Physician Assistant Malpractice Insurance (Do You NEED Claims Made?)

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.

Claims-Made Policy

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.

Occurrence-Based Policy

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 an 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 to pay for the tail. You can say, hey, I’d like you to cover the cost of the 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.

Claims Made or Occurrence Cost for Professional Liability Insurance

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.

Physician Assistant Liability When Covered Under a Medical Doctor 

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.

Contract Concerns Outside of Your Liability Insurance Policy

Can a physician assistant break their contract? The answer is yes, they can. However, if breaking their contract means that they’re breaching it, they’re not adhering to the terms that they agreed upon, they may have some legal or financial consequences that you will want to consider before making that decision. So, before you break the contract, there are normally lots of different ways that you can be led out of your contract. You always want to go to your employment agreement and read it very carefully. There are normally many clauses on termination. Your employer can terminate your agreement for cause if you have violated some policies, you’ve lost your license of practice, or you’re convicted of a crime. There’s normally enumerated the list there.

And if any of that happens, then your employer will terminate the agreement. Another way you can be let out of your employment agreement is a without cause termination. Most employment contracts and you want to read yours carefully, will have a clause in there that says you may terminate your employment without cause. It can be for any reason or no reason at all upon giving a certain amount of notice. The range can be anywhere from 60 to 90 days. Occasionally, if you’re in a rural area or a high-need area, sometimes it can go up to 120 days. If you want out of your contract, you need to give written notice and it needs to be given properly. Again, this can be a little unique to each situation, so you want to look at the employment agreement and it will state how you need to give proper notice.

Written Notice for Contract Termination

It’s usually always in writing, it can be hand-delivered to certain personnel, sometimes it must go through certified mail, other times you’re able to email it to certain personnel as well. So, just make sure you give your notice properly and you give your notice at the appropriate time. Like we talked about, it’s normally 60 to 90 days and then you can be let out of your agreement, that’s the best way to do it. However, even if you do it this way, there still might be some financial consequences. If you received any type of sign-on bonus or relocation bonus or reimbursement, those types of bonuses when you’re given a lump sum upfront whenever you’re starting your employment, normally have some sort of requirement that you must complete a certain period with the company. This is normally anywhere from one to three years.

Tail Insurance for a Physician Assistant Explained | Tail Malpractice Insurance

What is tail insurance for a physician assistant? The setting of where the physician assistant is employed usually will dictate what type of professional liability insurance they have, also known as malpractice insurance. If a PA works for a big hospital network, generally, the hospital network will be self-insured, and tail insurance won’t be necessary. Maybe if they work for some smaller standalone hospitals, that facility might use claims-made insurance, but most of the time, like 9 times out of 10, if a PA is employed by a hospital or a hospital network, they will not have to pay for tail insurance. If they’re working for a smaller physician-owned group, that’s the setting where it’s most likely claims made insurance is used, and then the PA would be responsible to pay for tail insurance.

Malpractice Insurance for a Smaller Physician-Owned Setting

Let’s kind of break down all these terms. First, in a kind of smaller physician-owned setting, there are two common types of malpractice insurance. One is occurrence-based, and the other is claims made. In occurrence-based coverage, it just simply means a policy must be in place when the malpractice incident occurs. Tail insurance is not necessary for an occurrence-based policy. Now, why would you get claims made versus occurrence? A good rule of thumb is an occurrence-based is usually about a third more expensive than claims-made coverage. I find smaller physician-owned practices usually use claims-made insurance just because it’s cheaper. And then they’ll pass the cost of tail insurance onto the employee. And therefore, not only are they saving a third a year on malpractice costs, but then they’re giving the tail coverage responsibility to the PA as well.

Occurrence-Based Coverage

In occurrence-based coverage, you don’t need tail insurance. When you do need tail insurance is if there’s a claims-made policy and a claims-made policy simply means a policy must be in effect when the claim is actually made. Now, someone could leave an employer, and then there’s going to be a statute of limitations which is the amount of time that somebody can sue the PA. In most states, it’s two years from either where you know or should have known of the malpractice incident. There are some exceptions for minors and things like that, but let’s just use two years for example. In that scenario, the PA leaves the employer, and then a year later, somebody sues them. Well, if they have claims-made policy, that policy ends when they leave the employer.

So, they need a gap policy, a tail coverage that covers that gap in between when they leave and then the last day somebody can sue the PA. As far as cost goes, a good rule of thumb is, the tail is usually about twice what the annual premium is. The annual premium is simply the amount the employer pays to insure the PA each year.  For a PA, usually, somewhere between 1500 to 3000 is kind of a good standard amount for malpractice coverage. If they had to pay, it’s somewhere between 3,000 and to 6,000. It is specialty-dependent. For someone who’s assisting in surgery versus someone who’s just doing primary care, there are just different risks there. Or if you’re with an OB-GYN or something like that, then obviously it would be higher as well.

Do You Have to Buy Tail Coverage If You Have Claims Made?

But just a good rule of thumb is somewhere around twice what the annual premium is. You want to find out, alright, what’s the annual premium? Is the employer paying my annual premium? which they should be. And then in the contract, it’s literally going to state who’s responsible to purchase tail insurance. That is a scenario that a PA can negotiate. You can kind of do a math equation if the employer gives the PA the option of getting occurrence coverage or claims-made coverage. If you’re going to be there for a short period, it might make sense to get occurrence insurance. Whereas if you are going to be there for a very long time, doing the math, it could make sense to go for claims made coverage. So, that’s a little primer on what tail insurance is for a physician assistant.

You need to make certain there’s language in the contract that states when the contract ends and if it’s claims made policy who is responsible to pay, and then just a couple more things, the tail policy will need to be purchased prior to the end of the PA’s employment with the employer. Then it’s a one-time payment. You don’t have to pay for the tail yearly. You’ll just pay all the amount upfront and then you’re covered for whatever the amount of tail that you decided to purchase was. You can’t purchase shorter tails or unlimited tails at just a matter of cost, really.

Consultation with Chelle Law

For more information on things to look out for in your physician’s assistant contract, please contact us and let one of our talented lawyers sit down with you and get this all figured out. Our team is more than happy to work with you to get you everything that you deserve out of your contract today.