Do you need tail insurance if you have an occurrence-based policy? In short, the answer is no, you do not. Let’s discuss the differences between the three types of professional liability insurance for physicians. And in what scenario you may need tail coverage. First, many large hospitals or healthcare networks are self-insured. Under that scenario, the physician would not need tail insurance. We’ll discuss that in a different blog. The two main types of professional liability insurance, also known as malpractice insurance, are occurrence-based and claims-made policies. A claims-made policy means a policy must be in effect when someone makes a claim.
Add Tail Coverage for Claims-Made Policy
If a physician is working for an employer, and then the relationship ends, a patient could still file a suit. Let’s say a year after the physician left and no longer works there. In claims-made, a policy must be in effect covering that gap between the last day you worked for the employer. And the last day that someone can sue you. That’s the statute of limitations. In most states, it’s two years. It’s two years from when the patient either knows or should have known of the malpractice incident. So, it can go past two years, but for the most part, two years is a good standard. It does vary from state to state. In that scenario, if the policy is claims-made, and the physician leaves the employer. Someone must pay for the tail and secure a tail coverage policy.
And every physician employment agreement will state who is responsible for tail insurance. If it doesn’t, that’s a problem. It would help if you put the language in there. I’d say it’s probably 50/50 whether a physician must pay for tail or not. If they work for a hospital, almost none of the time, they will have to pay for a tail. If they work for a private physician in practice, they will most of the time.
Tail Coverage Cost
The tail cost. A good rule of thumb is that it’s usually about an average of twice the annual premium. The employer pays the annual premium to provide coverage to the physician. Say the physician leaves and a tail policy is bought. Generally, it’s about twice what their annual premium is, and it’s a one-time payment.
You don’t have to pay it every year. Just pay the one fee covered for the rest of the period until the statute of limitations runs. Is tail insurance needed for an occurrence policy? As I said before, no, it is not. An occurrence policy means a policy must be in effect when the incident occurs. So obviously, the incident will occur during employment when someone is working for an employer. After that, if you’re under an occurrence policy, and the physician leaves, no tail insurance is necessary. One question I get a lot is, what’s the difference between the two price-wise? And why would you go with one over another? Well, first, occurrence, on average, is about a third more expensive per year than a claims-made policy. Let’s say you have a $6,000 premium for a claim-made policy. Then it’d be around 8,000 for occurrence.
Occurrence Or Claims-Made Policy?
It’s a math equation. Also, with claims-made, usually, the premium will go up over time slightly. So, if you have the choice between occurrence or claims-made. It probably will depend upon how long you anticipate being with the employer and whether paying the third each year makes more sense than spending a little bit less per year. But then having to pay that big chunk on the end of it. Most private physicians in practices will not provide occurrence insurance. The obvious reason why is that it’s more expensive. And so, suppose the employer will make the physician pay for the tail. Then there’s no reason for them not to use a claims-made policy.
That way, they not only don’t have to pay for tail, but they pay a third less for insurance annually. That’s a little rundown on tail claims-made in occurrence space insurance. You do not need to pay a tail if you’re under an occurrence policy.
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How Long Does Tail Coverage Last?
How long does tail coverage last? When reviewing a contract with a physician, the medical malpractice policy and potential payment of tail insurance, if necessary, is always a big discussion point. Let’s briefly go through what scenario a physician would be responsible for tail coverage, the cost of it, and then how long it lasts. There are two main types of medical malpractice insurance. You have the occurrence-based and claims-made. In a claims-made policy, a policy must be in effect when the claim is actually made. A physician can leave an employer and then be sued two years later. And since they are no longer employed and that policy has ended. They need a gap policy covering the last day they saw a patient with the employer, and then the last day they can be sued.
In most states, the statute of limitation is two years. However, there are some exceptions that we’ll get into as well. If it’s a claims-made policy, someone must pay for tail coverage. And in an occurrence-based policy, no tail coverage is necessary. It just means a policy must be in effect when the malpractice occurs. The main difference between claims-made and occurrence is that occurrence is usually about a third more expensive. The physician or the employer must decide whether to pay a third more per year for malpractice or pay a little bit less but then have a big chunk on end for tail insurance. Let’s say a scenario where the physician is responsible for paying tail insurance. The contract ends with the employer. The physician is responsible for purchasing the tail insurance policy.
Considering How Long Does a Tail Coverage Last
A good rule of thumb is that it’s usually around twice the annual premium for the physician. The annual premium is how much money must be paid each year to ensure the physician for medical malpractice. Just multiply that by two, and that’s usually a good ballpark of what the physician will have to pay for tail insurance. Now, a couple of considerations as far as how much it costs. One is the length of the policy. Once again, most states have a two-year statute of limitations. However, it’s two years from when the patient either knows or should have known of the injury. And then there are also some exceptions for minor patients to be able to see once they reach the age of majority. In that situation, sometimes, a longer tail insurance policy makes sense. Tail coverage can be one year, two years, five years, or ten years.
There are also unlimited tail insurance policies. Meaning it just goes on forever. And if any claim arises in the future, the physician is covered no matter when it’s filed. Now, why would a physician pay less or more? Simple, it’s cost. Like normal tail coverage, let’s say that covers five years would probably be around twice the annual premium. An unlimited policy may cost more than that. So, if the physician is responsible, they need to think about, alright, what’s my liability here?
How Can You Be Exempted from Paying the Tail Insurance?
What’s the potential for me being sued? Certainly, what specialty they’re in, I think, is important as well. And then they can make a financial decision. Now, there are two ways of getting out of paying for tail insurance. If you stay with the same insurance company, let’s say we have a cardiologist working for a private physician-owned practice. Then, they use whoever the insurance company is, move a job, and that new job uses the same insurance company.
Usually, they’ll roll over the old tail insurance into the new policy. The physician won’t have to pay for tail insurance. When you start a job, there’s no way of knowing if you leave the job and who the new employer will be if they use the same insurance policy. So, that certainly shouldn’t be relied upon. The other way is your new employer paying for your old tail coverage, called nose coverage. This doesn’t happen very often. It can, but most employers do not pay for nose coverage. And if they do, it’s almost always a hospital network. It’s exceedingly rare for a physician for a smaller physician-owned practice to pay nose coverage for any of the physicians they’re bringing in. It just won’t happen.
What Is the Advantage of a Longer Tail Insurance Coverage?
What makes sense as far as how long should a coverage last? Well, the longer the tail insurance coverage, the safer it is for the physician. So, getting unlimited tail coverage makes sense. Now, as I said before, the cost is a factor. Let’s give a scenario where the physician was sued, and the tail coverage expired. It’s a good claim; they didn’t miss the statute limitations. It hasn’t run yet. Well, the physician could be personally liable, not only for whatever the judgement is but for attorney’s fees and things like that.
It could cripple someone financially if they don’t have a malpractice policy in place if they are sued. It’s not worth it. At least I don’t think it’s worth rolling the dice. It is smart to get a tail insurance coverage. The longer the tail insurance, the safer it is for the physician. Anyway, that’s kind of how long the tail insurance coverage will last.
What is Occurrence Malpractice Insurance?
What is occurrence malpractice insurance? There are three main types of insurance for physicians. The extensive hospital networks can sometimes be self-insured. They set aside a big pot of money, pay claims, or have some other self-insurance program. And in that scenario, the physician would never have to pay tail insurance.
Claims-Made Insurance Policy
Tail insurance is necessary when there is a claims-made policy. If a physician has a claims-made policy, and the contract ends with the employer, there’s a gap between the last patient they saw and the last day someone can sue them. That’s the statute of limitations. Generally, it’s two years in most states. And so, they would need a policy that covers that gap. So, that claims-made insurance needs tail insurance. What we’re going to talk about today is occurrence insurance.
An occurrence-based policy means that a policy must be in effect when the claim or the incident occurs. If there is medical malpractice incident, an occurrence-based policy will cover that at any point while employed. There is no tail insurance necessary for an occurrence policy because of that. Claims-made must be in effect when the claim is made. And since it can be made two years down the road, need the gap policy occurrence just when the incident occurs.
Therefore, tail insurance is unnecessary. As far as cost goes, this is the deciding factor between maybe which is better for physicians or another. Occurrence-based insurance generally costs about a third more than a claims-made policy. Let’s say a physician is in primary care and their underlying annual premium is $6,000. If they had an occurrence policy, it’d be $8,000.
Which Insurance Policy to Choose?
So, math must be calculated as far as does it make sense for the physician to pay one-third more per year, or would it be better to pay one-third less per year and then, in the end, pay the tail insurance cost? A good rule of thumb for tail insurance is it’s generally about twice what the annual premium is. It’s based upon the length of time the physician is with the employer. It can be as low as 150% up to 300% if they’ve been there long. Let’s do a scenario and figure out which one might be better.
An Example Scenario
A physician has been with a private physician-owned practice for ten years. And so, let’s say their annual premium is $6,000. So, $6,000 every year for ten years, and when they leave, they must pay tail insurance, which is about two times their annual premium. So, $12,000. In that scenario, if you think I’m saving 2,000 a year for ten years, I only must pay 12,000 for tail insurance. Well, if you’re going to be with a long-time employer, it makes sense in that scenario to go with the claims-made policy. If you went with an occurrence for ten years, you’re paying 2,000 more per year, so over the ten years, you’re paying 20,000. In that scenario, you would pay 8,000 more for an occurrence policy and obviously 8,000 less for a claims-made policy.
Let’s do another scenario with, let’s say, an OB-GYN whose annual premium is $20,000. And they’re only staying with the company for, let’s say, three years. In that scenario, if they’re paying 20,000 for a claims-made policy, since it’s a third more, we’ll round it up to 7,000. So, they’ll be paying 27,000 per year for occurrence. So, if they’re there for three years, 27,000, 27,000, 27,000, whereas with the claims-made, it would just be 20, 20, 20. And then, at the end of that, let’s say it was twice the annual premium. They’d be paying a $40,000 tail insurance payment, whereas, under the occurrence policy, they’re only paying 27. So, seven times three is 21,000. The tail insurance cost is around 40. Then clearly, in that scenario, it would make sense to have an occurrence-based policy.
Things You Need to Consider
Now, a couple of considerations are that the employee doesn’t really dictate what type of policy the employer uses. And I can tell you from doing this for so long that most employers, or at least privately physician practices, will utilize a claims-made policy. Simply because if they make the physician pay for the tail insurance coverage, they’ll certainly want to save some money.
And they will just use claims-made each year, save a third. Then make the physician pay the tail insurance coverage. In the long run, they save quite a bit of money. You don’t see occurrence policies very often. If I had to estimate, I’d say maybe 1 in 20 a private physician-owned practice uses an occurrence-based policy. Now, if the physician has the option and the employer says you can decide what policy you want, then you must do the math equation we discussed.
So, that is what occurrence-based insurance is. A little bit more expensive, but you don’t have to pay for tail coverage. Is one policy better than the other? It just depends upon the situation of the physician. One specialty they’re in is how long they will be with the employer.
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