Should a Physician Assistant Choose Claims Made or Occurrence Insurance?
Should a PA choose an occurrence-based policy or a claims-made malpractice policy? First, if you are working for an employer, there will be a policy that covers you for PA malpractice insurance. And if you’re working for a smaller physician-owned group or a private practice, there are going to be two types of insurance, either claims made or an occurrence-based policy. If you’re working for a big hospital network or hospital, nowadays, most of them are self-insured and therefore you won’t have to worry about the underlying premium or any kind of tail cost after the fact. It’ll all be rolled into their self-insurance program. So, today I’m just going to talk about the differences between the two types of insurance when you’re working for a smaller non-hospital employer.
A claims-made policy means a policy must be in effect when the claim is made. You could leave an employer, so the agreement is terminated, but someone could sue you after the fact. Now for most states, there’s a two-year statute of limitations. That just means a limit on when somebody can sue someone. There are some exceptions that I’m not going to get into. Think of it as the last day that you worked for the employer, and then two years later, you must have a policy that covers the gap in between the two. And that’s called tail insurance. Now, tail can vary in length. You could choose a one-year, two-year, three-year, five-year, or indefinite policy. It wouldn’t make any sense if you were paying for the tail insurance to have a shorter amount than whatever the statute of limitations is in the state where you were working.
I think just for peace of mind, it makes sense to just get an indefinite policy. Tail cost is usually around twice what your annual premium is. The annual premium is how much it costs to insure you on an annual basis. So, you would just multiply that times two, and that’s kind of a good assessment of how much you would have to pay. If you have an occurrence-based policy, you do not need tail insurance. It simply means the policy has to be in effect when the malpractice actually occurred. The difference between the two and therefore you might want to choose one over the other is that occurrence-based policy is about a third more expensive per year than a claims-made policy. However, even though you’re paying a third less for a claims-made policy, you’re going to have twice what your annual premium cost is, to pay for the tail insurance. Most of the time, the PA is not going to have the option of purchasing one or the other. If you’re working as an employee, they’re just going to say, this is the policy that we’re going to provide to you. Other topics of interest include:
- What is Occurrence Based Insurance for a Physician Assistant?
- Tail Insurance for a Physician Assistant Explained
And then in the employment agreement, it’s going to state who is responsible for paying for tail insurance. So, you need to investigate the section that covers professional liability insurance. Then you need to see what type of policy is offered, and then who is responsible for paying for the tail cost after the agreement terminates. Now, you can negotiate with the employer paying for tail. You can say, hey, I’d like you to cover the cost of tail. Now, they may say, no. One thing that we’ve had success with is then saying, alright, let’s say you have a three-year initial term. Then you would have one-third of the tail costs forgiven for every year that you complete for the employer. So, after the end of three years, then the employer would agree to pay for the entire amount of the tail policy.
Now, if you do have the choice, you need to figure out how long you’re going to be with the employer. If you’re going to pay a third more for occurrence per year, but you’re going to work for the employer for 10 years, a claims-made policy probably would make more sense. If you’re only going to work for one year, well, then an occurrence-based policy is a no-brainer. Let’s just say you have a $3,000 annual premium for a claims-made policy. An occurrence-based policy is a third more, so you pay 4,000 for occurrence, and 3,000 for claims made. Let’s say, you work for a year. And then if tail is twice the annual premium, that’s a $6,000 cost. That would be $9,000 total if you had a claims-made policy. Whereas if you had an occurrence-based policy that was $4,000 with no tail, that’s all you’re paying is 4,000.
So, 4,000 versus 9,000, obviously, go with the occurrence-based policy. Whereas if you’re going to work for 10 years, and let’s just say, once again, it’s a $3000 underlying premium. So, 3000 times 10 for the claims-made policy is 30,000. 4,000 times 10 is 40,000 for occurrence. Well, in that scenario, it would make more sense to purchase the claims-made policy. You would come out ahead in the end mathematically if you’re using a claims-made policy. Now, most people are not going to work for an employer for 10 years. If you do have the choice between the two, it just makes sense to go with the occurrence-based policy, even though it’s a little more expensive per year. If you’re going to work as an independent contractor, you are going to be responsible for paying the underlying premium very likely and purchasing your own tail insurance if you had a claims-made policy. Once again, you have to do the math of, alright, am I going to work for this employer as an independent contractor on a short-term basis? Long-term basis? That type of thing.
The tail cost can vary based upon how long you’ve worked for that employer. And then also, your claims history as well, and then how long you purchased, how long coverage you purchased for the tail. So, was a one-year, three-year, five-year, or indefinite, that type of thing. It’s not that complicated when you break it down, but it’s certainly not something that most PAs are familiar with as far as the different types of insurance. There is one other small caveat for PAs, and sometimes the physician will have a policy that covers the PAs under them. And so, if a PA leaves, it will just roll into the physician’s policy. I’m not going to get into the details of that, but that is one thing as a PA that you really don’t have as a dentist or a vet, or even an NP. So, it’s something to think about.
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