How Bare Doctors Save Money to Defend Themselves
February 2005
By: Marc Singer, CFP & Neil Sosler, MBA
Currently, we estimate that over 6,000 doctors in Florida are practicing bare. The issue often arises as to strategies for saving premium payments that are no longer going towards liability insurance.
What many of our clients use is known as a Financial Responsibility Account (FRA).This account can serve several purposes for doctors who have chosen to self-insure.
A FRA involves setting up a segregated annuity (a protected asset in Florida) in the personal name of the physician or group of physicians, and funding this annuity monthly with the money that would have been used to pay for malpractice premiums.
We strongly recommend utilizing a no-load / no surrender charge annuity for this program, thus allowing for withdrawals in any amount, with no surrender charges or commissions. This becomes important in case these reserves ever need to be tapped. These funds either go directly from the PA to the annuity, or may first pass through the wage account (a protected asset) of each individual doctor. The most effective part of this program is that the malpractice savings end up being protected from a malpractice claim, and are available to a plaintiff on a purely voluntary basis determined by the physician. Therefore, the physician avoids the problem of creating a reserve fund with a large bull's-eye target for lawyers.
Advantages of the FRA
For individual physicians, a FRA offers an account where you can clearly see your malpractice savings accumulate.
For group practices, the FRA offers a way to have partners of the group segregate their extra earnings resulting from being bare. The PA can have a contingent lien against the FRA, insuring that physicians who leave the group would still be responsible for potential malpractice claims that arise after their departure.
Saving $50,000 malpractice premiums could compound to $1.4 million in 10 years.
How much would the cash value of your current malpractice policy be?
Some hospitals do not yet allow doctors to go bare: By demonstrating this FRA plan to hospitals, and showing financial and fiscal responsibility on the part of physicians, we have been able to convince many hospital to allow physicians to go bare, on a case-by-case basis.
Perhaps one of the best advantages of this program is seeing your malpractice premiums grow in your own investment account, rather than feeling like money was thrown out the window. As an example, a physician who saves $50,000 / year in current premiums, with assumed 10% annual increases, earns 8% on their annuity reserves. A staggering $1.4 million will be accumulated in only 10 years. Our anecdotal experience over the last 18 years shows that a physician client has never had expenses of malpractice claims exceed 30% of their malpractice premium savings over the long term. In other words, self-insuring seems to have reduced the cost of malpractice coverage by approximately 70%!
It should be noted that the contributions to your annuity are not tax-deductible. Earnings within annuities are tax-deferred until withdrawal at which time only the interest is taxable, not the principal. Withdrawals prior to age 591/2 have a 10% tax penalty on the interest portion. Offsetting this is the fact that any payments to a plaintiff are fully tax-deductible when paid.
In reality, it will probably never be necessary to tap into your annuity reserves. If your assets are adequately protected, it should be possible to negotiate a reasonable settlement to a malpractice claim.
Named by Medical Economics as one of top 150 advisors nationally.
Named by Worth Magazine as one of top 100 Wealth Managers.
www.SingerXenos.com
Singer Xenos is an established wealth management firm specializing in physicians with $500,000-plus in investments. We manage over $500 million in assets such as retirement plans, annuities and personal accounts, with an emphasis on wealth building and protection from malpractice claims. Both Worth Magazine and Medical Economics named Singer Xenos one of the Top Financial Advisors nationally for physicians. Physician Asset Advisor and Singer Xenos do not provide legal advice.
Coral gables / Ft Lauderdale / Tampa / orlando 888.289.0060
