While switching from a fee-for-service to a capitation model of remuneration can result in greater income and more flexibility for family physicians, there are insurance-related aspects to the capitation arrangement that should be considered.
This article sets out four tables that illustrate how Professional Overhead Expense (POE) Insurance and Disability Insurance (DI) are affected in the case of two family doctors — Physician A and Physician B — who are compensated, respectively, through a fee-for-service model versus a Family Health Network (FHN) or Family Health Organization (FHO).
(Please note that personal situations may differ from the examples provided, and it may be helpful to speak to an OMA Insurance Advisor.)
In the event of a disability, capitation models of remuneration challenge a physician's insurer to provide appropriate and equitable benefits while avoiding a "windfall" situation by having a claimant's income increase while off work.
Under the OMA's Disability Insurance plan, while a physician is totally disabled, the insurer will not consider income received under a capitation payment to be "earned" income, and therefore will commence monthly disability benefits of $6,000, as per the table below, after the physician has been disabled for the 30-day Elimination Period (EP). Full benefits will continue as long as the physician remains totally disabled (up to the maximum duration periods outlined in the contract, usually to age 65).
While capitation income does not impact disability benefits, Professional Overhead Expense benefits will be impacted, even though the physician has satisfied the 30-day EP. As long as the capitation payments received exceed the physician's business expenses, POE benefits will not be paid. That is, a disabled physician receiving capitation income is expected to cover overhead, locum, and other business expenses from his or her capitation revenue, and any excess expense may be claimed for reimbursement under the POE plan.
The three tables at right illustrate what the financial situation would look like for Physician A and Physician B over the first four months of a total disability.
Many FHNs/FHOs have a formal agreement that stipulates that other members of the network will cover the totally disabled physician's patients, without any additional charge (fees or remuneration) to the disabled physician, for up to 90 days.
Variations on the FHN/FHO agreement could mean that the capitation continues, but the disabled physician might have to cover the practice using a locum, pay the other members of the group on a fee-for-service basis for seeing his or her patients, or turn over his or her entire capitation payment to the group to cover the practice.
In the table at right, bottom (entitled Physician Totally Disabled — Fourth Month), Physician B still receives $6,000 per month from the disability plan, but the capitation revenue ends after 90 days (i.e. capitation revenue ceases for the disabled physician). Physician B's obligation toward office overhead expenses may also end or may continue. If the FHN/FHO agreement addresses this situation, the terms of the contract may vary widely.
Note: In this table, Physician B may want to extend the EP on his or her POE insurance from the original 30 days to 90 days, matching the elapsed time when the capitation revenue would cease. If Physician B's FHN/FHO agreement stated that his or her obligation toward overhead expenses ceased after 90 days, the POE benefit amount could be reduced to only cover Physician B's expected ongoing business/office expenses. It would only be advisable to make these changes if Physician B is certain his or her current practice situation is a permanent one.
After returning to work part time following a disability, the full capitation revenue is considered as "earned" by the insurer, but the physician could incur increased expenses to pay a locum or other members of the FHN/FHO to cover the times he or she is not working.
For example, if the physician returned to work half days, he or she would be considered to have earned the full $13,000 capitation income. However, in addition to the regular $8,000 of overhead expenses, the physician might be required to pay a locum $7,000 to cover the other half days. This would result in the physician having income of $13,000 + $4,000 OHIP billings, but total expenses of $15,000 (overhead and locum fees), leaving a net income of $2,000. Pre-disability net income was $12,000, therefore, the partially disabled physician has lost 83% of his or her pre-disability income, which entitles the physician to receive 83% of his or her disability benefits ($4,980). The end result: disability benefits would be $4,980 + $2,000 net income, after expenses.
In conclusion, despite the complex calculations, the OMA's DI and POE policies continue to provide the quality benefits that members have come to expect, at a time when they are needed, on a cost-effective basis.
Talk to one of our Insurance Advisors to co-ordinate your Elimination Period to match your capitation income. You can be assured that as compensation models evolve, the OMA's insurance plans will continue to address any changes in a proactive manner.
OMA Insurance Programs have retained the services of John Sealey, CLU, CFP, CHFC, RHU, as a consultant to provide personalized early assistance to the OMA's disability claimants. Mr. Sealey works with claimants to help them understand the finer points of their coverage, assists in the completion of claim forms, and works with the physician to provide the appropriate financial requirements necessary to adjudicate a claim.
For further clarification about the terms of your OMA Insurance contracts, please contact one of the OMA's non-commissioned Insurance Advisors at 1.800.758.1641, or email firstname.lastname@example.org.