Tag Archives: medical condition

Broad Array of Roles for Disability Coverage

In the world of disability insurance, most financial advisers think of personal income protection. This is only the beginning of the possibilities that the adviser may be able to provide to safeguard clients, their businesses and assets. There are many products available within the disability insurance realm and diverse opportunities to provide your expertise.

Diversity of Product:

Key Person

The most valuable asset in a business is the people. Imagine if one of your key executives had an illness or an accident and was unable to work and continue creating revenue and profit for your company. What effect would this have on the bottom line? How would you replace the lost revenue?

Retirement/Deferred Compensation

At a closely held, family owned business, benefit plans favoring the family and the senior management are important for retention and reward. Over the past year, a non-qualified deferred compensation plan is put in place for the top 10 executives. What happens if one of the executives becomes sick or hurt and is unable to work and contribute to the plan? Can the plan be funded? If yes, how?

Contract Fulfillment

The board of a company just signed the largest contract in company history for a new CEO. The contract has financial guarantees, performance bonuses and the other usual language. What happens if the CEO becomes ill or has an accident and is unable to perform his duties? The company is on the hook for the financial guarantees. Should this be funded out of company cash flow or have the liability transferred through a disability insurance policy?

Loan Protection

There are more than 21 million small business loans valued at more than $600 billion. Business loans are taken out for business-related expenses, such as:

  • Purchase or expansion of a practice or business
  • Purchase of a large piece of equipment
  • Facility renovations
  • An increase in working capital or build-up of inventory
  • Purchase of a building or land for a business

It may make sense to provide disability insurance to cover the business loans in the event the business owner has a disabling accident or illness. There are separate insurance policies or riders to a traditional policy that provides benefits to cover the loan or loan payment obligations.

Impaired Risk

Perhaps a client will not qualify for traditional or even non-traditional coverage because of an extensive medical history. Impaired risk coverages can work for pre-existing medical conditions.

Diversity of Opportunity:

QSPP Can Prevent Dysfunction and Disruption

  • Could you continue to pay a disabled employee’s salary from your business?
  • How long could you afford to pay a salary?
  • Would the payments you pay be deductible to your business?

It is the American dream: turn a simple idea into a start-up and, through innovation, hard work and the right people, grow that start-up into an industry leader. It may seem obvious that a business owner would want to do everything to protect the people who help grow the business. As the business grows, however, offering everyone the same protection in the case of injury or illness may become difficult. Owners have a tendency to focus on partners, executive staff and key employees. This is a completely logical line of thinking, but without a Qualified Sick Pay Plan (QSPP) in place, it could put the business at high risk.

A QSPP is a formalized plan determining who will be paid, how much will be paid and how long salary will be continued when employees are unable to work because of an injury or illness. The plan can have different determinations for different classes of employees within the company. It can also be self-funded, or funded through an insured product, such as disability income policies.

Why a QSPP?

There are two key reasons: tax implication of benefits paid and potential precedent. The Internal Revenue Code states that wages paid to a disabled employee may not be deductible as a business expense unless they are paid under a salary continuation program. Without a program in place, any payments made are not deductible by the business and are fully taxable to the employee.

The implementation of a plan allows a business to deduct wages paid to employees who cannot work, and an employee can receive qualified benefits tax-free. The absence of a QSPP could result in the IRS disallowing benefits paid to an employee as sick pay. This would have serious tax implications on the employer and the employee.

An even greater danger to an employer is the existence of benefit payment precedent. It may seem completely logical to continue the salary of key employees responsible for revenue growth, but, without a QSPP, any sick pay for any employee creates a precedent of the same pay for all employees. Any variation between employees could be viewed as discrimination. To eliminate this risk, it is important to create a formal, written plan stating any differences of salary continuation length or frequency between classes of employees before an employee needs to use it.

How Is a QSPP Implemented?

A QSPP requires two components: a plan resolution and plan letters to employees.

A plan resolution is drafted and executed by the company’s board. This resolution defines the classes of employees, how benefits will be paid and how long they will be paid.

Plan letters communicate the information to the employees. They can be class-specific.

How Can Benefits Under a QSPP Be Funded?

This is an important consideration. A QSPP can be fully self-funded, fully insured or a combination. If a plan is fully self-funded, the company can be burdened with all of the responsibility of determining who cannot work and how long they can’t work and of paying benefits from company accounts during a time when, depending on the person who cannot work, the company may need the funds the most. Additionally, the FASB 112 Accounting Rule makes a company become an insurance company by requiring it to carry the present value of future claims as a liability on the balance sheet if it chooses to self-fund a salary continuation program. Two implications of FASB 112 are:

  • Companies with self-funded disability programs must set aside all the money upfront
  • This requirement can significantly reduce profits while increasing liabilities

Under a QSPP plan with disability income insurance, the insurance company determines when your employees cannot work, the insurance company determines how long they cannot work and the company pays smaller, regular payments for the benefit during a time when all employees are actively at work. A fully insured plan not only takes much of the liability away from the employer, but it also allows the company to predict future plan costs. Disability income insurance premiums are level for the life of the policies. Three tax shelters of an insured salary continuation program are:

  • Premiums paid are deductible as a fringe benefit expense (IRC Section 162(a)).
  • Employer premiums are not included in employee’s taxable income. (IRC Section 106).
  • A special tax credit may be available for employees that are permanently and totally disabled (IRC Section 22(b)).

In working with the son of the owners of a medium-sized technology security firm, I learned that Mom and Dad would take care of the son if anything were ever to happen. As a financial adviser, what do we do now? A conversation about the company benefits and what the parent/owners wanted to have happen with their family and their employees created an opportunity. By educating the clients on sick pay plans, we were able to provide better recommendations to the owner (parents) for the benefit of the son and the other employees while keeping the firm in legal compliance.

Divorce Settlements

Most if not all settlements include division of assets and liabilities owned by the parties. Additionally, when appropriate, especially if there are children involved, there is an alimony agreement. What happens to the continuing alimony payment if the payer becomes sick or hurt and unable to earn the income to make the support payment?

With the divorce rate at 50% or higher for U.S. marriages, there is an opportunity to protect a spouse and provide the children a source of income used for living and educational expenses. The solution is to place a disability insurance policy on the payer, with the spouse as beneficiary.

Occupational Diversity

Students, coaches, umpires, golf professionals, chefs, race car drivers, comedians and musicians, to name just a few, are thought to have a hard time obtaining disability income insurance. They are not hard to insure if you are able to go a little deeper within the traditional markets or outside to the non-traditional markets.

Our hobbies sometimes position us to have access to people in these diverse occupations. One of my hobbies is to watch, listen and learn from professional speakers. It has been a privilege to spend time with some of the all-time greats. I am always amazed at their accessibility if you step forward and participate. Once, I hosted Chris Gardner, who became nationally know for his life story through the movie “Pursuit of Happiness,” where his role was played by Will Smith. As Chris and I began building a relationship, he learned about our firm, and it became evident that no one had spoken to him about protecting his flow of income from a disabling accident or illness.

There are many diverse opportunities for you as the adviser to protect your client’s flow income, business entity and valued assets. Think beyond personal disability insurance and help your clients understand their needs to secure their financial foundations.

The ‘CURES’ for Work Comp Claims

When an injured worker submits a claim, it initiates processes aimed at returning the injured worker to gainful and sustainable work at the earliest possible time. In this journey, checkpoints and milestones are the best means to monitor progress. Checkpoints generally relate to visits with a medical practitioner where medical conditions are checked against expectations and, if necessary, treatments are adjusted. Milestones are associated with reaching a goal.

At the first medical appointment, the physician is required to prepare a report for the claims administrator based on a comprehensive medical examination of the injured person, including a review of the medical history. At the same time, the physician can access CURES (Controlled Substance Utilization Review and Evaluation System) to check whether the patient has received any scheduled controlled substances in the prior 12 months. Through this access, the physician can identify an at-risk patient and accordingly establish a treatment plan that considers both medications and adjunctive treatments. Also, if a patient is identified as an addict, he can be referred for rehabilitation and social re-integration. With subsequent medical appointments, the physician can again use CURES to check for any changes to the patient’s scheduled controlled substances usage since his last visit.

The importance of a physician using CURES to check a patient’s use of scheduled controlled substances cannot be overemphasized, especially in workers’ compensation, where a patient may not be forthcoming in sharing comorbidity information because of a lack of trust. Not knowing if a patient is currently taking scheduled controlled substances, the physician could jeopardize the patient by prescribing inappropriate medications.

In addition to the medical profession, CURES is available to Department of Justice investigators and law enforcement agencies to identify persons who visit a number of physicians to obtain supplies of scheduled controlled substances for abuse and diversion (i.e. physician shopping). Pharmacists and numerous regulatory boards from the medical board to the veterinary board also have access to CURES, providing them with the opportunity to monitor the medical profession for aberrant prescribing of scheduled controlled substances.

While states like Florida implemented a PDMP (prescription drug monitoring program) as late as 2011, California has monitored Schedule II controlled substances since 1940 and with the introduction of CURES in 1996 extended its monitoring to include Schedule III and IV controlled substances. Online access to CURES has also been available to the medical profession since 2009. Consequently, California has not experienced the abuse and diversion that Florida has with its “pill mills.”

Access to CURES by claims administrators or their representatives (i.e. third party payers) will not deliver improved quality of care or reduce prescription drug fraud and abuse and will add unnecessary costs through duplication of efforts already being performed by others using CURES. Close monitoring of checkpoints, however, by the claims administrator will provide benefits. Monitoring is accomplished through what is commonly referred to as “encounter data” and includes diagnoses, services performed and medications dispensed along with amounts charged and paid. Diagnoses, medical procedures and pharmaceuticals translated into coding systems such as ICD-10 (International Classification of Disease, 10th revision), HCPCS (HeathCare Common Procedure Coding System) and NDC (National Drug Code) provide excellent opportunities to automate the monitoring of encounter data.

Have claims administrators been able to implement technology solutions to automate the monitoring of encounter data and achieve outstanding results? Over the past two decades, many claims administrators have opted to outsource the management and control of critically important functions such as utilization review, medical bill review and pharmacy monitoring. Many of the outsource organizations only focus on that part of the encounter data that directly applies to their function — for example, pharmacy benefit managers only monitor the pharmacy. But using all the encounter data can promote a vibrant synergy very capable of achieving outstanding outcomes and results for the injured worker.

Losing control of encounter data eliminates the claims administrator’s ability to establish and monitor adherence to best evidence-based practices. When physicians have not adhered to their proposed treatment plans, opportunities to trigger yellow and red flags for investigation are lost.

Claims administrators who have automated the monitoring of their encounter data can assist states in reducing abuse and diversion by monitoring the quantities of medications being dispensed in a progressive or step therapy pain management plan, for example, and encouraging unused supplies to be returned to the physician at the next appointment. This can be achieved at no additional cost to the claims administrator and reduces the quantities of unused or unneeded prescription medications in circulation, which has been the focus of the DEA’s (U.S. Drug Enforcement Agency) “take back” initiatives. To date, the DEA has collected in excess of 1,400 tons of unused medications, which could otherwise have found their way into the illicit drug market.

For as long as the U.S. remains the biggest licit and illicit drug market in the world, claims administrators will remain challenged to deliver on their workers’ compensation claims handling obligations.

With a changing workforce, claims administrators will need to move more and more toward a biopsychosocial approach to managing medical conditions. They must provide quality care at the lowest possible cost, which can only be achieved through the fine analytics of consolidated encounter data.

Capturing encounter data through the claims administrator’s processes and fine analytics will consistently yield the best claims outcomes, from earlier return-to-work to lower costs associated with medical treatment through to automated overseeing of a claim, including provider performance monitoring and evaluation. All of these are the essence of superior workers’ compensation claims management.