You sign the attending contract, human resources hands you a benefits summary, and one line reads "long-term disability: 60% of salary." Most physicians file that under handled and never open the certificate of coverage. The certificate is where the plan actually lives, and at attending income it describes something much smaller than 60%: a capped, taxable, non-portable benefit with a definition of disability that weakens two years into a claim. None of this makes group coverage worthless. It makes group coverage a floor — genuinely useful as a supplement, quietly dangerous as a plan. This article works the six structural gaps with numbers at a representative attending income of $350,000, then shows the layering order that closes them.
The 60% headline is really a monthly cap, and the cap does the work
Group long-term disability plans typically promise 60% of covered earnings, subject to a monthly maximum. Industry analyses of employer plan design consistently find roughly 60% replacement with caps that commonly run $5,000 to $15,000 per month; $10,000 is a frequent design at hospitals and large multispecialty groups. During residency the cap never binds, which is why the plan feels generous when you first read about it at orientation. At attending income, the cap is the benefit.
Example calculation
Assumptions, stated explicitly: $350,000 gross income, a group plan paying 60% of covered earnings, a $10,000 monthly maximum.
- Monthly gross income: $350,000 ÷ 12 = $29,167
- 60% of monthly income: $29,167 × 0.60 = $17,500
- Plan maximum: $10,000 per month
- Benefit actually paid: the lesser of the two = $10,000 per month
- Effective replacement rate: $10,000 ÷ $29,167 = 34% of gross income — before tax
The promised 60% quietly becomes 34%, and every dollar of income growth from here — a new tier, a step increase, a leadership stipend — pushes the effective replacement rate lower, because the cap does not grow with you. A 60% group plan with a $10,000 monthly cap replaces roughly one-third of a $350,000 attending income, and that is before the benefit is taxed.
If the hospital pays the premium, the IRS taxes the benefit
The tax treatment follows the premium. Under IRS Publication 525 (2025), if your employer pays the disability premium and does not include that premium in your taxable income — the standard arrangement for employer-provided group LTD — then any benefit you receive is fully taxable as ordinary income. The same result applies if you pay the premium pre-tax through a cafeteria plan. Benefits are tax-free only to the extent premiums were paid with your own after-tax dollars.
Example calculation
Assumptions, stated explicitly: $10,000 per month group benefit, fully taxable because the employer paid the premium; an assumed 20% average combined tax rate on the benefit (benefits are the household's main income at that point, so the average rate is lower than your working marginal rate); pre-disability take-home estimated at an assumed 30% all-in average tax rate.
- After-tax benefit: $10,000 × (1 − 0.20) = $8,000 per month
- Pre-disability take-home: $29,167 × (1 − 0.30) = $20,417 per month
- After-tax replacement rate: $8,000 ÷ $20,417 = 39% of take-home pay
Both tax rates above are assumptions, not computations from your return — your state, filing status, and other household income move the result. The direction, however, does not change: the "60%" plan delivers roughly 35% to 40% of your actual paycheck. Two follow-ups are worth a five-minute email to payroll. First, confirm who pays the premium and whether any employee share is pre-tax or post-tax. Second, ask whether the employer offers a gross-up arrangement — some employers will add the premium to your W-2 wages, which makes the benefit tax-free at the cost of a small amount of current tax. When the premium costs a few hundred dollars a year in extra tax and the benefit difference is $2,000 per month, the trade is usually obvious.
At month 25, the policy redefines what disabled means
Most group certificates define disability in two phases. For the first 24 months you are disabled if you cannot perform your . After 24 months, the definition typically converts: you remain disabled only if you cannot perform any gainful occupation for which you are reasonably fitted by education, training, or experience. Legal and industry commentary on group LTD terms treats this 24-month conversion as a standard design, not an outlier.
For a physician, the any-occupation definition is close to a trapdoor. An interventional cardiologist with an essential tremor cannot work a cath lab, but can plausibly do utilization review, chart audit, or administrative medicine. Under an any-occupation definition, that residual capacity can end benefits at month 25 — precisely when a permanent disability has proven it is permanent. Individual policies sold to physicians can lock a specialty-specific own-occupation definition for the full benefit period; the differences between definitions are worked in detail in own-occupation definitions compared.
Important
The 24-month conversion is the single most consequential sentence in a group certificate. A claim that pays smoothly for two years can end at month 25 not because you recovered, but because the policy changed the question from "can you practice your specialty" to "can you do any job at all."
The policy stays with the job, not with you
Group coverage is tied to employment. Leave the hospital and the coverage generally ends; a conversion option, where offered, is typically limited and expensive. That matters because the risk you are insuring is partly the risk of becoming uninsurable. Buy an individual policy at 31, during fellowship, and the thyroid nodule discovered at 41 is irrelevant — the policy is already yours. Rely on group coverage alone, and every job change is a fresh underwriting event at whatever health status you have accumulated. Job changes are routine in the first decade after training; a disability plan that resets with each employer is a plan with recurring gaps at exactly the moments your income is in transition. The disability provisions inside your employment agreement deserve the same reading — what happens to coverage during a notice period or after a without-cause termination is a contract term, and the contract red flags module covers where these clauses hide.
Your production bonus probably does not count as covered earnings
The 60% applies to covered earnings, and the certificate defines that term — often as base salary only, excluding production bonuses, call stipends, quality incentives, and . For physicians on productivity-heavy compensation plans, the excluded share is not a rounding error.
Example calculation
Assumptions, stated explicitly: $240,000 base salary plus $110,000 in wRVU production bonus = $350,000 total income; a plan paying 60% of covered earnings with a $15,000 monthly cap; covered earnings defined as base salary only.
- Covered earnings, monthly: $240,000 ÷ 12 = $20,000
- Benefit: $20,000 × 0.60 = $12,000 per month (under the $15,000 cap, so the definition — not the cap — binds)
- Benefit if total income counted: $29,167 × 0.60 = $17,500, capped at $15,000
- Cost of the definition: $15,000 − $12,000 = $3,000 per month, or $36,000 per year
Two plans with identical "60% to $15,000" headlines can pay $36,000 a year apart depending on one defined term. Individual policies, by contrast, are underwritten on documented earnings — tax returns and production statements — so bonus income can be covered rather than defined away.
The offset clause means other benefits subtract, they do not stack
Group LTD benefits are usually a target, not a floor on top of other income. Most employer-sponsored (ERISA) group policies contain an other-income offset provision: benefits are reduced dollar-for-dollar by Social Security Disability Insurance, workers' compensation, and similar sources, and most policies require you to apply for SSDI and pursue appeals, on penalty of an estimated offset being applied anyway. If your group benefit is $10,000 and SSDI awards $3,200, your total does not become $13,200 — it stays $10,000, now composed of $6,800 from the insurer and $3,200 from Social Security. Because SSDI awards often arrive retroactively as a lump sum, claimants routinely receive an overpayment demand from the group carrier for benefits already spent.
Key insight
Read the offset clause as a restatement of the benefit: the plan promises that your income from all disability sources will total $10,000, not that the plan will pay $10,000. Individual physician policies generally carry no such offsets — the benefit you bought is the benefit paid, on top of anything else you receive.
The fix is layering: individual own-occupation base, group supplement
None of the six gaps argues for declining free group coverage. They argue for demoting it. The layering order that works: an individual own-occupation policy as the base — bought as early as health and budget allow, sized against your fixed obligations, with a future-increase option so coverage can grow with attending income without new medical underwriting — and the group plan as the supplement it was designed to be. Sizing the base layer, choosing riders, and sequencing the purchase through training are worked in the disability insurance module; a physician-specific walkthrough of the market is in physician disability insurance.
| Feature | Typical group LTD | Individual own-occupation |
|---|---|---|
| Benefit amount | 60% of covered earnings to a monthly cap | Flat monthly amount you select, underwritten to income |
| Taxation | Taxable when employer-paid (Pub. 525) | Tax-free when premiums paid after-tax |
| Definition of disability | Own-occupation for 24 months, then any-occupation | Specialty own-occupation, full benefit period |
| Portability | Ends with employment | Stays with you while premiums are paid |
| Bonus and production income | Often excluded from covered earnings | Documentable income can be covered |
| Offsets | SSDI and other income typically subtract | Generally none |
Quick takeaway
Group LTD is a floor: capped near $10,000, taxed if employer-paid, redefined at month 25, tied to the job, blind to production income, and offset by SSDI. Keep it, but build on it — an individual own-occupation base sized to your real budget, with the group benefit stacked on top.
Common questions
My employer says I have 60% coverage. Why would I pay for more?
Because at attending income the 60% is aspirational. Run the arithmetic above with your own numbers: apply 60% to your covered earnings as the certificate defines them, stop at the monthly cap, then subtract tax if the employer pays the premium. Most attendings land between 30% and 40% of take-home pay. Whether that is survivable depends on your fixed obligations, not on the headline percentage.
I pay part of the group premium myself. Is the benefit still taxable?
Partially. Under Publication 525, benefits are taxable in proportion to the premiums paid by the employer or paid by you pre-tax, and tax-free in proportion to premiums you paid after-tax. If the employer pays 70% and you pay 30% after-tax, roughly 70% of the benefit is taxable. Payroll can tell you the exact split; guessing is not required.
Should I drop the group coverage once I buy an individual policy?
Generally no. Group coverage is free or cheap, and it stacks on top of an individual base — the individual policy has no offset against it. The individual carrier will count group coverage when setting your maximum issue limit, which is one more reason to establish the individual policy first and treat group as the supplement. What you should drop is the assumption that the group plan alone is a plan.
Does any of this matter if I am still in residency?
It matters most there. Resident income sits under the cap, so the group plan's percentage is real for now — but residency is also when individual coverage is cheapest and your health is most insurable, and when future-increase riders let you lock the right to buy more at attending income. The gap analysis above is the argument for starting early, not for waiting until the gaps bind.
What to do next
- Request the full certificate of coverage from human resources — the summary is marketing; the certificate is the contract. This costs nothing.
- Find four numbers and one definition: the replacement percentage, the monthly maximum, the definition of covered earnings, the offset clause, and the month the definition of disability converts.
- Compute your own effective replacement rate with the arithmetic above, using your actual base and production split.
- Email payroll two questions: who pays the premium, and is any employee share pre-tax or post-tax. Ask whether a gross-up option exists.
- Price an individual own-occupation policy sized to the gap between your fixed monthly obligations and the group plan's after-tax benefit.
- Re-run the numbers at every job change and every material compensation change — the cap does not move when your income does.
The certificate of coverage is a twenty-minute read that most physicians never do, and the six gaps above are all visible in it once you know where to look; the protocol above works with or without us. This is education, not individualized financial advice.