By: Jason M. O’Dell, MS, CWM and David B. Mandell, JD, MBA

In today’s litigious environment, ASCs and their owner-operators are unfortunately all high visibility lawsuit targets.  Many doctors or surgery center executives think that insurance is the only viable protection tool to shield their businesses and themselves from such litigation risks.  Certainly, insurance policies, whether they are medical malpractice policies, business coverage or personal umbrella policies, are part of the wealth protection toolkit.

However, as we will explore in this article, insurance policies have their limitations and drawbacks. Moreover, there are other techniques that can be explored to shield and build wealth and often save taxes.  If you are interested in learning how to shield your practice, business and personal assets while also reducing taxes and building wealth, please read on…

Let’s examine both the limitations of insurance to shield assets and alternatives that may also build wealth and reduce taxes.

Limitations of Insurance

A.    Coverage may fail to account for all the ways you can be sued.

The list of possible ways you can be sued is limitless.  New theories of liability are created every day by inventive lawyers and accepted by juries and judges. EXAMPLE: A malpractice policy may not provide coverage for harassment, discrimination, or wrongful termination suits by employees.

 B. Liability may exceed coverage.

Even if your insurance policy does cover the business/you by its terms, the policy coverage limit may be well below what a jury determines is owed.  Your business or even you will have to pay any excess above the coverage limit out of your own pocket.

C. Relying on insurance may mean higher premiums in the future.

An obvious consequence of relying solely on insurance to protect you from lawsuits is that once you are sued, your premiums will rise.   In this way, the lawsuit may cost you dearly if you have to call in your insurance company, even if you “win” the suit.

D. Relying on insurance may mean losing control of the defense.

Even if your insurance policy covers you for a specific claim — consider the consequences.  You may lose much of your negotiating power because your insurance company will attempt to dictate whether the case is settled, and for how much.  While this may not matter to you if the lawsuit is a personal injury car accident, you may not want to admit liability and settle in a case against your business professionally.

On the other hand, if the claim involves your business’ reputation, you may want to settle the case out of court and away from the public view.  There is no guarantee that your insurer will see things the same way in either type of situation.  Thus, if you rely solely on insurance, you may find that, even when you are covered, you lose the ability to negotiate effectively.

In addition to these drawbacks, insurance also does not create wealth. In fact, it is a cost – often one from which you never receive any return, even if you never need to rely on it.  In other words, for most of you reading this, all of your personal or professional policies provide no rebate back to you if you show a history of no or few claims. The insurance company simply keeps the profit. In this way, insurance shields wealth but also diminishes it.  You might do well to supplement insurances with asset protection techniques that build wealth while also protecting it.

Protective Tools Beyond Insurance

The following tools can all supplement insurance, and most of them can actually help you BUILD wealth while also protecting it.

A. Qualified Retirement Plans at Your Business or Practice: 

The term “qualified” retirement plan means that the retirement plan complies with certain Department of Labor and Internal Revenue Service rules.  You might know such plans by their specific type, including pension plans, profit sharing plan, money purchase plans, 401(k)s, or 403(b)s.  Properly structured plans offer a variety of real economic benefits: you can fully deduct contributions to these plans and funds within them grow tax-deferred.

What you may not know is that under federal bankruptcy law, and nearly every state law, these plans are protected against lawsuits and creditor claims – enjoying the top asset  protection status when structured properly.  Many in the healthcare field, however, miss the boat here by using plans that are not properly qualified for protection purposes or relying on IRAs which have only mixed protections.  For these clients, their protection could be easily improved for little cost.

B. Non-Qualified Retirement and Fringe Benefit Plans at Your Business or Practice:

Non-qualified and fringe benefit plans are relatively unknown to many doctors and ASC owner-operators, despite the fact that most Fortune 1000 companies make them available to their executives.  These types of plans should be very attractive to high income physicians and executives, as employee costs are typically not onerous and allowable contributions can be much higher than with qualified plans.

C. Captive Insurance Companies (CICs) for Your Business or Practice:

CICs are used by many of the Fortune 1000, for a host of strategic reasons.  In this technique, the owners of a practice or business actually create their own properly-licensed insurance company to insure all types of risks of the practice.  These can be economic risks (that reimbursements drop), business risks (that electronic medical records are destroyed), litigation risks (coverage for defense of harassment claims or HCFA audits) and even medical malpractice (keeping some risk in the captive and reinsuring the rest).  If it is created and maintained properly, the CIC is like any insurance company — established in a real economic arrangement with its insureds.  CICs, however, enjoy tremendous tax benefits and actually allow the owners to own all profits if claims are low.

D. Cash Value Life Insurance (CVLI) Owned Personally: 

CVLI policies are purchased by many clients for their tax benefits (generally, tax-free growth of cash values, death benefits pay income-tax free to beneficiaries, etc.), for family protection, and for estate planning purposes.  Nonetheless, in many states, the cash value can enjoy the top level of protection – completely shielded from lawsuits against the owner for any reason.  In this way, CVLI often becomes the only asset in a client’s portfolio that can be owned in his/her name, with total access to cash values, yet also protected from lawsuits if they arise.

Conclusion

Every one reading this likely would choose to be better protected and build wealth.  Too many rely solely on insurance which, while it may provide protection, has limits and never builds wealth.  Additional techniques which can shield and build wealth may make sense to consider.

 

David B. Mandell, JD, MBA, is an attorney and author of 11 books, including FOR DOCTORS Only: A Guide to Working Less & Building More,  and Wealth Secrets of the Affluent, published by John Wiley & Sons, Inc., the largest business book publisher in the world.  He is a principal of the financial consulting firm OJM Group (www.ojmgroup.com) which works collaboratively with doctors and healthcare practices, and ASCs nationwide.  Jason M. O’Dell, MS, CWM is a principal of OJM Group as well.  They can be reached at 877-656-4362 or mandell@ojmgroup.com.

 SPECIAL OFFERS:  For a free hardcopy of For Doctors Only: A Guide to Working Less & Building More, please call (877) 656-4362. If you would like a shorter free Kindle, iBooks or Nook E-book download of our “highlights” version, you can download it at www.fordoctorsonlyhighlights.com . For a free hardcopy of the book “Wealth Secrets of the Affluent,” call us at the same number. If you would like a free eBook for Kindle, Nook or iPad/iPhone, please download “Fortune Building for Business Owners & Entrepreneurs: The Keys to Corporate Structure, Tax Reduction, Asset Protection and Wealth Creation” at www.fortune-building.com .

Disclosure:  OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of business in the State of Ohio.  OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients.  OJM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.  For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure web site www.adviserinfo.sec.gov.

For additional information about OJM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.  Please read the disclosure statement carefully before you invest or send money.

This article contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized legal or tax advice.   There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances.  Tax law changes frequently, accordingly information presented herein is subject to change without notice.  You should seek professional tax and legal advice before implementing any strategy discussed herein.

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abeo Management Corporation (abeo) serves as a leading source of revenue cycle management and practice management with a specialization in anesthesia. The company leverages its people, processes, and software to serve independent practices, surgery centers, hospitals and healthcare systems with a scope of services that include billing, coding, transcription, practice management, and business consulting.

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