Disability Insurance Claim Advice
Navigating Past the Potenial Landmines of a Disability Claim
The New York State Dental Journal, January 2019
By Arthur L. Fries, RHU
You have a disability policy, maybe more than one. But do you know what to do with it if you have to file a claim?
You may never have to file a disability claim, but if you do, you will want to have this article stored with your disability policy documents. For starts, would you want me to maneuver a high-speed drill and work in your mouth? Why not? The answer is obvious. I would have no control since I do not have any experience or training to perform the job properly. Yet, there are dentists who submit disability claims who do not get proper advice and, therefore, have no control over the outcome of their claim. Monthly benefits could potentially be in the millions of dollars, yet a cavalier approach is taken to this important life-saving benefit that can influence your future standard of living.
In order for you to exercise control – and not the insurance company – you must know the answers to the questions posed below. Not knowing can make the difference between success and failure, and it will have an impact on the amount of money that will flow into your bank account. Some of these questions relate to how you handle matters before a disability claim is filed; others relate to what you do afterward. Answers to some of these very important questions are provided in this article.
- Corporate Structure:
If you are a corporation, should the corporation deduct the disability premiums as a business expense? Will that influence the amount of benefits you receive that are tax free? If premiums are paid by the corporation, can it prevent you from claiming “bad faith” if you are forced to sue the insurance company? Can you reverse the premium paying process where you do not take a business deduction and receive monthly benefits tax free? Will the same apply to the “bad faith” issue?
A corporation should typically not deduct the premiums related to a personal disability policy as a business expense. If it does, it will cause any benefits paid to be taxable. From a convenience standpoint, the premiums can be billed to the corporation, but the claimant owner should make sure the corporation is reimbursed for the premium so that, if added to your salary, you are paying tax on that amount. This way, you will receive tax-free benefits at claim time.
Some CPAs will suggest that if no claim for the year is made, the corporation can reimburse you for the premium paid and, in turn, the corporation is taking the premium as a tax deduction. The IRS rule, however, says that in order to receive the benefits tax free, the premium must be paid on a personal basis at least one year prior to the claim beginning date. Say the claim will occur this year and the premiums were paid and deducted by your corporation. When you file your tax return the following year, make sure that your CPA shows that you reimbursed the corporation for the current year an all future premiums. It is possible you may have to also file an amended tax return for the prior year in order to meet the “one-year-prior” rule. That said, if even one premium was paid and deducted by your corporation, it would fall under the ERISA guidelines.
Based upon court precedent, you would give up your right to sue the insurance company for bad faith (punitive damages) if you are located in a “bad faith state” that allowed such lawsuits. Prior to the “court precedent case,” if you showed on an application that the corporation was paying the premium, you could secure a larger monthly benefit. Earning $300,000 a year after business expenses might allow you to secure $10,000 in monthly benefits if you paid the premium personally. But if the premium is paid and deducted by the corporation, you could secure $12,500 in monthly benefits. After the policy was issued (if it was the Guaranteed Renewable or “Non-Cancellable” type), you could change the mode of premium payment from corporation to personal in order to receive any claim benefits tax free, but this would not solve the ERISA issue. If your state does not permit “bad faith” lawsuits, ERISA become a non-issue.
- If you are in a state that offers state disability benefits and you have paid to be covered for them, will these benefits be deducted from your personal disability benefits? How about Social Security disability benefits if eligible – will they be deducted? And what if you have an association group plan and a group plan where there is an employer / employee relationship (your office plan or an office you work for) – will there be any “offsets,” that is, deduction of monthly benefits by one plan or the other? Could you wind up with neither insurance company paying?
- If you own your practice, should you sell the practice before or after you go on total disability? Contrary to some advice from attorneys and others, you should always sell the practice before you claim total disability. If you claim total disability before you sell and before you stop working, you will not receive an answer from the insurance company as to whether it is approving your claim. That’s because you have not stopped working. Also, if the sale does not go through, you have an insurance company claim person calling you and asking for more information as you are still working, even though you and your physician have said you are totally disabled. The insurance company would then question how you can continue to work given your claimed medical issues.
The contrary response would be that you don’t sell the practice so you can see if the insurance company will approve your claim. But, since you won’t get an answer from the insurance company until you have stopped working, from a clinical standpoint, that advice does not make sense. If after you sell the practice, the insurance company does not approve the claim, you still have the opportunity to seek legal recourse in the way of a lawsuit, or you can work for another dentist if you want. A disability claim consultant with a very high claim approval rating can increase your chances of being approved.
- If you have a partial disability claim and you hire another dentist, will the insurance company consider just your earnings based on your production, or will it take into account the earnings of the office, less business expenses?
- Do you know if your doctor or your staff has ever taken a course related to the completion of a disability claim form (Attending Physician Statement)? Do they know the difference in contractual wording as it relates to partial/total disability, between your personal disability policy, group disability, association disability, state disability, Social Security disability or Worker's Compensation?
- Do you know why many insurance companies are now having you return claims forms to post office box addresses and not to street addresses?
- Will only one Attending Physician Statement be required, or will one be required for each of your treating physicians, and will that have an influence over the control of your claim? Is there anything you can do to cause the insurance company to accept only one Attending Physician’s Statement?
- Do you know how the insurance company uses social media to control claims?
- Make Yourself Known: When you get a new person assigned to your existing disability claim, do you know if that person has read your entire file, from the beginning? And if not, can that influence his or her thinking and approach to your receiving benefits?
Claim review people get moved around, promoted, or leave the company, and new people end up taking over existing claims. Usually, the person does not have time to read an entire claim file from the beginning. He or she may call the claimant, who has been submitting a continuation Claimant’s and Attending Physician’s form semiannually or annually and tell that person forms need to be submitted more frequently. The claimant may have had an I.M.E. (independent medical evaluation) six months or a year prior but, because the claim representative only glanced at the file, he or she is not aware of it. So the claimant is told that another I.M.E. is going to be done.
The best way to combat such an occurrence is to ask the claim person if he or she has read the entire file. Often, the answer is “no.” In that case, tell the representative that before you will discuss more frequent claim forms or another I.M.E., you want written confirmation that the representative has, in fact, read the entire file. Because your file can be quite lengthy, the claim person will likely appeal to the claim manager if he or she can pass on the request by the claimant. The claim manager will usually acquiesce, and the representative will move on to another claimant. You are not likely to receive any more harassing demands from the claim person.
- Should you build up your practice for a higher potential sales future before your claimed total disability date? Although building up the practice in terms of gross collected fees can be a way for you to get a higher price for the practice, it will be contrary to your professed medical issues when you file a total disability claim. Chronic pain can cause you to reduce your hours, or maybe you just “tough it out” until the practice can be sold, but increasing your hours is a red flag for the insurance company and not a good strategy on your part.
- What’s the best way to transition from a partial disability claim to a total disability claim?
- Is the definition of total disability based upon your profession/occupation at the time you purchased a disability policy or at the time you claim disability?
- When will an insurance company say that you have “dual occupations?”
- If you keep your disability policy past age 65, there is usually a requirement that you work full time. Do you know what full time means? Is it three days a week? Four days a week?
- If the insurance company requests that you be examined by a physician it is paying for, are you required to attend this exam? If they want you to be tested by a physical therapist for approximately three hours or more, is this permissible? Do you know how to get a copy of these reports?
- If you are seen at your residence by a field investigator, are you required to read and sign/date a document handed to you in response to the questions you were asked?
- Are You a Dentist or a Supervisor? When the claim form asks how many people you employ and how many people you supervise, do you know why this question is asked and that most dentists respond incorrectly? Most will answer, for example, that they employ six and supervise six. The first answer may be correct, but the second is incorrect because the question can apply to many different types of claimants. Working on a General Motors assembly line as a supervisor is different from what a dentist does. Do you stand next to your dental hygienist for 50 minutes out of the hour and supervise his or her work? Do you stand alongside your receptionist all day and tell him or her how to answer the phone? Do you tell you office manager how to write a check? Of course not. You hire people who know how to do the job; therefore, you are not a supervisor. Yet more than 90% of the “practice run” claim forms that I audit get this answer wrong. And if you answer incorrectly, you may set yourself up for a “dual occupation” scenario, in which the insurance company says you are a dentist and a supervisor.
Suppose you submit a total disability claim. The insurance company may say it can understand why you can no longer practice as a dentist, but it believes you can continue to work as a supervisor and consider yours to be a partial disability claim. In order to collect on a partial claim, you must still be working, and you might be eligible to collect a percentage of the monthly benefit. However, since you stopped doing clinical dentistry and expected to be paid 100%, the insurance company will say it will pay you nothing, since you haven’t continued with your supervisory duties. At that point, you are likely to feel totally defeated.
- Do you know how to interpret policy contractual language, such as preexisting conditions, fraudulent misstatements, prudent man clauses, incontestability, rehab and presumption of disability?
- Do you know the difference between a “pure” occupational total disability definition, a modified occupational definition and a definition that relates to your “education, training and experience?”
- If offered a buyout of your disability policy, would you know if it is a fair offer? Is there any room to negotiate a higher figure and how much higher?
Unless you know the answers to the above questions and many more that arise while you are applying for disability benefits or petitioning to keep your existing disability claim continuing, you are prejudicing your rights to collect on a legitimate disability claim. Control of a disability claim can provide a higher rate of success and reduce the anxiety that goes along with the pile of paperwork you never contemplated when you purchased your policy.