How is Tail Coverage Calculated? | Claims Made Insurance

How is tail coverage calculated as far as the cost is concerned? Let’s first talk about when a physician would need tail coverage, who’s responsible for it, and then the good cost estimate. First, a physician only needs tail insurance if they have a claims-made policy. Claims-made policy means a policy must be in effect when the claim is made. If a physician terminates a contract, there may be a gap between the last day they work for the employer and the last day someone can sue them. In most states, it’s called statute limitations.

How long someone can sue for, and in most states, it’s two years. So, it’s two years from when the patient knows or should have known of the malpractice. That’s why some incidents can go beyond two years if it would be impossible for the patient to know that a malpractice incident had occurred. Someone needs to purchase tail insurance if a physician has a claims-made policy. And so, in the physician contract, it’s going to say who’s responsible for it. If it doesn’t, that’s a problem you need to solve before signing the agreement. Regarding who pays for it, it depends on where the physician is employed. First, suppose a physician works for a smaller physician-owned practice most of the time. In that case, the physician will be responsible for that tail insurance cost.

Claims-Made Policy Vs Occurrence-Based Policy

However, suppose the physician works for a big hospital network. In that case, it’s very unlikely the physician will have to pay for the tail insurance coverage. Depending on the size, the hospital network will be self-insured or will always cover the tail insurance for any of the physicians they employ. There is another instance where the physician would not have to pay tail insurance if there’s an occurrence-based policy. Under an occurrence-based policy, a policy must be in effect when the incident occurs. And so, that way, no tail insurance is needed. The difference between occurrence and claims-made is price. An occurrence policy is usually about one-third more expensive than a claims-made policy. So, you’ll pay one-third more per year. But then, you don’t have to pay that big chunk at the end for the tail insurance coverage. 

Claims-made is cheaper per year. And when the physician leaves, that tail insurance policy has to be paid. And that’s when that big outlay of cash comes in. How much does tail insurance cost? When talking to a physician, I usually say the best estimates are around two times your annual premium. However, depending on the length of time the physician has been with the employer. It could be either shorter or longer. So, I think the best rate range is usually between 150% to 300% of the annual premium for that policy. 

Annual Premium Cost

The annual premium is simply what the employer pays to ensure the physician per year. Let’s take primary care, for instance. A good rule of thumb is that primary care malpractice insurance is usually around 6,000 yearly.

It also depends on your state, but just like an overall general estimate, we’ll say 6,000. Let’s say the physician has been there three years, and they terminate the contract, moving on to a new job. In that case, the tail insurance cost would be $12,000 or an estimated $12,000. And if the physician was responsible for paying for that. Before their last day of providing care to that employer, they would have to buy that policy, show proof of that to the employer, and then move on. There are, I guess, two scenarios where a physician would not have to pay tail insurance if they were responsible for it. One, they could always get their new employer to pay their old tail insurance, called nose coverage.

Consider it a signing bonus that the new employer will pay the old coverage for tail insurance or if the physician stays with the same insurance company. So, if you’re with one insurance company, your new physician utilizes the same insurer. In that scenario, they’ll generally roll your old policy into your new one. Then you won’t have to pay tail insurance. As I said before, most of the time, if you’re in a private physician-owned practice, the physician won’t be responsible for paying tail insurance. Now, there are a couple of ways to negotiate this. Just tell the employer I’d like you to pay for my tail insurance. If they’re unwilling to do that, another scenario would be to split the cost based on how long the physician has been there.

Why Is It Important that an Employer Covers the Tail?

I think one good way of doing it is, let’s say, a four-year term for a contract. Then 25% of the tail insurance costs will be covered by the employer for each year the physician is employed. So, if they’re employed for two years and then leave. They would split the tail insurance costs 50/50 with a new or old employer. That’s one way of doing it. This is important for some specialties like the higher-level surgical specialties. OB-GYN has enormous tail insurance costs, which need consideration. If the physician is an OB-GYN and must pay for all of their tail insurance, they’ve been there for eight years. They could have a tail insurance cost of a hundred thousand dollars, which has to be paid all at once.

That’s a lot of money for almost anyone. So, trying to figure out a way to split the cost of the employers is one of the higher points of negotiation as far as that goes. Anyway, I hope that was helpful regarding calculating a tail insurance cost. Anywhere between 150% to 300% of your annual premium. The longer you’re there, the higher the range. The shorter you’re there, the lower the range.

Other Blogs of Interest

• What is Tail Coverage for Dental Malpractice Insurance?
• Tail Insurance: Why is Physician Tail Coverage so Expensive?
• Tail Insurance: Tail Coverage Cost for Family Medicine
• Do you Need Tail Coverage for Occurrence?

How Important Is Tail Coverage?

How important tail coverage is for physicians. First, we’ll talk about what tail insurance 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 insurance. 

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 is the statute of limitations.

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 Tail Malpractice Insurance 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 policy 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 annually with a tail cost of fifty to a hundred thousand sometimes, so it’s very important. What happens if you don’t have tail insurance? 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  Malpractice Coverage Policy Offer

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 insurance. 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 insurance. 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 insurance. And then a little breakdown of claims-made coverage as well.

Why is Physician Tail Coverage so Expensive? | Tail Insurance

Why is tail insurance for a physician so expensive? Let’s get a little background on when a physician would need tail malpractice insurance and then kind of cost analysis and why it is so expensive. First, the physician must identify what type of insurance policy they have. There are usually three main types. Suppose you’re employed with the hospital network. In that case, most large hospital networks are self-insured now, so you would not need tail malpractice coverage if you’re working for a big hospital network. 

Some hospital networks have claims-made policies, but the physician won’t need to pay for the tail coverage expenses in most instances. Most of the time, if there’s a claims-made policy and the physician is required to pay for their tail coverage, it’s when a smaller physician-owned group employs them. If you have occurrence-based coverage, you do not need tail coverage. Occurrence-based coverage means the incident must occur when the policy is in place. In that scenario, it doesn’t matter when the claim is filed if there was a policy when the event occurred, then the physician is covered.

 One would buy claims-made vs. occurrence-based because occurrence-based is about one-third more expensive than the claims-made policy. So, if you paid 6,000 a year for claims-made, you pay around 8,000 for occurrence. Now, if you do have a claims-made policy, and most of the time, if you have a claims-made policy, it means you’re employed with a smaller physician-owned group. And then, the employment contract will state who is responsible for paying for the tail coverage. In this scenario, the physician is responsible for paying for tail coverage, and there’s a claims-made policy.

Considerations for a Physician’s Tail Insurance Calculation

In that scenario, tail insurance coverage usually costs about twice what the annual premium is for the physician. The annual premium is what the practice pays annually to insure the physician. It would be best if you found out what your annual premium is. And then two, you must figure out how long you’ve been with the practice. Tail costs can go anywhere from one and a half up to three times the annual premium. 

And it’s usually based on the length of time the physician has been with the employer. If you’re only there for a year or two, it might be closer to the 1.5 ratio, whereas, if you’ve been there two decades, it could be closer to the three times your annual premium. Specialty is also certainly important. OB-GYN and many surgical specialties have extremely high yearly premiums, meaning their tail coverage cost could be like a hundred thousand dollars. 

Whereas if you’re in family medicine or pediatrics, your annual premium is probably 6,000, meaning your tail coverage costs might be around 12,000 per year. Tail covers the gap between when you leave the employer and the last day somebody can sue you. It’s called the statute of limitations. In most states, it’s around two years from when the patient knew or should have known of the malpractice. There are some exceptions for minors allowed to sue up until the date of majority, but a good rule of thumb is it’s around two years in that scenario. There are shorter tail policies. You may get one that’s only two years long, or you may want to get a policy that covers an infinite amount of time. The length of tail coverage can also affect the cost of the tail insurance itself.

Can Tail Insurance Coverage Be Negotiated With the Employer?

Anything with a long tail insurance will cost a little bit more. You might not get to the two-times ratio with anything with a shorter tail insurance. This is something that you can negotiate in a contract. A couple of ways of approaching it.

Forgiveness Period for Tail Insurance

If the employer isn’t willing to foot the entire cost of the tail insurance, you could suggest giving a forgiveness percentage at the end of each year of employment. For instance, you could say, look, let’s say, for every year that I’m employed here, you will cover 25% of the tail cost. If I’m here for one year, the physician’s responsible for 75%, two years, 50%, three years, and 75%. And then, if the physician completes four years of employment, the employer will pay for the entire amount.

We often use that if the employer isn’t willing to pay the entire cost from the beginning. Maybe offer them, alright, well, it’s fair that if I’m here for a very long period, you will cover my tail. I think that’s one good way of negotiating it if they’re not willing to foot the entire bill. 

Nose Insurance

Another way of paying for it is if you leave the employer and get a new job, the new employer could pay for your old tail, which is called nose insurance. And that could be a part of the negotiation when you’re leaving one job and going to another is alright, here’s my tail cost, I’d like you to cover that—and sometimes used as a signing bonus or in addition. I guess it just depends. 

Same Insurance Company

Then lastly, if you stay with the same insurance company, let’s say you stay in the same state. You’re in the same specialty and just moving to a different practice. They utilize the same insurance company. Most companies will roll over your old policy into a new one, and you won’t have to pay tail. So, is tail expensive? It’s specialty-dependent. I mean, every amount is relative. If you’re making 500,000 a year and must pay 15,000 tails, it’s probably not as shocking as those in other professions.

What Are Types of Medical Malpractice Insurance?

What are the different types of medical malpractice insurance? This discussion is a frequent topic when I’m reviewing a contract. Most physicians are not given a breakdown of the different types of malpractice insurance during med school or training. So, talking to a relatively new physician who doesn’t understand the difference is always a good idea. Let’s give a brief breakdown of each medical malpractice insurance and maybe the pros and cons. There are three main types of professional liability insurance for physicians. You have self-insurance programs from extensive hospital networks. Then most private practices will utilize one of two, either occurrence-based coverage or claims-made insurance.

Self Insurance

Let’s just kind of talk about three of them—first, 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 a tail. The employer’s self-insurance program covers that. This is great. I mean, it’s excellent insurance when a physician never has to worry about the tail and doesn’t have to worry about paying for the underlying premium. That is a lovely, secure feeling, and that’s what most large hospital networks utilize.

Occurrence-Based Policy

Occurrence-based coverage is one of the types of malpractice insurance. And that means a policy has to be in effect when the event occurs. Any malpractice event will occur while you’re employed 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 purchase a tail. 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, and it’s 6,000, then your occurrence-based coverage would be around 8,000 per year. There is a math equation that needs to be considered to determine what is the best 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 chooses to provide.

Claims Made Policy

That is what the physician must pursue. The last one is claims-made. That means a policy must be in effect when the claim is made. When someone terminates a contract and no longer works for the employer, there is 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 there is no policy in effect if a claim is made, then the physician is in trouble. Nearly every employer will require one of the parties to purchase tail coverage. 

Tail insurance covers that gap between the last day a physician works for the employer and 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 could go past two years if there were no way for the patient to understand until a few years later. I’d say most of the time if a physician works for private practice, a small physician-owned group, or something like that. They will have to be the one that purchases the tail coverage policy. Some employers will pay for it, but I’d say the physician is responsible for their tail coverage more often than not. 

How Much Is Malpractice Tail Coverage?

Tail insurance costs about two times what the annual is. So, if a physician has a $10,000 annual premium, you multiply that times two, and then 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. You’re covered for that amount as soon as you finish the employer. There can be different lengths as far as the tail coverage policy goes. Still, most of the time, the tail coverage policy will cover a reasonable amount of time until the statute of limitations is over—somewhere two to five years. 

As I mentioned before, regarding the math equation, if a physician has their choice of either occurrence or claims-made, you need to think about how long you will be with the employer. Suppose you’re paying a third more for occurrence coverage per year, but you don’t have to pay tail insurance coverage. In that case, 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’ll pay a third more for two years, but then you don’t have this high one-time cost at the end. If you’re in a claims-made policy and you’re going to be somewhere long-term, then it might make sense to use claims-made. Therefore, your annual premium is cheaper, but you’ll still have that hit on end with the tail coverage. 

Which One Is the Best Malpractice Insurance?

Which one is better? It honestly just depends upon the situation. And then, indeed, it depends upon specialty. The annual premium can vary wildly. Like primary care, peds, or something that could be 6,000 a year. Whereas OB-GYN, one of the higher-level surgeons, cardiac surgeon, or something like that, 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 that we negotiate. When we’re looking at a physician contract, you always must consider, okay, what’s most important to the physician. And then what areas can we work on more comp, more time off, better bonuses, whatever? But who pays for talent insurance is essential for most physicians, especially those in higher-end specialties.