Occurrence Based Insurance for a Nurse Practitioner Explained: Occurrence Coverage and Claims for Nurse Practitioners

What is occurrence-based malpractice insurance coverage for a nurse practitioner?  If you’re a nurse practitioner and you’re out in either private practice, meaning, you’re working for a physician-owned practice, perhaps you own your own practice in a state that allows it, there are going to be two types of insurance that you can utilize. One is called claims-made coverage, and the second is occurrence-based coverage. What is claims-made? Claims-made coverage simply means that a policy has to be in effect when the claim is actually made. You could be with an employer and then the contract would terminate for whatever reason, and then that policy is done. It only covers you for the time when you were there.

So, there would need to be a gap policy also known as tail insurance that covers the gap between when you leave the employer and then the last day somebody can sue you. For most states, that’s two years, and that’s called a statute of limitations. Basically, it’s a limitation on filing a suit against somebody. And for Med Mal claims in most states, it’s two years. And you would need that policy to cover that to your gap so that if you did get sued during that time, you would be covered. Now, as far as tail insurance is concerned, it’s usually about twice what your annual premium is, and your annual premium is just how much the employer pays for you to be insured on a yearly basis. I’d say most NPS, at least their annual premiums are probably around $2,000.

It is specialty-dependent, but let’s just say it’s an FNP, so somewhere between 1500 to 2,500 is a pretty good estimate. Your tail would be twice that if you were responsible to pay for it. So, that’s claims made with tail insurance. Now, this blog is about occurrence-based insurance. An occurrence-based policy simply means a policy has to be in effect when the claim or the malpractice incident occurs. No tail insurance is necessary for an occurrence-based policy. Now, why would someone choose one over the other? Well, it’s the price. An occurrence-based policy is about a third more expensive per year than a claims-made policy, but because you don’t have to pay for tail insurance, it can be a better option for some. And so, think of it this way: if you’re going to be with an employer on a short-term basis, meaning, you start a job and you’re only going to be there for a year or two, maybe you’re an independent contractor and it’s up to you to get the insurance, well, if you had an occurrence-based policy, yes, it’s a third more expensive per year, but you don’t have that two times annual premium tail cost on the end.

Claims Made Vs Occurrence for Nurse Liability Insurance

And let’s just say you’re going to be there for two years; your underlying policy is $2,000. If it were an occurrence policy, it’s a third more, so let’s just say it’s around 2,700. If you had to pay that for two years, that’s 5,400, and that would be the total amount that you pay for insurance. So, 5,400 for two years. If you had a claims-made policy, it’s 2000, 2000, which is 4,000, but then you’d have to double that for tail cost, which is 8,000, so then it’s 12,000 total versus what we said 5,400. So, you would come out way ahead if you chose an occurrence-based policy if it’s short-term employment. Now, if it’s a longer-term employment or maybe you’re starting your own practice and you plan to be there indefinitely, a claims-made policy might make more sense in the long run.

Most employers do not give the NP the option. You will most likely have the option if you’re working as an independent contractor because you’re the one that has to pay for the policy. There are a few opportunities where they would pay for your annual premium, but those are rare. But for the most part, you do not have the choice of one or the other. And most employers offer claims made and then put the onus for the tail cost on the provider because it’s cheaper for them, it’s a third less per year for them to pay and they don’t have to worry about the tail cost. So, that’s what occurrence-based coverage is. You do not need tail, but it’s a third more expensive.

Claims-Made Policy for Nurses

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.

Tail Coverage Cost for Health Care Providers

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 practitioner 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.

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 practitioner provided care for the practice.

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 that gap in 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 practitioner 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.

As I said before, if they’re in a hospital or hospital network, more times than not, the hospital is going to cover it. If the nurse practitioner is responsible to pay for tail, it must be purchased generally prior or right around the date of termination with the employer. And a good rule of thumb is it’s about twice what your annual premium is. Your annual premium is simply how much the employer must pay to insure you each year. If you had to pay for tail insurance, it normally is around twice what your annual premium is, and it’s a one-time payment. You don’t have to pay it every year. It’s all paid upfront and your tail is covered for as long as whatever the length of the tail policy you bought was. Tail insurance can have longer tails than others.

I mean, you could get theoretically one year tail, two-year tail, or an infinite tail. For most people, five years is kind of a good safe amount. If you had a two-year tail, but then something happened in year four or five, you are no longer insured, and it would be an issue. Now, how much does malpractice insurance cost for most NPs? Usually, it’s somewhere between 1500 to 2,500. So, let’s just say it’s $2,000. Then your tail cost would be around 4,000. Not like an enormous amount of money, but certainly something you may want to negotiate prior to signing the employment agreement. A couple of things to think about: one, if an, if it states that you must pay for tail, you can always ask the employer to pay for it. That’s one way of doing it.

If they’re unwilling to pay the entire amount, sometimes we’re successful in kind of tiering it. Let’s say, you have a three-year term for your contract. You could say one-third of the tail costs will be taken over by the employer for each year they’re there. So, by the time the three years is over, the employer pays the entire cost of tail insurance. Another way of getting out of having to pay for it would be if your new employer pays for your old tail. That’s called nose insurance. Or, if you stay with the same insurance company, normally, they will just roll over your policy wherever your new employer is, and you wouldn’t have to pay for tail insurance. This is something you can negotiate in the contract. Now, some employers are just simply unwilling to change any terms in the agreement, or maybe unwilling to change this term. And then, if that’s the scenario, you must make the decision of whether it’s a deal-breaker for you or not. So, that’s how much tail insurance costs, usually around twice what your annual premium is. You certainly want to find out what your annual premium is prior to signing the agreement. And that way you can forecast what your tail insurance cost will be.