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As the healthcare sector evolves through provider consolidation, one notable side effect is the reshaping of the traditional employment model away from W2 employees and K1 partners and a surge in the number of 1099 physicians and other clinicians.
This has had a couple of unexpected side effects. One such change affecting independent clinicians is how they can access disability insurance, specifically how 1099 clinicians can secure affordable coverage and protect their income when traditional underwriting models consider their income ‘less secure.’
This article looks into the challenges of providing disability insurance to 1099 physicians and how healthcare providers can effectively navigate their way and protect the 1099 physicians whom they rely on to perform essential services.
If you are a 1099 Clinician and you are looking for information on how you can get disability insurance coverage, read our article here.
The Rise of 1099 Physicians
So what’s driving the sudden increase in 1099 Clinicians?
There’s no single factor at play here but a trend driven by numerous reasons on both the individual and group level.
At the individual level, the structural shortage of trained medical personnel has ratcheted up the pressure on physicians as a whole, leading even more to quit and others to seek an alternative approach to employment. This is manifested by a desire by medical personnel for greater autonomy, flexible work schedules, and the ability to control one's income potential.
This pressure of course was amplified by the Covid-19-related challenges on the healthcare system
At the Group level, the growing influence of private equity transactions has driven a dramatic rise in Healthcare Services Organizations where an aggregator entity swallows up independent practices and sells the services of their Clinicians to hospitals.
The Influence of Mergers and Acquisitions
The healthcare industry has seen a flurry of mergers and acquisitions (M&As) over the past years. These M&As have led to significant consolidation, resulting in fewer independent practices and more physician employees. However, a counter-current has also been in play with more physicians opting to work as independent contractors (1099) as opposed to traditional employees (W-2).
Snapshot of M&A activity in the Healthcare Industry
The healthcare sector continued to be a hub of private equity (PE) deal activity in 2023, relative to all PE deals worldwide, despite higher global interest rates, inflationary pressures, and broader geopolitical uncertainty (see Figure 1). (Conducted by Bain & Co in a Global Healthcare Private Equity Report posted January 2024 for the year 2023.)
Pros and Cons of Being a 1099 Physician
Being a 1099 physician offers a mix of benefits and challenges. One of the biggest advantages is the autonomy it provides. As an independent contractor, you have the freedom to control your work schedule, decide how many patients you see, and influence your income. You also get to choose where you work, whether that’s in different medical facilities or your own private practice.
However, this freedom comes with some significant challenges. Unlike W-2 employees, 1099 physicians don’t receive the same benefits, such as health insurance, paid leave, or retirement plans. You’ll also need to manage your own taxes, which can be complex and time-consuming.
Another important factor to consider is disability insurance. As a 1099 physician, you’ll need to secure your own coverage to protect your income in case of illness or injury.
Individual Disability Insurance (IDI) for 1099 Physicians
For 1099 physicians, securing appropriate disability insurance can be a struggle.
Traditionally, group disability insurance policies provided through employers have not been accessible to 1099 physicians since, by definition, group disability is an employer-paid benefit available to employers but not to contractors.
Instead, 1099 physicians have had no choice but to seek Individual Disability Insurance (IDI)
Challenges
For 1099 Physicians, the individual disability underwriting process presents three immediate challenges:
- Timing - the underwriting process for individual coverage can take 60 days at the minimum - and if there are issues, this can last longer
- Uncertainty - regardless of 1099 status, individual disability coverage for Physicians requires a full medical underwriting process, which includes disclosing a full medical history, providing medical statements and undergoing a physical. This can be straightforward if the physician is young and healthy, but a more onerous process if the physician has any pre-existing medical conditions
- Proof of earnings - the financial aspect of the underwriting process requires physicians to demonstrate their income and proof of earnings. For 1099 physicians, this can be a harder hurdle than for W2 physicians
These are manageable challenges - indeed, we have considerable success placing individual coverage for 1099 physicians - but it does highlight a pain point.
Benefits
A fully underwritten individual policy has significant benefits:
- Locked-in Pricing - once the policy is written and the coverage is secured, the premiums will not increase
- Portability - an individual policy will remain relevant
- Covers all income - the best policies protect income from all sources, including your current 1099 income, but also any future W2 or K1 earnings. This provides 1099 physicians flexibility to move roles without needing to go through a new disability insurance underwriting process.
Note: To read more about the specific provisions you need to understand in disability policies, you can read our extended series of blog articles, starting here with the Definition of Disability - and Why it matters
Group Guaranteed Issue Disability for 1099 Physicians
An alternative approach for 1099 physicians is to secure coverage via a guaranteed issue plan which dispenses with the requirement for medical and financial underwriting.
While not common, in certain circumstances, Hollowtree can secure guaranteed issue plans for cohorts of 1099 clinician groups who work for large medical groups, and through this mechanism, protect the portion of their income from the group.
This mechanism provides a hassle-free way for these 1099 physicians to secure income protection for some of their income.
Challenges
- Group - The 1099 Physicians must belong to a cohort or identifiable group - an association or medical group that can provide details about income.
- Lack of portability the protected income is limited to that associated with the group, so other income streams that the 1099 physician may have will not be covered. This makes this coverage a perfect supplement to individual coverage
Benefits
The underwriting process is significantly streamlined.
- Simple - without the need for medical or financial underwriting, the only eligibility concerns surround ensuring bona fide membership of the group
- Fast - enrollment can take under 5 minutes
- Cheap(er) - group coverage is normally 30% cheaper than comparable individual coverage
If you are a 1099 Physician and you are part of a larger group of 1099 physicians, we can likely help you. Get in contact with one of our experts through our forms.
Conclusion
Navigating the landscape of disability insurance as a 1099 physician can be complex. However, with a clear understanding of your needs and the right insurance partner, you can secure the coverage you need to protect your financial future. Whether you're just starting your journey as a 1099 physician or have been practicing for years, it's never too early or too late to consider your disability insurance options.
Written by
Georgetown. Former Wall Street. Now disability insurance expert for Physicians.
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