By Wes Caldwell
What is Business Overhead Expense?
Business overhead expense (BOE) disability coverage reimburses the practice for the fixed practice expenses attributable to the disabled physician. The policy is short term in nature with a 60 to 90 day waiting period and a 12 to 24 month benefit period. For the solo practitioner, it keeps the doors open so there is a practice to return to, upon recovery.
Without this coverage, the physician would have to come out of pocket to maintain office expenses once receivables are exhausted.
A group practice presents a unique set of risks. If a key member of the group suffers a disability, the cash flow of the practice is impacted. The deficit has to be made up and that is usually covered by the other partners. It is never a problem until a disability occurs, and then it is never a popular solution among the non-disabled partners. If the lost revenue attributable to the disabled physician is significant, it could also result in a layoff of employees. If more than one physician becomes disabled at the same time or a disability coincides with a retirement, the financial impact can be devastating to the practice.
Why don’t larger practices carry BOE?
While many insurance brokers recommend BOE to their 1 to 3 partner practices, few have the discussion with the 5 to 10 partner and larger practices. One of the reasons is the assumption that the practice will absorb the deficit. As discussed before, it comes out of the other partner’s pockets. Another reason is that traditional BOE is medically underwritten and the likelihood of getting 10 partners approved on a favorable basis is remote. Lastly is the high cost of traditional coverage and the limitation of $50,000 of benefit per month is often insufficient for partners of lager practices.
What is the solution?
There is specialty coverage available for practices of 5 partners and above with limits up to $100,000 per month. The policies are issued on a guaranteed issue basis meaning there are no medical questions or exams in order to qualify. The cost is very competitive and policies can be issued through age 64. Unlike income replacement coverage, BOE is always a deductible business expense which usually reduces the premium by up to 40%.
When reviewing disability coverage don’t make the mistake of assuming there is no need for business overhead expense due to the size of the practice. The disability of a key partner can have a devastating effect to the practice’s bottom line.