How Long Does Tail Coverage Last? | Tail Insurance

How long does tail insurance 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 insurance, 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 insurance. 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 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 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 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 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 it should last? Well, the longer the tail insurance, the safer it is for the physician. So, getting unlimited tail insurance 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 insurance, the safer it is for the physician. Anyway, that’s kind of how long the tail insurance policy will last.

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 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 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 Malpractice Tail 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 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 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 Insurance 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.

Who Typically Pays Tail Coverage?

Who typically pays for tail insurance coverage? To talk about tail insurance coverage, we also need to talk about underlying malpractice policies. We’re going to hit both of those. First, when do you need tail insurance coverage? There are three main types of insurance for physicians. They may be self-insured if you’re with a large hospital or healthcare network. And in that scenario, you usually would not need tail insurance. If you have an occurrence-based policy, it means a policy must be in effect when the malpractice event occurs. You do not need to buy tail insurance for that as well. And then the third is claims-made. Under a claims-made insurance policy, a policy must be in effect when the claim is made.

And since you could terminate your relationship with that employer, there will be a gap between the termination date and the last day somebody can sue you. That’s called the statute of limitations. In most states, it’s two years. Now, two years from when the patient either knows or should have known of the malpractice event. Sometimes, it can go past two years. A tail insurance policy is a coverage that covers that gap between when you leave and the last day somebody can sue you. Why would an employer use claims-made versus occurrence? Let’s say it’s a private employer. We’re just going to assume hospitals are self-insured. In this scenario, let’s talk about a private physician practice. If they must choose between occurrence and claims-made, 9 times out of 10, they will choose claims-made because it’s cheaper.

Who Pays for Tail Insurance Depends on the Work Set-Up

An occurrence policy is generally around a third more expensive per year for a physician. But as I said before, tail insurance is unnecessary for an occurrence policy. A claims-made policy, if they’re cheaper than an occurrence-based policy. In the long run, it’ll be cheaper if the physician pays for the tail coverage. And that’s why they do that. The premise of this blog is who typically pays for tail insurance. If you’re a physician who does shift work, say hospitalist or ED, it’s almost always the physician who will pay for your tail insurance. If you work for a hospital and they’re not self-insured, and they have a claims-made policy, it’s extremely rare. Maybe one out of a hundred would the physician have to pay for tail insurance. Almost whenever a physician is employed by a hospital or health network. The employer will pay for your tail insurance. 

If you’re in private practice or an employee of private practice, 9 times out of 10, they’ll have claims-made coverage. And then, I’d say, probably 50% of the time, maybe a little bit above that. The physician is going to be the one that must pay for tail insurance. Is that fair? It’s just a matter of negotiation. Tail insurance costs about twice what your annual premium. Let’s take a primary care physician. Their annual premium is between $6,000 to $8,000. If the physician had to pay for tail insurance, multiply that by two. So, it would be somewhere between 12,000 to 16,000. They’d have to pay for the tail coverage. That’s a one-time cost. You don’t have to pay annually for tail insurance. It’s just a one-time fee when the contract terminates. Then you’re covered for normally the entire gap, or it’s a specific period. 

Tips on Negotiating Who Pays for Tail Insurance

You want to get a policy that goes well past the statute limitations. It’s a real specialty, depending on whether this is a huge deal. In primary care, you must pay 12,000 for tail insurance. It isn’t very pleasant, but it will not break the bank for you. If you are an OB-GYN with a $50,000 annual premium and must pay a hundred thousand dollars for tail insurance. That’s something completely different. And so, negotiating who must pay for tail insurance could be the key point in negotiating an OB-GYN. It would help if you did the math on this. If you can increase your base salary by 15,000 versus negotiating with the employer paying for tail insurance, that’s a no-brainer. You’re going to get that 15,000 every year. And that’s worth much more than just having a one-time $15,000 cost for tail insurance.

Before signing the employment agreement, you must negotiate who pays for the tail insurance. Usually, the employer will send the agreement. The physician will look it over. If they’re smart, they’ll have an attorney review it. And then we’ll come up with a list of things that we need either clarified or that we’re going to ask for. And in that scenario, we figure out what is most important to the physician and then situate the counteroffer. 

Negotiation Based on Priorities

Every situation is different. Some things are more important to a physician than others. Maybe some physicians need the non-compete amended because they cannot leave the area once the contract terminates. Maybe a bonus is most important to a physician to help them pay a down payment on a house. Or, in other cases, if they’re, as I said before, an OB-GYN. They don’t want to pay a hundred thousand dollars when the contract terminates. That might be the most important thing to them.

Two other considerations, one, if you’re with an employer and you must pay for tail insurance, but you move to a different employer that utilizes the same insurance company. Usually, that insurance company will allow you to roll over your old policy into your new one, avoiding paying for the tail coverage. Now, there’s no way you’ll know that when you start a job. Your next job will have the same insurance company, but that’s one way of getting out of paying for it. The other way would be having your new employer pay your old tail insurance. That’s called nose coverage. 

In nose coverage, it simply would be a negotiation with your new employer that says, once the contract terminates with your current employer, they will pay your old tail insurance or reimburse you for whatever you paid for. Nose coverage doesn’t happen very often, but it certainly does. And it’s a possibility for a physician. So, who typically pays for tail coverage? I’d say, typically, it’s the physician. Still, it’s not completely out of the ordinary for a physician to be provided. It’s just a point of negotiation.

How Is Tail Coverage Calculated?

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. It’s possible that if a physician terminates a contract, there will 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 coverage of the tail insurance. 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 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 purchase 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 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.