Understanding Ancillary Insurance Benefits for Physicians

Physicians generally command substantial salaries, but the paycheck itself is only one component of a physician’s total compensation. Benefits such as retirement accounts/contributions, education reimbursement/repayment, professional development reimbursement, paid time off, and insurance coverages account for a substantial portion of a physician’s compensation. Of these benefits, physicians are sometimes most unfamiliar with the ancillary health insurance benefits.

Related: What Should an Employment Agreement for Physicians Include?

What Are Ancillary Health Insurance Benefits?

Ancillary health insurance benefits encompass the insurance benefits that employers offer, except for health insurance.

Health insurance is widely considered a primary benefit, and thus isn’t grouped with ancillary benefits. It’s widely expected for most positions that aren’t per-diem or very limited part-time. Full-time positions are required to provide the insurance by federal law.

Moreover, health insurance is more essential than ancillary benefits (although ancillary benefits are quite important too). A healthcare employer not providing health insurance for full-time employees also would simply be hypocritical.

Ancillary benefits are all of the insurance coverages offered other than a main health insurance policy. These can include coverages that directly complement health insurance, such as a health savings account, flexible spending account, vision insurance or dental insurance. They also include coverages that are important but not as closely tied to health insurance, such as life insurance and disability insurance.

Because federal law (or state law in most states) don’t dictate ancillary health insurance benefits, they can vary substantially between employers. Understanding these benefits is fundamental for assessing their importance and value, and that’s fundamental for fully assessing a job’s total compensation.

Why Are Ancillary Benefits Important?

The importance of ancillary health insurance benefits shouldn’t be understated. Having insurance for cancer, Covid-19 (recently), and other major medical issues is of the utmost importance. That doesn’t diminish the importance of ancillary benefits, though.

If physicians don’t receive ancillary benefits through a position, there are several that they should purchase on their own and some they might want to purchase:

  • Vision and dental insurance can provide savings if there’s a major eye or teeth issue, but physicians usually earn enough to cover these costs.
  • Financial losses caused by death or disability can be much greater, and too much for physicians to prepare for. For this reason, life insurance and disability insurance are generally recommended even if an employer doesn’t provide them.
  • Advantaged accounts aren’t available unless an employer provides them (for FSA), or chooses a health insurance plan that’s compatible with them (for HSA). These are less essential, but are major pluses if a physician has them as part of a compensation package.

The cost of life insurance and disability insurance alone is typically tens of thousands annually when purchasing protection that’s suitable for high-income earners, including physicians. This is money that probably should be spent even though the premiums can be high, because the two protections are so important.

Other benefits too can save thousands, and an HSA can sometimes function as a tax-advantaged retirement account (see HSA). The total value of these is not a small portion of a physician’s compensation package.

Read this: 5 How to Avoid Common Physician Tax Errors

What Types of Ancillary Health Insurance Benefits Do Employers Offer?

Employers determine which ancillary health insurance benefits they offer, so there’s not one set that physicians should expect to receive. The following are the common ancillary benefits that employers may choose to make available: life insurance, disability insurance, vision insurance, dental insurance, health savings accounts,  flexible spending accounts, retirement plans, wellness plans, and educational assistance. Let’s look at the most common benefits.

Life Insurance as an Employee Benefit

Life insurance provides death benefits should the insured pass away unexpectedly. The policy pays the benefits to named insureds, which can be virtually any person or organization, although most people name family members who financially depend on them.

Depending on the amount of life insurance that a person has, the insurance can help surviving family members pay for funeral expenses, major future costs or living expenses indefinitely.

Even if physicians have sufficient savings for their dependents, life insurance benefits have the unique advantage of being paid quickly upon a policyholder’s passing. While other assets might be tied up in probate, life insurance death benefits normally bypass that process and are paid much faster. The quick payment can help pay for immediate expenses after someone passes, such as funeral expenses.

What Life Insurance Do Employers Offer?

Many employers offer minimal life insurance policies for employees, sometimes even including entry-level employees. These policies might only provide $1,000 or $5,000 in benefits. While this isn’t much, it can help defray end-of-life expenses. The policy will cover funeral expenses, travel costs for funerals, or other smaller costs.

Some employers provide larger life insurance policies for higher-level workers like physicians. Higher levels of insurance can replace or supplement other life insurance policies that physicians maintain.

The type of life insurance policy that employers offer is typically term policies. These provide coverage for a set duration, which is normally the time of employment in the case of an employer-provided policy. They distinct from whole live policies, which provide coverage for the duration of a policyholder’s life and are structured differently.

Employer-provided life insurance also only covers the employed physician, and not their spouse or family. This is no different from self-purchased life insurance, however, as policies are sold to individuals.

For more about life insurance, reach the Physicians Thrive Life Insurance Guide. You can also request additional information about life insurance.

Disability Insurance as an Employee Benefit

Disability insurance provides financial compensation should a policyholder be unable to work due to a covered disability. Payments normally don’t match a policyholder’s full wage, but they are a substantial income replacement. Most plans provide enough for policyholders to approximately maintain their lifestyles.

Professionals use disability insurance to replace their income when they’re unable to work. The type of disability plan determines when to replace the income.

Note: Disability insurance isn’t workers compensation insurance. Disability is income replacement insurance for when the policyholder can’t work (see differences below), and it’s optional. Workers compensation insurance helps cover medical expenses and lost wages when employees suffer on-the-job illnesses or injuries, and it’s mandated by state law in most employer-employee situations.

What Disability Insurance Do Employers Offer?

There are two major distinctions in disability plan types, creating four possible plans that differ in major ways. Employers who offer disability insurance as an ancillary health insurance benefit may provide any of the four possible plan types. Some in fact offer two different plans in order to well protect their employees.

First, disability insurance can be either short-term or long-term:

  • Short-term plans provide payments soon after a policyholder is injured, but only make payments for weeks or months.
  • Long-term plans only being payments weeks or months after an injury, but often continue to make payments for years — possibly until retirement age.

Some professionals want both short-term and long-term disability insurance. Others are only concerned about long-term, and save up for potential short-term health problems.

Second, disability insurance can be either own occupation or any occupation:

  • Own occupation disability plans provide payments if a policyholder is unable to work in their primary occupation. Physicians likely could collect if they had a covered disability that prevented them from practicing medicine (or surgery if applicable).
  • Any occupation disability plans provide payments if a policyholder is unable to work at all. Even if a physician could work in a minimum wage job, an any occupation plan probably wouldn’t cover their disability.

Own occupation disability insurance is obviously much more valuable for physicians than any occupation disability is. Few physicians could maintain their lifestyles on a minimum wage job.

It’s important to understand exactly what disability insurance an employer offers, if they offer any. Physicians need the details so that they can accurately assess the value of this ancillary benefit, and so they can determine whether they should purchase any disability insurance on their own.

Request more information about disability insurance for further explanation of this benefit.

Vision Insurance as an Employee Benefit

Vision insurance helps cover costs related to eyecare, as most eyecare doesn’t fall within the domain of health insurance. A vision plan can help pay for eye exams, prescription glasses, prescription sunglasses, contacts, and possibly laser eye surgery.

What Vision Insurance Do Employers Offer?

Vision insurance plans have different networks, deductibles, copayments, coinsurances, maximums, and other details. Employers may choose minimal or robust plans. You can determine the quality of a plan by reviewing its specifics.

Additionally, what portion of vision insurance premiums employers pay varies. Some employers will pay the full premium, so there’s no cost to employees. Others pay only a portion of the premium, so employees must pay if they elect this benefit but get it at a discounted price.

Taking advantage of vision insurance is obvious if it’s provided for free. When physicians have to pay for it, they should analyze how the insurance will decrease their expected out-of-pocket costs. You will need to evaluate the plan’s details, and estimate what needs the plan will cover over the next year.

Dental Insurance as an Employee Benefit

Dental insurance helps cover costs related to dental care, as most dental care also doesn’t fall within the domain of health insurance. A dental plan can help pay for teeth cleanings, fillings, root canals, and possibly orthodontics.

What Dental Insurance Do Employers Offer?

As is the case with vision insurance, dental insurance plans have their own networks, deductibles, copayments, coinsurances, maximums, and other details. You must evaluate the plans on their own merits, and employers can choose basic or robust plants.

Moreover, employers may pay all or only part of a dental insurance plan’s premium. Coverage certainly makes sense if an employer pays the entire premium. Physicians must evaluate the plan’s benefits and their own projected expenses before deciding whether a plan is worth making partial payment for.

Health Savings Accounts as an Employee Benefit

A health savings account might not technically be classified as an employee benefit (ancillary or otherwise), as anyone with the right type of health insurance plan can open one of these accounts. If an employer offers the right type of health insurance plan, however, an HSA can be a huge benefit.

A health savings account must be paired with a high-deductible health plan. HDHPs were developed as a cost-effective way of purchasing health insurance. Premiums are relatively low, because these plans have high deductibles that must be met before the plans will pay for covered care (excluding certain preventative care). Policyholders thus can have substantial out-of-pocket expenses for even minor procedures, but the trade-off is that they can take advantage of an HSA.

An HSA is a tax-advantaged account for medical costs. Income tax isn’t paid on funds that are put into an HSA, so long as the funds are used for qualifying medical expenses. The funds can be spent on medical expenses as soon as they settle in an account, or they can be invested and saved for years. Income tax also isn’t paid on any earnings that are used to cover medical expenses. The IRS determines what expenses qualify.

Some physicians use this as an extra retirement account, taking advantage of the tax savings to invest for retirement. The tax benefits are particularly advantageous for high-income earners like physicians.

If an employer doesn’t offer an HSA but still provides health insurance, they likely have a plan that’s more generous than HDHPs. Whether better coverage or the HSA account is preferable depends on a physician’s health situation, income and age.

Read this: Volatility Is Not Risk

Flexible Spending Accounts as an Employee Benefit

Flexible spending accounts are employer-funded accounts that must be used for qualifying medical expenses (as determined by the IRS). Employers might fund $1,000, $2,000 or some other amount that employees have access to. Employees don’t contribute to these accounts.

The FSA plan intends the funds to help employees pay expenses that health insurance, vision insurance and dental insurance don’t cover. If the funds aren’t used by March 15 of the following (normally), they’re forfeited. These funds don’t carry over.

Review Your Contract’s Ancillary Benefits

Ancillary benefits are an important component of many physicians’ contracts. For help reviewing benefits and other aspects of your contract, get in touch with the team at Physicians Thrive. Our legal team are experts in physician contracts, and can review all aspects of your current or proposed contract.

To understand ancillary health insurance benefits within the broader context of compensation — and to see how your total compensation compares to other physicians — download the 2022 Physicians Thrive Physician Compensation Report.

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