How Does Tail Insurance Work?

How does tail insurance work? You’ll need medical malpractice insurance while practicing if you are a high-level healthcare professional like physicians, NPs, PAs, and dentists. And then, depending upon what type of coverage you have, you may need tail insurance. I will break down the common types of malpractice insurance and when tail insurance is necessary. And the details of when it needs to be paid, for how long, how much it costs, etc. The two most common malpractice insurance types in private practice are occurrence-based and claims-made policies.

When Do You Need Tail Insurance?

An occurrence-based policy simply means a policy must be in effect when the malpractice incident occurs. And in that scenario, tail insurance is not necessary. Under claims-made insurance policies, a policy must be in effect when the claim is made. If a provider leaves, there’s a gap between their last day at work and the day somebody can sue them. It’s called the statute of limitations. For most states, it’s two years. 

There are some exceptions, but in general, two years is a good rule of thumb in this situation. Let’s say for this case, it’s two years. Suppose you leave the employer. There’ll be a two-year gap where someone can still sue you for what you did for that employer. And so, in that scenario, you need a policy that covers that gap, known as tail insurance in the industry. If you have a claims-made policy, you need tail insurance. If you have an occurrence-based policy, you don’t.

Who Should Purchase Tail Coverage?

If you have a claims-made policy, the employment contract will dictate who pays the underlying premium. Ninety-nine out of a hundred times, it will be the employer if you’re an employee and not an independent contractor. And then the employment agreement will also cover who pays for tail insurance. Now, this can vary significantly from contract to contract. If you’re working for a private physician-owned practice, it’s more likely they will be responsible for paying for tail insurance. 

A physician-owned practice would rarely pay for tail insurance. I’d say maybe 75% versus 25%. So, 75% must pay for their tail insurance. In the contract, it’s going to state, alright, the physician is responsible for paying tail insurance. Let’s kind of break down the details of that. The tail policy will need to be in place before the end of the employment relationship. So, let’s say the physician gave notice, and there’s a 60-day without-cause termination. They will have to get that policy secured before the end of those 60 days when they leave.

Average Tail Coverage Cost

Tail insurance generally costs about twice what your annual premium is. This varies based upon specialty. So, if maybe your primary care, it could be around 5,000 to 6,000. Whereas if you’re an OB-GYN, it could be 40,000 or 50,000 yearly. A good rule of thumb is twice the annual premium, which you will have to pay for tail insurance. It’s a one-time cost. You’re not going to have to pay it every year. But you’ll have to pay all the money upfront to purchase the tail before the end of the employment relationship.

How Long is the Duration of a Tail Insurance?

Now, how long does tail insurance last? Well, it depends on what type of policy you bought. You can purchase one-year tail insurance, two-year tail insurance, five-year tail insurance, and unlimited tail insurance.In my opinion, it seems shortsighted to purchase short tail insurance. Why would people do that? Well, it’s just a cost. Now, I said two times is the average. But it can usually range from 1.5 times up to 3 times the annual premium. That is, based on how long the tail insurance is. And then also, how long you’ve been with the employer and that type of thing.

Determining how long you should get should be easy. It should be unlimited tail insurance; it should go on forever. You don’t want a scenario where you are not covered when a claim is made. And that could be financially crippling for a healthcare provider if they’re ultimately found guilty or must reach a settlement. 

Add Tail Coverage to Negotiations With Your New Employer

Now, you can negotiate who pays for tail insurance coverage in the employment agreement. If you go to the employer and say, I’d like you to purchase my tail insurance, they may say no. One strategy we’ve been successful with is asking the employer to forgive a portion of the tail insurance cost. Based upon how long the provider has been with the employer. For instance, let’s say the physician has a three-year initial term. They complete the three years. Negotiating with the employer is one way of getting out of having to pay for tail insurance.

Another would be if your new employer pays for your old tail insurance, that’s called nose insurance. Or this doesn’t work if you’re working in the hospital network. If you’re with a private-owned practice and leave for another one within that state, they use the same insurance carrier. Generally, the insurance carrier will roll over your old policy into your new one. You won’t have to purchase tail insurance.

Now, there’s no way you’re going to know, okay, in my next job when I leave this one, whether they have the same insurance or not, but that’s another way of getting out of having to pay for tail coverage. So, that’s how tail insurance works. It just covers the gap between when you leave an employer then the last day somebody can sue you. It’s around twice the annual premium. And then you can negotiate who is ultimately responsible for covering the expenses associated with it.

Other Blogs of Interest

• How Important is Tail Coverage?
• What is Claims-Made Malpractice Insurance?
• How Long Does Tail Coverage Last?

What are the Types of Medical Malpractice Insurance?

What are the different types of medical liability insurance coverage? This is a frequent topic that comes up when I’m reviewing a contract. Med schools or training do not break down the different types of malpractice insurance coverage. It’s always good when talking to a relatively new physician who doesn’t understand the different professional liability insurance. To give a brief breakdown of each one. And maybe the pros and cons of each insurance policy. There are three main types of professional liability insurance policies for physicians. You have self-insurance programs from big hospital networks. Most private practices will utilize one of two, either occurrence-based coverage or claims-made insurance coverage.

3 Main Types of Liability Policies 

Let’s talk about the three liability insurance. First is self-insurance. Large hospital networks usually have their policy: they’ll set aside a pot of money and pay claims out of that. In that circumstance, generally, the physician doesn’t have to worry about purchasing tail coverage. The employer’s self-insurance program covers that. This is great. It’s excellent insurance when a physician never has to worry about tail coverage. And doesn’t have to worry about paying for the underlying premium. That is a lovely, secure feeling. That’s what most large hospital networks utilize. 

The next type of insurance is occurrence-based coverage. And that means an insurance policy has to be in effect when the event occurs. Any malpractice event will occur while you’re with the employer. So, you are covered in perpetuity if an occurrence-based policy is in place and then something happens. The benefit of occurrence-based insurance is that you don’t need to buy tail coverage. The downside is it costs more than a claims-made policy. A good rule of thumb is that occurrence is about a third more expensive than claims-made policies annual your premium. 

So to give an example, let’s say you have a claims-made policy. It’s 6,000, then your occurrence-based coverage would be around 8,000 per year. There’s a math equation you need to consider to determine what is the best insurance policy for a physician. And I’ll get into that at the end. But honestly, physicians often don’t have a choice between an occurrence-based or a claims-made policy. It’s whatever the employer of a small business chooses to provide. That’s what the physician must go for.

Tail Coverage 

The last one is the claims-made insurance policy. That means an insurance policy must be in effect when the claim is made. Suppose someone terminates a contract, and they no longer work for the employer. There’s still a gap between their last day of practice with that employer and the last day somebody can sue. That’s called the statute of limitations for malpractice claims. In most states, it’s two years. If no insurance policy is in effect if a claim is made, the physician is at risk of trouble. Nearly every employer will require one of the parties to purchase tail coverage. 

Prior Acts Coverage

The need for tail coverage is simply covering that gap between the last day a physician works for the employer. And then on the last day somebody can sue them. Now, it’s two years from when the patient either knows or should have known of a malpractice incident. It’s possible to bypass two years if there’s no way for the patient to know until a few years later. I’d say most of the time if a physician is working for private practice, a small physician-owned business, group, etc. They will have to be the one that purchases the tail policy.

Some employers will pay for tail coverage. But I’d say the physician is responsible for their tail coverage more often than not. Tail coverage costs about two times the annual coverage for claims. So, if a physician has a $10,000 annual premium for claims-made coverage, you multiply that times two. That’s about how much they’ll have to pay for tail coverage.

It’s a one-time cost, so you don’t have to pay it yearly until the statute of limitations runs. It’s just a one-time cost. As soon as you finish the employer, it covers you for that amount. There can be different lengths as far as the tail coverage policy goes. Still, often the tail coverage policy will cover a reasonable amount of time until the statute of limitations is over. Somewhere between two to five years. As far as the math equation, if a physician does have their choice of insurance products, either occurrence or claims-made. Then you need to consider the period you’re willing to be with the employer. In order to lessen the risk of paying more for the professional liability coverage.

Is There a Need to Buy Tail Coverage?

If you’re paying a third more for occurrence coverage per year. But you don’t have to pay a tail. Then it might make sense to utilize that if you’re going to be there on a short-term basis. Let’s say you’re there for two years, you’re going to pay a third more for those two years. But then you don’t have this big one-time cost at the end. If you’re in a claims-made insurance policy. And you’re going to be somewhere long-term, it might make sense to use claims-made. Therefore, your annual premium with the insurance company is cheaper. But then you’ll still have that hit on the end with the tail coverage. Which one is better? It honestly just depends upon the situation. And then indeed, it depends upon specialty.

The annual premium can vary wildly. Primary care, peds, or something that could be 6,000 a year. Whereas OB-GYN, one of the higher-level surgeons, cardiac surgeon, etc. could be between 20,000 to 50,000 a year. And then do the math on that tail coverage cost. It could be forty to a hundred thousand for their tail coverage. It’s specialty-dependent as well. This certainly is something we negotiate as it can take great resources from a physician. When we’re looking at a physician contract, you always must consider, okay, what’s most important to me. And then what areas can we work on. More comp, more time off period, better bonuses, whatever. But who pays for the tail insurance product is an essential piece for most physicians. Especially the ones in those higher-end specialties.