Claims Made Insurance for a Nurse Practitioner Explained
What is claims-made insurance for a nurse practitioner? If you’re an NP 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 NPS. One is called claims-made 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 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.
Alright, first, claims made simply means 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.
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.
Now, what’s the average cost for an NP 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 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 an NP 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.
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