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Tutorial: Find Maximum Capacity Language in Group Long-Term Disability (LTD) Contracts

By James Crook 1:53 pm MDT 11/11/2020

James (00:05):
All right, thanks everyone for watching. Today, we’re going to produce something we’re going to call a tutorial video. We will be exploring something that is harmful to healthcare professionals in their long-term disability contracts, and it’s something called maximum capacity. To help explain how that works, we have Keith Mangrum with us today. Keith is the Senior Regional Vice President of Sales at MGIS. He’s been at MGIS for 15 years, and he’s been in the physician disability market for over 20 years. Hey, thanks for filming with us today, Keith.

Keith Mangrum (00:44):
James, thanks, and I appreciate the opportunity, and if you would, put on the screen the first page.

James (00:52):
Yeah, absolutely. So what we’re going to do is we’re going to actually do a screen share of an example LTD policy. It’s a real contract, but we’ve redacted everything. So Keith is going to show us how to examine an LTD contract to find this language and what to do about it. All right, so here we go. And we’ll make sure that-

Keith Mangrum (01:17):
Okay, there you go.

James (01:18):
All right. Go ahead, Keith, and just tell me what to do.

Keith Mangrum (01:23):
All right, you’re doing great. So in talking with brokers and with physicians, it’s clear that they are pretty knowledgeable about the benefit that they are going to receive if they become disabled, and many of them are concerned about the definition of disability and being able to qualify for that benefit. One thing I found out is that many doctors and many brokers aren’t aware of how a benefit would be paid if a doctor became disabled and was partially disabled. Many times, the physicians believe that the benefit will be the same as if they were helping disabled, but if they go on a claim, they find that its very different, and therefore, it’s kind of a disappointment that they weren’t expecting. One of the reasons for this disconnect at claim time, when you have a partially disabled claimant, has to do with something called maximum capacity.

Keith Mangrum (02:31):
In this particular contract, you’ll notice that the section that talks about how much will this company pay if you’re disabled and working, it references something called disability earnings, so it says we will send you the monthly payment if you’re disabled and your monthly disability earnings if any are less than 20 percent of your indexed monthly earnings due to the same sickness or injury. So basically, if you’re disabled and you’re working very little, and you’re earning less than 20 percent of your previous disability income, they are going to send you the full benefit as if you were totally disabled.

Keith Mangrum (03:11):
However, the next paragraph talks about if you’re disabled and your monthly disability earnings are from 20 to 80 percent, then there are some formulas that they are going to use. So now we’re talking about a situation where your disability earnings, your disabled, you can’t work fully but you’re able to work partially, you’re earning between 20 to 80 percent of what you used to earn, and now the question is what will your benefit be? So then it goes into an explanation of the typical 12-month return-to-work incentive, and then what happens after 12 months if you’re still partially disabled. What I would like to focus on for just a minute is the phrase or the words disability earnings. Then let’s go to the next page and we will talk about this-

James (04:03):

Keith Mangrum (04:04):
Disability earnings. So what you want to do is you want to go to the glossary because it is highlighted, so it is in the glossary, and it will tell you what disability earnings is. You would think it would be the income that you’re earning while you’re disabled; that’s pretty typical of what you would expect that definition to be, but, in fact, what it says is that disability earnings means the earnings which you receive while you’re disabled, which is in working, which we just said, plus the earnings you could receive if you were working to your maximum capacity. So now, what’s happened is this carrier has introduced something that’s not really objective, meaning you’re actually making the money, but something that’s subjective, meaning it’s what you could receive if you were working to your maximum capacity. So let’s take a look at what “maximum capacity” is defined as. It’s there on the next page.

James (05:08):
Here it is.

Keith Mangrum (05:10):
And we highlighted for physicians, this is also true for other employees as well, but especially for physicians. What it says is that maximum capacity means, based on your restrictions and limitations, the greatest extent of work you were able to do in your regular occupation that is reasonably available. So what that’s saying is that when they determine what your benefit is going to be if you’re partially disabled, say you’re disabled and you’re able to do some work, they will not only look at what you actually are earning from the work that you are doing but what you could earn if you were working as much as you possibly could in your regular occupation.

Keith Mangrum (05:53):
So let me give an example of where that maybe a disconnect with the physician at claim time. So we’ll take a surgeon, and the surgeon has duties, one, obviously to do surgery of whatever type that they do, but secondly to consult with patients and maybe consult with other doctors about their patients to determine what surgery needs to be done. So let’s say that I am the surgeon who becomes disabled. I have a tremor in my hand; I am not able to do the type of surgery that I used to be able to do, but I can still see patients and still sit in an office and still consult with both doctors and other patients, and that was part of my job before.

Keith Mangrum (06:41):
What this carrier can do is they can say, you have the capability to work and do some of the duties you used to do, so you need to do that. And we’re going to base your benefit not on what you actually are making but what you could be doing or how much you could be earning if you were working to your maximum capacity. So, theoretically, you could sit at a desk for eight hours a day and talk to patients or talk to other doctors about their patients and that would be working to your maximum capacity and whether you want to do it or not, they can require you to do that. And if you refuse to do it, they can base your benefit on what you could be earning if you did do it. So really what it is a very subjective approach to a claim, and it takes the choice of working, assuming you’re disabled, it takes the choice of working out of your hands as the physician and into the hands of the claims examiner, which is not what most physicians want to happen at claim time.

James (08:00):
No, that’s a great explanation, thanks. So what should…if a broker notices this type of language in a contract for one of their clients or if they’re considering it, what should they do?

Keith Mangrum (08:14):
Well, sometimes, wording is a little different. In this case, it’s “maximum capacity.” I have seen “optimal capability,” I have seen “to the greatest extent possible,” that kind of phrase, so, you have to, so really what you do is you have to see what is the definition of the earnings that you’re going to use to base your benefit on, not just your [inaudible 00:08:42] but your disability earnings. Look for that kind of language that’s subjective and not objective, and you’ll often find that, as I said, based on your ability, your capacity, the possible capability that you have. So if you do that, then I would then go to the carrier and try to get them to take that out. I have not found a doctor who wanted that kind of language in their policy.

James (09:18):
No. Of course not, no.

Keith Mangrum (09:20):
But ironically, I find it very often in physician disability policies because the broker and the doctor didn’t realize it was in there and didn’t realize really what it is and what it does.

James (09:36):
Understood. Okay, great. Well thanks for your time, Keith. That was a great explanation. I think anyone who watches will get a lot out of that.

Keith Mangrum (09:44):
All right. I appreciate it and look forward to the next one.

James (09:47):
Yeah, thanks Keith.

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