Control of a disability claim

Art L. Fries

You may never have to file a disability claim, but if you do, you will want to keep this article available with your disability policy documents.

Let me start by asking, would you want me to maneuver a high-speed drill in your mouth? You wouldn’t? Why not? The answer is obvious. I have no training to properly perform dentistry. Yet some dentists submit disability claims and do not receive proper advice, and therefore have no control over the outcome of their claims. Some could receive potential monthly benefits in the millions of dollars, yet if the claims person takes a cavalier approach to this important benefit, the dentist’s future standard of living will be influenced.

In order for you (and not the insurance company) to exercise control, you must know the answers to the following questions. Not knowing these answers can mean the difference between success and failure and 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, and some relate to what you do afterward. Some answers to these important questions are provided in this article.

Question 1

If you work as a corporation, should you have the corporation deduct the disability premiums as business expenses? Will this influence the amount of benefits you receive that are tax-free? If premiums are paid by the corporation, can this prevent you from claiming bad faith if you’re 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 premiums related to personal disability policies as business expenses. If it does this, 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 premiums so that if they’re added to the owner’s salary, the owner is paying tax on that amount. This ensures he or she will receive tax-free benefits at claim time.

Some CPAs suggest that if there is no claim for the year, the corporation can reimburse the dentist for the premium paid and the corporation can take 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.

As an example, let’s say a claim will occur this year and the premiums were paid and deducted by your corporation. When you file your tax return the following year, you should be able to show your CPA that you reimbursed the corporation for the current year and all future premiums. You may also have to file an amended tax return for the prior year in order to meet the “one year prior” rule.

That said, even one premium paid and deducted by your corporation would come under the ERISA guidelines. Based on court precedent, you would give up your right to sue the insurance company for bad faith (punitive damages) if you’re located in a “bad faith state” that allows such lawsuits. Prior to the court precedent case, if your application showed that the corporation paid for the premium, you could secure a larger monthly benefit.

Earning $300,000 per year after business expenses might allow you to secure a $10,000 monthly benefit if you paid the premium personally. But if it was paid and deducted by the corporation, you could secure a $12,500 monthly benefit. After the policy is issued (if it was the guaranteed renewable of “noncancellable” type), you could change the model of premium payment from corporation to personal to receive any claim benefits tax-free, but this would not solve the ERISA issue. If your state does not permit bad faith lawsuits, then the ERISA issue becomes a nonissue.

Question 2

If you own your practice, should you sell the practice before or after you go on a total disability claim?

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 clinically, you will not receive an answer from the insurance company about whether your claim is approved. This is because you did not stop working. Also, if the sale does not go through, an insurance claims person will be asking for more information, but you’ll still be working, even though you claimed to be totally disabled.

The insurance company will then question how you can continue to work based on the medical issues you claim to have. One approach is not to sell the practice and see if the insurance company will approve your claim; then you know it’s legitimate. But since you will not receive an answer from the insurance company until you no longer work, this advice does not make sense from a clinical standpoint.

If, after you sell the practice, the insurance company does not approve the claim, you can seek legal recourse in the way of a lawsuit, or you can work for another dentist if you choose. A highly rated disability claim consultant can increase your chances of being approved.

Question 3

When a new claim person is assigned to your disability claim, do you know if the person has read your entire file? If the person has not, might this influence his or her thinking and approach to you regarding your future benefits?

Those who do claims reviews get moved around or leave the company. As a result, a new claims person will be assigned to your claim. These people usually do not have time to read entire claims files. And sometimes they harass people. One example is that they call claimants who have been submitting a “continuation claimant’s and attending physician” form once or twice a year and inform them they should submit the form more frequently. However, a claimant may have had an independent medical evaluation (IME) six months or one year earlier, but because the claim rep simply glanced at the file, is not aware of this, so they tell the claimant that they will have another IME done. Claims reps use other harassment techniques, but this is a good example.

The best way to combat these scenarios is to ask the claims person if he or she has read the entire file. The answer is often no, in which case you can tell the person that you want written confirmation he or she has read the entire file. Because files can be quite lengthy, claims people often try to pass these files on to other claims people. Then you won’t hear from someone for a long time, and this is another harassment technique that they use.

Question 4

Should you build up your practice for a higher sales figure before your claimed total disability date?

Although building up the practice in terms of gross collected fees can be the basis for asking for a higher sales price, this will be contrary to your claimed medical issues when you go on total disability. Chronic pain can cause you to reduce your hours or simply 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.

Question 5

Claims forms ask, “How many people do you employ, and how many people do you supervise?” Do you know why they ask this question? Did you know that most dentists are ill prepared to answer and get this question wrong?

Most dentists do not understand this question and answer with the same number.For example, they say they employ six people and supervise six people. The first answer is correct, but the second is not, because the question is often interpreted incorrectly.

The second part of the question can apply to many different types of claimants. Working on an assembly line as a supervisor is different than how most dentists work. Do they stand next to the dental hygienists for 50 minutes of each hour and supervise how the hygienists work? Do they stand next to their receptionists all day and tell them how to answer the phone? Do they tell the office managers how to write a check? Of course not. Dentists hire people who know how to do their jobs, and therefore they are not “supervisors.” Yet more than 90% of the practice claims forms that I audit have the wrong answer to this question. When it’s wrong, dentists may set themselves up for a “dual occupation” scenario in which the insurance company says that they are dentists and supervisors.

Now, let’s say a dentist submits a total disability claim. The insurance company may respond that it can understand why the dentist can no longer practice clinically, but that he or she can continue to work in the supervisory position. It will be considered a partial disability claim. In order to collect on a partial claim, the dentist must still be working and might be eligible to collect a percentage of the monthly benefit. However, since the dentist stopped doing clinical dentistry completely yet expected to be paid 100%, the insurance company will say that it will pay nothing since the dentist has not continued with the supervisory duties. At that point, the dentist may feel totally defeated.

Don’t give up

Unless you know the answers to these questions and many more that will come up when applying for disability benefits, you might be prejudicing your rights to collect on a legitimate disability claim. Control of a disability claim not only provides a higher rate of success, but reduces the anxiety that goes along with the pile of paperwork that you never imagined when you bought the policy.

Art L. Fries has been a disability claim consultant since 1995. His advice is sought by physicians, dentists, chiropractors, and high-end executives and professionals. He is an independent life and health insurance broker who sold disability insurance for more than 30 years, 20 of those to attorneys in the Los Angeles area. He provides advice related to new, problem, and denied disability claims. Contact him at (800) 567-1911 or [email protected]. Visit afries.com.