One of the many unanticipated consequences of COVID-19 has been its destabilizing effect on the medical community. Battling the pandemic has dramatically accelerated the pace at which doctors, nurses and other caregivers are exiting the field as the ability of medical professionals to maintain viable practices comes into question.
Since 2020, the pandemic has put a heavy financial strain on private practices nationwide, leading many to either shut down or consolidate, with COVID-19 increasing administrative costs and patients delaying non-emergency procedures. According to an American Medical Association report released earlier this year, the percentage of patient-care physicians working in physician-owned practices dropped from 54% in 2018 to 49.1% in 2020. Economic forces related to the pandemic are ongoing and their impact on physician practice arrangements may take more time to fully unfold, the report notes.
In Arkansas, intensive care unit (ICU) beds remained in dangerously short supply during September as COVID-19 patients accounted for almost half of the people in those beds. The University of Arkansas for Medical Sciences (UAMS) facility faces a severe staffing shortage as some medical personnel have walked off in the middle of their shifts due to the stress of the pandemic. UAMS is a safety-net facility that provides health care to patients whether or not they can afford to pay.
And with low-income populations contracting coronavirus at much higher rates than wealthier areas, Medicaid providers in particular all too often have seen its widespread impact firsthand. Despite these issues, many Medicaid providers I have spoken with remain largely hopeful. Some of them have been using telehealth to supply care to non-COVID-19 patients, while striving to maintain viable practices in their communities.
Supplemental Compensation Plans
Those physicians, nurses and other Medicaid providers who continue to serve on the frontlines during the pandemic deserve to be able to plan for a financially secure retirement with as much peace of mind as possible. Whether Medicaid providers treat low-income COVID-19 patients or non-COVID-19 patients, work in a clinic or run their own practice, they have more than enough to handle without also having to worry about the intricacies of tax-deferred investments.
Although this is a common concern in the medical community, it does not have to be as long as practitioners seek out the proper financial professionals. This is especially the case in Arkansas, where the state offers the opportunity to participate in a Medicaid provider deferred compensation plan that can exist as a supplemental package complementing traditional qualified retirement plans. While the name can differ from state to state, in Arkansas it is usually known as the Diamond Plan.
Participants can defer a portion of their pre-tax Medicaid income and lower their annual tax bills in the process, choose from a wide array of supervised investments that align with their lifestyle and career stage, and learn about investment selections from highly experienced plan representatives. Medicaid providers running their own practices also can utilize the deferred compensation plan as a way to better recruit and retain skilled providers who want more attractive benefits.
For instance, in Arkansas for calendar year 2021, providers younger than 50 years old can defer as much as $19,500 of their income that comes from Medicaid-related work while providers age 50 and older can defer as much as $26,000. As a result, participants may owe less on the federal and state levels than they would otherwise when filing income tax returns. Roth options also are available, allowing for after-tax contributions that can appreciate in value and result in distributions that do not incur further taxes.
It’s important to realize that utilizing this type of plan would not replace a Medicaid provider’s current retirement plan, but function as additional assets while they continue contributing to their 401(k), pension, IRA or other structures. As the assets remain invested, they may appreciate in value without triggering annual capital gains taxes. Practitioners therefore could be able to accumulate considerably more for retirement throughout the course of their careers than if they rely solely on their standard defined benefit or defined contribution plan.
Retired Medicaid providers in Arkansas who turn 72 years old must take required minimum distributions from the deferred compensation plan. As long as they remain an active provider, they don’t have to take RMDs. When eligible for distributions, there are a variety of ways to access the plan’s assets – which typically will be taxed as ordinary income.
Ultimately, the true value of any deferred compensation plan comes down to the range of investment options that participants may select. A healthy assortment should enable each Medicaid provider to match investments with their risk tolerance while diversifying across asset classes and to make adjustments as needed based on important changes in their lives.
Investment strategies may entail actively managed or index-based funds comprised of bonds and stocks, with value or growth equity strategies and international as well as domestic holdings spanning small cap to large cap companies. Asset allocation models might run the gamut, from conservative ones consisting mainly of cash equivalents, U.S. Treasuries and investment grade corporate bonds to aggressive models that include the stocks of companies in emerging markets. Then there are more complex structures, such as fixed-interest rate annuity contracts and target date funds.
Navigating all of this may appear daunting to medical practitioners who have dedicated themselves to applying their expertise to low-income patients and not to analyzing financial documents. In Arkansas, at least, their deferred compensation plan comes with access to pension and retirement plan experts who possess extensive knowledge about both what Medicaid providers are going through in the state and how they can approach their asset allocations in order to one day stop working on their own terms.
Until that day comes, many Medicaid providers will persist in doing their best to enhance their practices, even while fighting the worst pandemic of their lives. The practices that offer their workers a well-operated deferred compensation plan will be doing that very thing, by improving their opportunity for long-term financial security. That, in turn, may allow them to optimize their focus on the well-being of their patients in the present.
Editor’s note: Robert Jones is senior vice president at Stephens Capital Management, a division of Stephens Inc. The opinions expressed are those of the author.