How Important is Tail Coverage?

How important tail coverage is for physicians. First, we’ll talk about what tail coverage is and what type of policy you need. Then the importance of it, and what kinds of negative repercussions if the physician does not have a tail. 

First, you will only need a tail if you have a claims-made policy. A claims-made policy must be in effect when the claim is made, filed, and served to the physician. If a physician leaves a job, there will be a gap between the last patient they see that employee. Then, the last day somebody can sue them. Which is the statute of limitations.

Add Tail Coverage To Your Claims-Made

In most states, a malpractice claim is two years. And that’s from when either the patient knows or should have known of the malpractice incident. That’s why it can sometimes go past two years if there was no way of knowing about the malpractice until later. Suppose the physician has a claims-made policy in the employment contract. In that case, it will state who is responsible for paying for the tail insurance policy. Suppose you are an employed physician. Maybe a small physician-owned practice, it’s very likely that you’ll have to pay for a tail. If you work for a big hospital network, it is unlikely you will have to pay for tail insurance. Most of the time, the big hospital networks are either self-insured. This means you don’t have to buy tail coverage, or they offer that as a perk of being in that job.

How Much Does Malpractice Tail Coverage Cost?

If you’re in private practice or employed with a private practice, you’re likely to be the one paying for the tail. One question I get very often is how much does it cost? A good rule of thumb is that tail costs about twice your annual premium. How long you’ve been with the employer can fluctuate. Sometimes from 150% up to 300%, but the average is about twice what you pay annually for your premium. The annual premium is how much the employer has to pay to cover you for one year. Some people have no idea how much it costs. Let’s say you’re in primary care. Usually, your annual premium will be somewhere between $6,000 to $8,000. 

So, the tail coverage would be 12,000 to 16,000, something like that. Some of the other specialties like surgery and OB-GYN. It can be tens of thousands of dollars per year with a tail cost of fifty to a hundred thousand sometimes. So it’s very important. What happens if you don’t have tail coverage? Well, simple. If you leave an employer, someone has two years to sue you. You have no insurance policy to cover that gap. You can be sued and not have any insurance to back you up, which is a problem. Even though it sometimes costs a substantial amount, rolling the dice on hoping that a malpractice claim doesn’t arise in your gap is a bad idea. I mean, malpractice, not depending upon the severity, obviously. But most policy limits are 1 million per occurrence and then 3 million aggregate per year.

Search for Better Tail Coverage 

You can imagine if you don’t have an insurance policy and there’s a million-dollar claim, it could bankrupt some people. So, you need to buy tail coverage. Where to find it? Well, you can go with the same insurance company. They’ll give you a cost, pay it, and you’re good to go. I would go shopping a little bit. You don’t have to go with the same underlying insurance provider. Whoever’s providing you with the annual coverage doesn’t necessarily mean you have to go with them for your tail coverage. I would suggest shopping around. Sometimes, I’ve had people who have found tail insurance coverage with the same limits. They also have the same length of time for 25, 20% less than the cost given to them by their current insurance provider. So, that is the importance of tail coverage. And then a little breakdown of claims-made coverage as well.

Other Blogs of Interest

• What are Restrictive Covenants in a Physician Contract?
• Can you Pull out of a Signed Physician Contract?

How Long Does Tail Coverage Last?

How long does tail insurance last? When reviewing a contract with a physician, the medical liability policy and potential payment of tail coverage, if necessary, is always a big discussion point. Let’s briefly go through what scenario a physician would be responsible for tail insurance, the cost of it. And then how long it lasts. There are two main types of medical liability 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. 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 the last day somebody can sue them.

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 coverage. 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 insure the physician for medical malpractice. Just multiply that by two. That’s usually a good ballpark of what the physician will have to pay for tail coverage. 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. 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 insurance 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 insurance, 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 who the new employer will be. And 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 insurance, 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 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 it should last? Well, the longer the tail insurance, 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 insurance 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 judgment 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 policy. The longer the tail coverage, the safer it is for the physician. Anyway, that’s kind of how long the tail insurance policy will last.

How Does Tail Insurance Work?

How does tail insurance work? You’ll need medical liability 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 coverage. 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.

Which Medical Malpractice Claim Needs Tail 

An occurrence-based policy simply means a policy must be in effect when the malpractice incident occurs. And in that scenario, tail coverage 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 coverage 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 Malpractice 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 coverage. 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 coverage. 

A physician-owned practice would rarely pay for tail insurance. I’d say maybe 75% versus 25%. So, 75% must pay for their tail coverage. 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 coverage 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 coverage 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. 

Ask Your Employer to Buy Tail Coverage For You, or at Least a Portion

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 coverage, they may say no. One strategy we’ve been successful with is asking the employer to forgive a portion of the tail coverage 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 coverage.

Now, there’s no way to know, when going to your next job, whether they have the same insurance or not. But that’s another way of getting out of having to pay for insurance tail coverage. So, that’s how tail insurance works. It just covers the gap between when you leave an employer and 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.