What is Medical Malpractice Insurance Coverage?

Healthcare providers must protect against liabilities arising from medical negligence through medical malpractice insurance. 

Medical malpractice is a legal liability caused by a professional healthcare provider. In this case, the physician deviates from the expected healthcare standards, thereby causing injury to a patient. Medical malpractice (negligence) occurs through misdiagnosis, failure to treat, prescription drug errors, birth injuries, and surgical errors. 

In this article, we’ll cover:

• What is medical malpractice insurance?
• Who needs medical malpractice insurance?
• What does medical malpractice insurance cover? 
• What kinds of medical malpractice insurance are there?
• How much does medical malpractice insurance cost?
• Who pays for medical malpractice insurance coverage?
• Does your healthcare policy match your practice?
• How do you select medical malpractice insurance?
• What to look for in a liability insurance carrier?

What Is Medical Malpractice Insurance?

Medical malpractice insurance is an insurance policy that covers healthcare workers against professional liability, such as claims of injury and medical negligence. Usually, medical malpractice coverage is a necessity because claims in this field can be substantial. 

NSO malpractice insurance is essential for all nurses and other healthcare professionals who don’t want to cover professional liabilities out-of-pocket. Typically, various carriers provide Med Mal. 

Who Needs Medical Malpractice Insurance Coverage?

Everyone directly interacting with patients to provide healthcare services needs medical malpractice insurance. Importantly, fitness professionals also need to consider this policy to cover risks in their industry. Therefore, if you’re in any of the following professions, it’s essential to consider this coverage. 

• Nurse Practitioners
• Physical Therapists
• Licensed Practical Nurses
• Personal Trainers
• Physician Assistants
• Nurse Anesthetists (CRNAs)
• Registered Nurses
• Optometrists
• Nursing students and more

What Does Medical Malpractice Insurance Cover and Not Cover?

As highlighted earlier, medical malpractice coverage covers physicians for negligent claims such as childbirth-related injuries, medication errors, surgical errors, misdiagnosis, wrong-site surgery, and other claims of wrongdoing. 

However, you need to understand that there are some aspects that a medical insurance policy will not cover. For example, medical malpractice policies will not cover illegal acts and claims of sexual misconduct. Also, the policy will be considered void if healthcare professionals misrepresent facts during policy application. 

What Kinds of Medical Malpractice Insurance Are There?

Medical malpractice insurance can either be claims-made or occurrence-based. Here’s the difference between the two types;

Claims-Made Medical Malpractice Policy

In this case, the insurance provider will cover a healthcare provider for medical malpractices which occurred when the policy was in place. The doctor must also report the claim when the policy is already in place. 

However, incidents reported outside the coverage period are not included. In such a case, a healthcare provider might consider tail insurance coverage for claims reported when the policy is no longer in place. 

Occurrence-Based Medical Malpractice Policy

Occurrence-based plans cover malpractices during the coverage period. This insurance coverage also covers claims filed when the policy was no longer active. 

However, occurrence-based insurance policies are more expensive than claims-based due to their nature of coverage. Also, your employer might not be willing to provide such a policy due to cost challenges. 

How Much Does Medical Malpractice Insurance Cost?

The cost of medical malpractice policy is a sensitive aspect you must analyze. Generally, there’s no defined amount that one has to pay. In most cases, your specialty and geographic location determine how much cost you’ll have to pay. Also, your personal claims history has a massive role in determining your insurance costs. 

Insurance carriers will estimate your annual premiums by breaking up the total coverage by the number of years covered. This will help determine the yearly premiums while spreading risks across the coverage period. 

Who Pays for Medical Malpractice Coverage?

Medical malpractice insurance can either be paid by individual providers or by employers. Depending on the type of insurance plan you’ll have, it’s always important to know that you’ll get some pros and cons. 

Individual Coverage

Outside the employer-provided plans, doctors can choose to get their coverage. Individual providers offer some flexibility that employer coverage might not provide. They work directly with insurance advisors to obtain coverage that meets their needs. In addition, physicians who get individual coverage can overcome the disadvantages of group plans by working in multiple locations and can easily switch providers when renewing their plans. 

Employer Coverage

The majority of the employers in the country provide medical malpractice insurance policies. Employees are easily added or removed from the group plan based on their employment status. Most importantly, employer coverage is a claims-made policy, meaning only claims reported when the policy was active are covered. Therefore, physicians need to consider tail insurance to mitigate the disadvantages of this policy. 

Does Your Healthcare Policy Match Your Practice?

Generally, the majority of insurance policies have limits. For example, a standard medical malpractice insurance policy may range from $10,000 to $30,000. The policy provider will pay the lowest amount ($10,000) per claim during the policy period. The second amount ($30,000) is the maximum amount that your insurance provider will pay during the policy period. 

You’ll be personally liable for any amount exceeding your policy limits. Therefore, you should pay attention to your policy limits and ensure they align with your geographical location and specialty. In addition, you need to work with an experienced physician contract lawyer when discussing insurance limits with your insurance provider for maximum protection. 

How Do You Select Medical Malpractice Insurance?

It’s not always easy to choose the best medical malpractice insurance policy. For example, in some states, claims are very high. So, you must select the right insurance with the proper policy limits. 

Your medical insurance limits must be sufficient to cover the possible settlement and rigorous defense where necessary. Again, working with a medical physician contract attorney is advisable to get advice on the best insurance policy. 

What to Look for in a Liability Insurance Carrier?

There are multiple medical malpractice insurance companies in the industry today. However, your objective is to work with the best provider to access quality policies and good customer services. 

The carrier’s sensitivity to policyholders, claims procedures, and fiscal soundness is critical when choosing your provider. It’s always necessary to seek advice from a physician who has worked with a carrier before making final decisions. 

You need to know whether the insurance provider has risk management programs that provide emotional support for defendants. It’s also essential to seek discounts and participation in risk management. If you need a medical contract lawyer or want to hear more about contract benefits or medical malpractice insurance, contact Chelle Law today.

Other Blogs of Interest

• Should a Physician Choose Claims-Made or Occurrence Malpractice Insurance?
• How is Tail Insurance Calculated? 

What are the Types of Medical Malpractice Insurance?

What are the different types of medical malpractice insurance policies? This discussion is a frequent topic when I’m reviewing a contract. Most physicians are not given a breakdown of the different types of malpractice insurance during med school or training. So, talking to a relatively new physician who doesn’t understand the difference is always a good idea. Let’s give a brief breakdown of each medical malpractice insurance and maybe the pros and cons. There are three main types of professional liability insurance for physicians. You have self-insurance programs from extensive hospital networks. Then most private practices will utilize one of two, either occurrence-based coverage or claims-made insurance.

Self Insurance

Let’s just kind of talk about three of them—first, self-insurance. Large hospital networks usually have their policy: they’ll set aside a pot of money and pay claims out of that. In that circumstance, generally, the physician doesn’t have to worry about purchasing tail insurance. The employer’s self-insurance program covers that. This is great. I mean, it’s excellent insurance when a physician never has to worry about tail insurance and doesn’t have to worry about paying for the underlying premium. That is a lovely, secure feeling, and that’s what most large hospital networks utilize.

Occurrence-Based Policy

Occurrence-based coverage is one of the types of malpractice insurance. And that means a policy has to be in effect when the event occurs. Any malpractice event will occur while you’re employed with the employer. So, you are covered in perpetuity if an occurrence-based policy is in place and then something happens. The benefit of occurrence-based insurance is that you don’t need to purchase tail insurance. The downside is it costs more than a claims-made policy. 

A good rule of thumb is that occurrence is about a third more expensive than claims-made policies annual your premium. So to give an example, let’s say you have a claims-made policy, and it’s 6,000, then your occurrence-based coverage would be around 8,000 per year. There is a math equation that needs to be considered to determine what is the best policy for a physician. And I’ll get into that at the end. But honestly, physicians often don’t have a choice between an occurrence-based or a claims-made policy. It’s whatever the employer chooses to provide.

Claims Made Policy

That is what the physician must pursue. The last one is claims-made. That means a policy must be in effect when the claim is made. When someone terminates a contract and no longer works for the employer, there is a gap between their last day of practice with that employer and the last day somebody can sue. That’s called the statute of limitations for malpractice claims. In most states, it’s two years. If there is no policy in effect if a claim is made, then the physician is in trouble. Nearly every employer will require one of the parties to purchase tail insurance. 

Tail insurance covers that gap between the last day a physician works for the employer and the last day somebody can sue them. Now, it’s two years from when the patient either knows or should have known of a malpractice incident. It could go past two years if there were no way for the patient to understand until a few years later. I’d say most of the time if a physician works for private practice, a small physician-owned group, or something like that. They will have to be the one that purchases the tail insurance policy. Some employers will pay for it, but I’d say the physician is responsible for their tail insurance more often than not. 

How Much Is Tail Insurance?

Tail insurance costs about two times what the annual is. So, if a physician has a $10,000 annual premium, you multiply that times two, and then that’s about how much they’ll have to pay for tail insurance. It’s a one-time cost, so you don’t have to pay it yearly until the statute of limitations runs. It’s just a one-time cost. You’re covered for that amount as soon as you finish the employer. There can be different lengths as far as the tail insurance policy goes. Still, most of the time, the tail insurance policy will cover a reasonable amount of time until the statute of limitations is over—somewhere two to five years. 

As I mentioned before, regarding the math equation, if a physician has their choice of either occurrence or claims made, you need to think about how long you will be with the employer. Suppose you’re paying a third more for occurrence coverage per year, but you don’t have to pay tail insurance. In that case, it might make sense to utilize that if you’re going to be there on a short-term basis. Let’s say you’re there for two years, you’ll pay a third more for two years, but then you don’t have this high one-time cost at the end. If you’re in a claims-made policy and you’re going to be somewhere long-term, then it might make sense to use claims-made. Therefore, your annual premium is cheaper, but you’ll still have that hit on end with the tail insurance coverage. 

Which One Is the Best Malpractice Insurance?

Which one is better? It honestly just depends upon the situation. And then, indeed, it depends upon specialty. The annual premium can vary wildly. Like primary care, peds, or something that could be 6,000 a year. Whereas OB-GYN, one of the higher-level surgeons, cardiac surgeon, or something like that, could be between 20,000 to 50,000 a year and then do the math on that tail insurance cost. It could be forty to a hundred thousand for their tail insurance. It’s specialty-dependent as well. This certainly is something that we negotiate. When we’re looking at a physician contract, you always must consider, okay, what’s most important to the physician. And then what areas can we work on: more comp, more time off, better bonuses, whatever? But who pays for talent insurance is essential for most physicians, especially those in higher-end specialties.

What is Claims-Made Malpractice Insurance? | Malpractice Insurance

One of the most frequent things when reviewing a physician’s contract is malpractice insurance, the differences between the different types, and tail insurance. Today, I will talk about claims-made malpractice insurance for a physician. Let’s do some basics on malpractice insurance, precisely, claims-made coverage. Every physician is required to have a malpractice insurance policy. The employer will be the one that nearly always will pay for the underlying coverage. Every year they must pay a premium to the insurance company. And then, if they continue to pay that premium, the physician is covered for their activities for that employer.

Coverage Limit

Most of the time, the coverage limit will be 1 million, 3 million. That means 1 million per claim. And then no more than 3 million aggregate per year. If you have $3 million claims in one year, you have more significant problems than just insurance. You’re going to have some board complaints. You might have a database entry if they settle or lose a trial. So, it’s a bigger problem if someone asks or is concerned about the aggregate limit. 

Types of Malpractice Insurance

There are usually three types of insurance. You have self-insurance programs. Some of the more prominent hospitals and healthcare networks are self-insured, which means they have a lot of money to pay claims. The second would be occurrence-based insurance. And that means a policy has to be in effect when the malpractice event occurs. The benefit of occurrence-based insurance is you do not need tail insurance. The downside is it just costs a little bit more. Generally, occurrence-based insurance costs about a third more per year than a claims-made policy.

Claims-Made Malpractice Insurance for a Physician

And then lastly, what we’re going to kind of detail today is claims-made insurance. A claims-made insurance policy must be in effect when the claim is made. Suppose you are with an employer, terminate the agreement, and leave. In that case, there will be a period called the statute of limitations from when a patient can still sue you. In most states, it’s two years. Even though you’re no longer with the employer and it was a claims-made policy that ended when you left, you need gap coverage. Another policy covers the gap between the last day you work for the employer and the last date where the statute limitations run. And what’s commonly known as tail insurance.

Let’s discuss if you must purchase tail insurance with a claims-made policy. Everyone wants to know, well, what’s the cost? A good rule of thumb is that tail insurance coverage generally costs about twice your annual premium. So, if you have a $10,000 annual premium, multiply those times two. Then you would have to pay $20,000 once your employment contract is terminated to cover your tail insurance. That’s a one-time payment. You don’t have to pay it every year. It’s just that you pay all of it upfront, and then you’re covered for whatever. Some tail insurance policies last longer than others. Generally, you want more than long enough to go past the statute of limitations. Most malpractice claims it’s when the patient either knows or should have known of the malpractice event.

Who Has to Pay Tail Insurance?

There are infrequent times, but a patient would’ve no way to know about a malpractice event until years later. And so that’s kind of when this kicks in. Who must pay for tail insurance? If you work for a hospital or healthcare network, most of them will be self-insured, but let’s say they had a claims-made policy. They will generally pay for your tail insurance. Most physicians who have to pay for tail insurance are employed with a private physician-owned group. I’d say it’s probably 75% of physicians who work for a physician smaller physician-owned group that must pay their tail insurance. Is this something you can negotiate? Sure. A couple of thoughts on that. 

You can ask them to outright pay for your tail insurance. If they say no to that, which many of them most likely will, you could also say, alright, well, let’s do it this way. Let’s say for every year that I am employed with you. You’ll agree to pay a quarter of my tail insurance cost. If I finish a year and then leave, you will pay a quarter of the tail insurance. If I stay for two years, you will pay half. And in that way, if I complete 40 years, the employer will pay for the entire tail insurance.

I find some employers learn that that is a fair way of doing things. And then you can play with the annual percentages or how much each party pays. There are creative ways of figuring out how to split the cost of the tail insurance between the physician and the employer. 

Will an Employee Have a Choice Between Claims-Made and Occurrence-Made Policy?

Most of the time, the physician will not have the choice of either getting an occurrence-based or a claims-made policy. Whatever the employer or type of malpractice insurance the employer decides to use, the type of malpractice insurance the employee will have to use. Usually, the physician can’t say, hey, I’d like an occurrence coverage if the employer decides to use claims-made. The reason why the employer uses claims-made is it’s cheaper.

As I said, an occurrence policy is about a third more expensive per year than a claims-made policy. So, suppose you’re the employer, and you’ll make the physician pay for their tail insurance. In that case, you’ll say, not only am I going to save a third per year on annual premium cost, but I’m not going to pay for tail insurance either. Save them some money. There is a kind of math equation. Let’s say you did have the option of choosing occurrence or claims-made insurance. It will be based on how long you decide to be with the employer.

Consideration When Choosing Between Claims-Made and Occurrence-Based Policies

If you have, say, a $6,000 annual premium and occurrence-based would be $8,000. So, $2000 more. The longer you are with the employer, the more that would make sense. If you’re with the claims-made policy, you’re paying $6,000 yearly, or the employer is. Still, in the end, the longer you are with your employer, the tail insurance can sometimes be a little bit more expensive. So, you do need to do the math of, alright, if I’m paying a third more per year, at what point does it make sense to pay if I plan on staying with the employer for ten years? Well, that might make more sense to a claims-made policy. 

Maybe an occurrence policy also makes more sense if you’re there for a shorter time. This certainly is something that you can negotiate in an employment contract. And I do think it’s something that most physicians feel is important. It’s also specialty-dependent. If you’re primary care and paying $6,000 in your annual premium, then $12,000 for tail insurance isn’t that big. Suppose you’re an OB-GYN paying $50,000 yearly for your underlying coverage and must leave. Your tail insurance is a hundred thousand dollars, well. That will certainly get your attention, and you may need to discuss it with the employer.

How to Get Out of Having to Pay for Tail Insurance?

A couple of ways of getting out of having to pay for tail insurance: one, obviously to negotiate so the employer agrees to pay for it. Two, if you are with an insurance company and your new job uses the same insurance company. Then generally, the insurance company will roll over your old policy and tail insurance into your new one. You won’t have to pay for tail insurance. Now, no one’s going to know for sure if they leave a position, the new employer will utilize the same insurance company, but that’s one way of doing it.

And then the last way of doing it is nose coverage. That means the new employer would pay your old tail insurance called nose coverage. And then that would be a way for you to get out of having to pay for it. Nose coverage happens, I would say, infrequently. Still, it’s not entirely unique that a new employer would pay someone’s old tail insurance. So, that’s what claims-made coverage is. It’s a lot of, I guess, complicated scenarios but simple once you break it down into three different types of insurance.

What is Occurrence Malpractice Insurance? | Occurrence Coverage

What is occurrence malpractice insurance? There are three main types of insurance for physicians. The extensive hospital networks can sometimes be self-insured. They set aside a big pot of money, pay claims, or have some other self-insurance program. And in that scenario, the physician would never have to pay tail insurance. 

Claims-Made Policy

Tail insurance is necessary when there is a claims-made policy. If a physician has a claims-made policy, and the contract ends with the employer, there’s a gap between the last patient they saw and the last day someone can sue them. That’s the statute of limitations. Generally, it’s two years in most states. And so, they would need a policy that covers that gap. So, that claims-made insurance needs tail insurance. What we’re going to talk about today is occurrence insurance.

Occurrence-Based Policy

An occurrence-based policy means that a policy must be in effect when the claim or the incident occurs. If a medical malpractice incident occurs, an occurrence-based policy will cover that at any point while employed. There is no tail insurance necessary for an occurrence policy because of that. Claims-made must be in effect when the claim is made. And since it can be made two years down the road, the gap policy needs to occur just when the incident occurs. 

Therefore, tail insurance is unnecessary. As far as cost goes, this is the deciding factor between maybe which is better for physicians or another. Occurrence-based insurance generally costs about a third more than a claims-made policy. Let’s say a physician is in primary care and their underlying annual premium is $6,000. If they had an occurrence policy, it’d be $8,000. 

Which Insurance Policy to Choose, Occurrence-Based or Claims-Made Policy? 

So, math must be calculated as to whether it makes sense for the physician to pay one-third more per year, or would it be better to pay one-third less per year and then, in the end, pay the tail insurance cost? A good rule of thumb for tail insurance is it’s generally about twice what the annual premium is. It’s based upon the length of time the physician is with the employer. It can be as low as 150% up to 300% if they’ve been there long. Let’s do a scenario and figure out which one might be better. 

An Example Scenario

A physician has been with a private physician-owned practice for ten years. And so, let’s say their annual premium is $6,000. So, $6,000 every year for ten years, and when they leave, they must pay tail insurance, which is about two times their annual premium. So, $12,000. In that scenario, if you think I’m saving 2,000 a year for ten years, I only must pay 12,000 for tail insurance. Well, if you’re going to be with a long-time employer, it makes sense in that scenario to go with the claims-made policy. 

If you went with an occurrence for ten years, you’re paying 2,000 more per year, so over the ten years, you’re paying 20,000. In that scenario, you would pay 8,000 more for an occurrence policy and obviously 8,000 less for a claims-made policy. Let’s do another scenario with, let’s say, an OB-GYN whose annual premium is $20,000. And they’re only staying with the company for, let’s say, three years. In that scenario, if they’re paying 20,000 for a claims-made policy, since it’s a third more, we’ll round it up to 7,000. 

So, they’ll be paying 27,000 per year for occurrence. So, if they’re there for three years, 27,000, 27,000, 27,000, whereas with the claims-made, it would just be 20, 20, 20. And then, at the end of that, let’s say it was twice the annual premium. They’d be paying a $40,000 tail insurance payment, whereas, under the occurrence policy, they’re only paying 27. So, seven times three is 21,000. The tail insurance cost is around 40. Then clearly, in that scenario, it would make sense to have an occurrence-based policy. 

Things to Consider

Now, a couple of considerations are that the employee doesn’t really dictate what type of policy the employer uses. And I can tell you from doing this for so long that most employers, or at least privately physician practices, will utilize a claims-made policy. Simply because if they make the physician pay for the tail insurance, they’re certainly going to want to save some money.

And they’re just going to use claims-made each year, save a third, and then make the physician pay the tail insurance. In the long run, they save quite a bit of money. You don’t see occurrence policies very often. If I had to estimate, I’d say maybe 1 in 20 a private physician-owned practice uses an occurrence-based policy. Now, if the physician has the option and the employer says you can decide what policy you want, then you must do the math equation we discussed.

Summary

So, that is what occurrence-based insurance is. A little bit more expensive, but you don’t have to pay for tail insurance. Is one policy better than the other? It just depends upon the situation of the physician. One specialty they’re in is how long they’re going to be with the employer.