Claims Made Insurance for a Nurse Practitioner Explained

What is Claims-Made Insurance?

What is claims-made insurance for a nurse practitioner? If you’re a Nurse Practitioner and you are either employed with a private practice or maybe you have your own practice, if you’re in a state where that’s allowed, you’re going to need malpractice insurance. And there are two common types of malpractice insurance for Nurse Practitioners. One is called claims made insurance coverage, and the other is called occurrence-based coverage. Now, if you work for a hospital or hospital network, you’re going to be covered. They’re either going to have a claims-made policy that they’re going to pay for, along with the tail insurance or maybe they are self-insured. So, this is more directed to people that are in private practice or with a physician-owned group.

Claims-Made Policy for Nurse Practitioner Insurance

Alright, first, claims made simply mean a policy has to be in effect when the claim is actually made. If you terminate your relationship with an employer, there still is going to be a gap between the last patient you see and then the last day they can sue you. And so, your policy ends when your contract is terminated with the employer. And in most states, there’s a two-year statute of limitations. That just simply means how long somebody has to sue someone for something. Two years is the average amount for most states for a medical malpractice claim. And since the original policy ends when you leave the employer, you need a gap policy and that’s called tail insurance. A good rule of thumb is tail insurance is around twice what your annual premium is.

Tail Insurance

Now, the employment contract is going to dictate who pays for tail insurance if you have a claims made policy. So, you need to investigate the contract, and first, you need to see, are they going to pay for your underlying annual premium? Your annual premium is just how much it costs to insure you annually. They absolutely should pay for that. If you have an employer, they need to pay for that. Now, as far as tail insurance goes, it’s hit or miss who pays for it, but you need to look into the language of the contract and then see, alright, if we have a claims made policy, and the contract terminates, who is responsible to pay for tail insurance? Tail is a one-time payment; you don’t need to pay for it every year. And then it can cover different amounts of time.

It’s up to the person purchasing the tail. It could be a year, could be three years, could be indefinite. It would make the most sense to get an indefinite policy, the price between a two-year plan and an indefinite plan is not that much of a difference. And there are some exceptions to two years for someone to sue you for malpractice. For instance, one minor has become an adult, and a few other exceptions, but it just makes sense if you’re covered indefinitely, you don’t have to worry about it. The other type of insurance is occurrence-based coverage, and that just means a policy has to be in effect when the malpractice occurs. And in that scenario, you do not need tail insurance. So, claims-made is the only policy where you would need tail insurance.

Average Cost for a Nurse Practitioner Malpractice

Now, what’s the average cost for a Nurse Practitioner for malpractice? Well, I’d say 2000 per year is kind of a normal annual premium. It will change somewhat based upon the specialty, but let’s just say you’re an FNP, probably 2000 is like a good average amount. It also will be state-dependent. Some states have stricter caps on medical malpractice claims and therefore their coverage is going to be cheaper like Texas, for instance. If you had the choice between a claims policy and an occurrence-based policy, it would depend upon who’s paying for it. If the employer is going to pay for it and they don’t care what kind of policy you get, getting an occurrence-based policy is a no-brainer. If you’re going to pay for it, you need to figure out and kind of do a math equation of, alright, how long do I plan to be with the employer?

Occurrence-Based Coverage

Occurrence-based coverage is about a third more expensive than a claims made policy. Let’s say you’ll be with an employer for one year. You’re like, alright, I’m only staying a year then we’re moving. Well, getting an occurrence policy is absolutely the way to go, because you’re only paying a third more for the underlying policy with no tail insurance. Whereas with the tail policy, although it’s a third less, the tail cost is going to be twice what that annual premium was. And so, you don’t save significantly if it’s short-term employment and you have an occurrence-based policy. That’s the difference between claims made and occurrence-based. If you’re a nurse in your own practice, it’s up to you what kind of policy you’re going to get. Most people just set out to have their own practice, and plan to do it long-term.

If that’s the case, a claims-made policy might make more sense. Last consideration, there are a few ways of getting out of paying for tail insurance. One is you just negotiate with the employer in advance so that they pay for it, that’s kind of obvious. Two, your new employer can pay your old tail and that’s called nose coverage. And that’s one way of getting out of it. And then three, if you stay with the same insurance company that you currently have, they will just, or at least they will generally just roll over your old policy into your new one. You wouldn’t have to purchase tail insurance. Now, there’s no way you’re going to know when you start one job that your next job is going to have the same insurance provider, but that is one way of getting out of having to pay for it.

Claims Made or Occurrence for a Nurse Liability Insurance Policy? 

Should a nurse practitioner choose claims made or occurrence-based malpractice insurance? If you’re working for a hospital or hospital network, they’re always going to pay for your underlying premium, so how much they pay for you on an annual basis, but it’s also very likely that they’re going to pay for any kind of insurance needed after the employment has terminated. Most of the big networks are now self-insured. Some of them may offer a claims made policy, but they’ll almost always pay for the tail. The only time or at least the most likely time that you’d have to make a choice between an occurrence-based policy, or a claims made policy is if you’re either out on your own in a state that allows it, or perhaps you’re in a private practice working with the physician.

Differences Between Occurrence-based and Claims-Made

What are the differences between the two? Let’s take occurrence-based coverage first. An occurrence-based policy simply means that a policy has to be in effect when the malpractice occurs. So, it doesn’t matter when a claim is filed, you are covered no matter what if you have an occurrence-based policy. No tail insurance is necessary. For claims made policy, a policy has to be in effect when the claim is actually made. It’s possible a claim could be filed against you after the employment is terminated. So, you need a gap policy or also known as tail insurance, that covers the gap between when you leave an employer and then the last day somebody can sue you. It’s called the statute of limitations and in most states, it’s two years. There are a few exceptions, but let’s just take two years as a kind of guiding principle here.

And so, you would have to get an additional policy that covers that gap. And that’s, as I said before, called tail insurance. Now, let’s talk about the cost. Tail is generally around twice what your annual premium is. Whatever you pay on an annual basis, multiply those times by two, and that’s a good estimate of what your tail costs will be. It’s a one-time payment, you don’t have to pay for it every year, but you can choose different policies that are different lengths that cover a different amount of time. You could get a tail that lasts for two years, three years, five years, indefinitely, and then the price would change a little bit based upon, obviously the longer, the more expensive it’s going to be. It does not make any sense to get a policy that doesn’t cover the full statute of limitations in whatever state you’re in. If you get sued and you’re not covered, then you could potentially be personally liable.

So, you always want to have backstop if you’re going to be sued for any kind of incident with any employer. And you want to make sure you have a long enough tail to cover you. Occurrence-based, as I said before, doesn’t need tail insurance, but it costs a little bit more per year. It’s about a third more expensive. Let’s say you were paying 3000 a year for your insurance. Well, if you had an occurrence-based policy, it’d be $4,000. So, not a huge price difference between the two, but in the end, it can be huge because as I said before, if you had a $3,000 annual premium for a claims-made policy, your tail would be $6,000. Whereas with an occurrence-based policy, it would be nothing. So, you really need to figure out how long you’re going to be with an employer to determine which policy is best for you.

Physician-Owned Practice

Now, a Nurse Practitioner normally is not given the option if you’re going to work for a physician-owned practice. They’re going to dictate what type of policy you get. And then they’re also going to dictate whether you must pay for the tail or not. Now, that’s something you can negotiate in your employment agreement. You need to look at the policy about professional liability insurance. You need to see what type of coverage they have, who it’s with, how much it costs per year, and then who pays for tail insurance. Those are four things you absolutely need to figure out before signing any kind of contract. It’s not prohibitively expensive for a practitioner. I mean, let’s say you’re an FNP, it’s usually somewhere between 1500 to 2,500 a year. So, the tail cost would be somewhere between like 3,000 to 5,000. And it’s a one-time cost, as I said before. But still, $5,000 is not an insignificant amount of money.

And so, always having the employer be the one that foots the bill is obviously more favorable than not. So, that’s the difference between the two policies, whether what is better for you, or another just depends upon the situation.

Tail Cost For Nurse Practitioners Professional Liability Insurance

How much does tail insurance cost for a nurse practitioner? First, we need to talk about what types of malpractice insurance are available, and then when you have a certain type, do you need tail insurance? First, the setting is important. If an NP is employed by a hospital or hospital network, usually, at least nowadays, they’re self-insured, which means tail insurance generally is not necessary. If they do have a claims-made policy, then tail insurance is necessary. However, if you’re employed by a hospital or hospital network, it is very rare that a nurse would have to pay for their own tail. When they would have to pay for their own tail is in a kind of private practice setting.

Tail Insurance for a Small Physician-Owned Group

If they’re employed by a smaller physician-owned group, or in some states if they have their own practice. In that case, two types of insurance are the most common. One is called an occurrence-based and one is claims made. Now, with an occurrence-based policy, the malpractice incident only must occur while a policy is in effect and meaning tail insurance is unnecessary. As far as claims made insurance goes, a policy must be in effect when the claim is made. And so, tail insurance is necessary for a claims-made policy. Just to kind of break down claims made, let’s say, a nurse practitioner is employed with a private physician-owned practice. If they terminate their employment, there still is a gap from when a patient knows the last day that the nurse provided care for the practice.

Two-Year Statute of Limitations

Usually, there’s a two-year statute of limitations in most states. And in that case, the patient can sue after the nurse practitioner no longer works for that practice. Therefore, a policy must be in effect that kind of covers the gap between when they leave and then the last day, they can be sued by somebody. As I said before, in most states, it’s two years from when the patient either knew or should have known of the malpractice incident. There are also some minor exceptions for minors when they become adults, that type of thing. But for the most part, two years is kind of a good rule of thumb. In the employment contract, if the nurse has a claims-made policy, it’s going to state who pays for tail insurance. If it’s a private practice, I’d say it’s often, the NP would be responsible for it.

Consultation with Chelle Law for an NP Contract

When your contract is reviewed by an experienced attorney, you will find great financial benefits which end up outweighing the cost of the review.  If you are in need of assistance with an employment agreement or contract review schedule a Nurse Practitioner Contract Review with Chelle Law today!