7,500 is $3,750. If that amount is then subtracted from the monthly benefit amount of $9,000, we get a $5,250 monthly benefit after the RTW period.
In this particular example, the physician would receive a higher benefit amount under the 50% offset formula.
A solid LTD policy performs both of these calculations and then uses the higher number to pay the claim. This is important because a healthcare professional’s part-time income, and how it compares to their original PDE, can vary widely based on how disabled they are or how much they choose to work. Physicians with higher part-time earnings will likely benefit more from the proportionate loss formula, while physicians who are only working a few hours a week (and therefore have low earnings) may benefit more from the 50% offset formula. As long as the policy language specifies that the higher of the two formulas is used after the RTW period has ended, it is considered to be a “best of both worlds” calculation and will offer the best income protection for part-time work.
Healthcare professionals should be able to manage their return to work for however long they need to, while also maintaining their family’s financial health. By offering a policy that transfers this decision-making from the insurer to the claimant in the case of partial disabilities, and that also provides more than one calculation option for partial benefits, brokers can give their clients the best possible income protection while maintaining the most freedom of choice.