Benefit Structures For Physicians

An Overview of the Various Benefits Offered to Staff Physicians By Medical Groups

This is just an overview and I’m sure there will be slight variations out there. I believe this article will be helpful to you when you start your journey of looking for jobs. Medical groups often share a lot of similarities and it’s usually the larger ones that have the best benefit structures. However, don’t underestimate the smaller groups or private groups because a wise owner may be able to get some great benefits for their employees which we will go over here in a few paragraphs.

Overview Of Employment

You are generally hired by an employer as a W2 employee or as an independent contractor in which case you get your full pay in form of a 1099. You may also start as a W2 and after some time be turned into a ‘Partner’ of the medical group you work for. As a partner you get a K1 distribution most of the time though there are other ways of paying you as a partner. Generally, an employee hired as a 1099 contractor doesn’t qualify for benefits at the organization. A W2 employee may have to be employed at least 50% or other percentage amount before they can be eligible for certain benefits. Even per diem physicians hired on as W2 employees may qualify for certain benefits such as health insurance at a discounted price but usually no retirement benefit is offered.

Tax-Deferred vs. Taxable Accounts

Skip this paragraph if you know the about the difference between these two accounts. It is important to understand the terminology to be able to make sense of all the financial stuff out there. A tax-deferred account is an account in which you park your money and don’t owe taxes on until a certain age. The money you put in that account may have come from your gross paycheck before you paid taxes on it (401k, deductible IRA, Keogh). Or the money may have come from your after-tax money (non-deductible Roth IRA, Roth 401K). The benefit of a tax-deferred account is that no tax is owe on the money when it’s appreciating (hopefully it’s not depreciating). You may (most likely will unless tax laws change) owe taxes on the money when you withdraw it which is the case with most of these accounts I mentioned hence the term tax-deferred. A ‘taxable’ account is just that, it’s taxed. Usually this is your take-home money after taxes are deducted which you invest in a personal brokerage account. For example, you open an account at Fidelity, take $2,000 of your paycheck that was already taxed and buy $2,000 worth of stocks. When this stock appreciates you would owe taxes on the profits if you sold it. So if the stocks were worth $2,200 then you would owe whatever taxes on the $200, not the whole $2,200. For a quick comparison, imagine you bought the same stock in your Fidelity account but you designated the account as an IRA (must meet certain criteria to do so) and you sold that stock then you would owe no taxes on that. If it appreciates to $2,200 and you sell then you could turn around and buy a different fund with $2,200 of buying power. I will also use the terms DCP and DBP here. DCP is a defined contribution plan and DBP is a defined benefit plan. What’s the difference? C-contribution stands for how much you contribute to your account. B-benefit stands for a certain amount that’s paid to you from this said account. So a DCP is basically the 401(k), 401(a), 403(b), Keogh etc. And a DBP is a pension plan.

Common Employer Retirement Accounts

Well, you got the 401(k). This is the one many of you are familiar with. It has a maximum limit for a tax year, in 2015 it’s $18,000 and it usually goes up due to inflation. In 2014 it was $17,500. So if your gross income for 2015 was $118,000 and you fully funded (maxed out) your 401(k) then you would only be taxed on $100,000 since $18,000 of the money went into a tax-deferred account. This is great of course because not only did you pay tax on less money but you are saving $18,000 for your future. There is also a 401(a) and Keogh. These can be extended by a company to highly compensated employees for various reasons. There is a total limit however, for example, your Keogh and 401(k) together cannot exceed $53,000 for 2015 and it was $52,000 in 2014. So… if you maxed out your 401(k) and set aside $18,000 then you can set aside another $35,000 in your Keogh. This Keogh may be taken out of your paycheck or your company may put this money in an account on your behalf. Similarly, a 401(a) works like a Keogh in that it cannot exceed $53,000 when added to the $18,000 of your 401(k). Again, either you contribute to this 401(a) yourself or your employer pays it for you. As an example, Dr. Mo gets hired by a company that offers him $200,000 base pay plus 10% towards his 401(a) along with a 401(k). Nice! I get $200,000 from which I can contribute $18,000 towards my 401(k) and 10% ($20,000) towards my 401(a) which brings my taxable dollars down to $162,000! On top of that I get to stash away $38,000 in tax-deferred accounts which will grow tax-free until I turn 55 (55 is the earliest penalty-free withdrawal age in most 401 based accounts and generally 59.5 for IRA’s). You don’t have to max these out of course if you choose not to. Also, there are ways of accessing your money before the government mandated retirement ages which requires a little more work but will prevent you from having to pay the 10%+ of penalties on early withdrawn funds.

Pension Plans

Pensions are defined benefit plans. They provide you with a set amount of money per month or per year starting at a specific age or when you separate from the company. This money can sometimes be given to you in a lump sum but more often it’s paid out in an annuity. An annuity is basically when a lump sum of money is turned into monthly or annual payments. You generally need to vest in these plans. So Dr. Mo works for a company for 25 years at an annual salary of $200,000. he will vest after 7 years and will be able to get an annual salary in form of a pension starting at age 65 which is calculated at 2% per year for each year worked up to 20 years. Therefore, Dr. Mo can enjoy an income of $80,000 per year (before taxes) starting at age 65 until his death. That’s 20yrs*2%*$200,000=$80,000. If Dr. Mo had worked there only 6 years he would have gotten nothing (You would be amazed how many stories like this are out there). If he had worked 10 years he would have gotten $40,000 of pension income. If he decided to retire earlier then the company will offer him an early retirement pension which can be taken at age 58 at the earliest and it will be worth only 50% of what he would get had he retired at age 65. So in the first example instead of $80k per year he would only get $40k a year. The company may also offer him a cash value (lump sum) instead of the annuity. You won’t generally know what the value is until your retirement date gets near.

It’s important to mention cash balance plans here. Some refer to these as pensions but they really are a defined contribution plan. Your company may set 10% of your income aside for you every year you work which usually comes out of their pocket. This money will accrue at 3%-5% per year for however many years you stay with the company. And once you are vested then you can take this money with you. You are only eligible for the amount that accrues. If you decide to take payments out of that money at age 65 then you will get your last payment when that fund runs out. Unlike a pension plans you won’t get income until your death. For example, Dr. Mo makes $150,000 per year at this company that does not offer a classic pension and offers a cash balance plan instead. They offer to set aside 10% per year for him out of their own money and he would be vested in this money after being with the company for 5 years. They also offer a 4% interest on the money usually to help offset inflation. If he works there for 15 years and then retires he will be able to take $75,000 with him or take an annuity payment from this account once he retires.

Health And Dental

These are self-explanatory. Dental as you know may be hit or miss. The groups that own the dental offices will give you amazing plans. Sometimes you only pay $250 for a dental implant or $100 for a root canal and crown. As for the health plan, consider looking into an HSA that you may be eligible for as long as your health insurance is a high deductible plan. And HSA can be a fantastic way to put even more money aside that can grow tax-free.

Sick Leave and Vacation Leave, Educational Leave

Some groups are very flexible, they let you take your sick leave in advance such as a mental health day or a pre-planned dental appointment. Others are strict and unfortunately a bit punitive. Vacation days can sometimes be use-it-or-lose-it or they can be transferred to the following calendar year. Even better most groups let you cash a portion of your days out. I’m not saying you should do this but sometimes in our wealth accumulation and debt paydown stage that’s exactly what we need to do. I, for example, work 7 days on and 7 days off… I have a 7 day vacation twice per month so what do I need vacation for. Education leave is basically time given to you so that you can take CME courses and attend conferences.

CME and Board Exams, Medical Licenses

My group pays for pretty much everything. That’s ideal for me because I just don’t want to deal with it. Other groups will give you a stipend every year out of which you can pay for any needed licenses or CME etc. Some don’t pay for any of it and don’ t give you a stipend either. Problem with stipends is if they give you $250/mo then that’s worth only $150 after taxes and furthermore it increases your income and therefore your taxes because it’s essentially income. Larger medical groups even put on regular CME programs for their doctors that way you can meet a lot of your CME needs. For family medicine docs you may even be able to fulfill your part IV requirement at some medical groups. Same goes for the MOC for internists. Ask about these, it can be a huge benefit.

 

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