3 Ways a Physician Can Get Out of Paying for Tail Insurance | Medical Liability

Tail Insurance, also known as Extended Reporting Period coverage, must be purchased when a physician has claims-made professional liability insurance coverage. Tail insurance covers the gap between when a doctor leaves an employer and when the statute of limitations on filing a medical malpractice claim ends. 

Malpractice coverage is a type of professional liability coverage that helps protect physicians and other healthcare professionals from the financial risks associated with lawsuits in which patients believe the physician harmed them due to an incident involving medical care. The coverage depends on how much the policy is worth (premium), and your specialty – personal injury attorneys are more likely to take cases against physicians working in hospitals than those who practice family medicine or internal medicine in private practice.

Most malpractice insurance carriers provide coverage with a deductible clause that can range between $0 -$100k per incident, with most doctors opting for higher deductibles due to lower premiums. A deductible clause in a malpractice policy stipulates that the insurance company will not provide coverage for any expenses incurred by the insured for injuries or damages up to an agreed-upon amount. A deductible clause in a malpractice policy stipulates that the insurance company will not cover any expenses incurred by the insured for injuries or damages up to an agreed-upon amount per incident. The typical company’s deductible is usually $5000, but it can be higher, sometimes as high as $50,000, depending on individual state requirements and claims history.

Here are 3 ways a physician can get out of paying for tail insurance:

1. Negotiate it Into Your Employment Agreement: A key part of any employment agreement negotiation involves who must pay for tail insurance. In some specialties, it can be a deal breaker if the employer refuses to pay for tail. 
2. Have Your New Employer Provide Nose Coverage: Having your new employer pay for your previous position’s tail policy is called nose coverage. It would be similar to receiving a signing bonus.
3. Stay With the Same Insurance Carrier: If you stay with your current malpractice insurance provider (only applies to commercial carriers), they will roll over your tail into your new policy and assess no additional costs.

Medical Malpractice Tail Coverage

Medical malpractice tail coverage, also known as Extended Reporting Endorsement, is a vital insurance add-on that safeguards physicians from potential claims arising after their original claims-made medical malpractice insurance policy has ended. This coverage ensures protection for incidents that occurred during the active policy period but were reported after the termination or expiration of the policy. Tail coverage is particularly important when a physician retires, changes employment, or switches insurance carriers, as it offers continuous coverage for any potential claims that may surface in the future, helping to maintain the physician’s financial and professional security.

How Much Does Coverage Cost?

A good rule of thumb is tail coverage costs around 2 times your annual medical malpractice insurance premium. Thus, if your annual premium costs $6000; your tail cost would be around $12,000. Your tail insurance cost is a one-time payment; it is not a yearly cost. 

The cost of insurance coverage is based upon the claims history of the insured and the number of individual and group patients seen per year. Providers with high annual visit counts will have a lower insurance premium since their claims are spread out over more people. Thus, the choice of claims-made or occurrence is essential.

Additionally, doctors who perform below average in terms of malpractice insurance claims will pay less than doctors who incur higher claim rates. A provider’s business risk profile is also taken into account when determining the rate an insurance company will charge for the occurrence-based policy. Provider age is also factored into the equation, as younger doctors are considered to be at higher risk of committing acts that could lead to liability or making an error than older practitioners.

Who Pays for Malpractice Tail Insurance?

The physician’s employment agreement will specify whether the provider or the employer pays for the tail insurance. This is a point of contention in many employment agreement negotiations, with resources from both parties advocating for their position.  

Claims-made coverage is used in cases where there may be periods when coverage is unavailable, such as physicians changing jobs. In these situations, the tail policy will protect for up to three years after leaving an employer. The tail policy also has other limitations and exclusions, making it difficult for physicians who leave employers often or have a history of high liability claims against them to find affordable malpractice insurance.

As with any insurance, you must understand what your tail insurance covers before purchasing one. There are two types of tails – open and closed – each with its benefits and drawbacks.

Medical Employment Contract Attorney

Contracts are a pervasive and obligatory part of nearly all business and legal transactions. Well-drafted contracts help to enumerate the responsibilities of the involved parties, divide liabilities, protect legal rights, and ensure future relationship statuses. These touchstones are even more crucial when applying their roles to the case of a physician employed by a hospital, medical group, or other health care provider. While contract drafting and negotiation can be long and arduous, legal representation is necessary to protect your rights.

The present-day conclusion is simple: A physician should not enter into any contract without having a physician contract reviewed by legal counsel.

There is simply too much risk for physicians to take contract matters into their own hands. In addition to the specific professional implications, contract terms can significantly impact a physician’s family, lifestyle, and future. There are many important contract terms and clauses which can present complex and diverse issues for any physician, including:

• Non-compete clauses
• Damages
• Indemnification
• Verbal guarantees
• Insurance statements

Additionally, often the most influential terms and clauses in any employment contract are the ones that are not present. With the advent of productivity-based employment agreements, any physician must review an employment agreement before they execute it. Attorney Robert Chelle has practical experience drafting and reviewing physician contracts for nearly every specialty.

A thorough contract review can benefit new residents, attending physicians, doctors entering their first employment contract, or established physicians looking for new employment. By employing an experienced attorney for your representation, you can ensure that you will be able to fully understand the extensive and complex wording included in your contract. By fully understanding the contract, you will be in a better position to make your own decision on whether or not you want to enter into the agreement, which will affect your career life for years to come.

The financial benefits gained from having your contract reviewed and negotiated by an experienced healthcare attorney far outweigh the costs associated with a review. You are a valuable resource, and you should be treated and respected as such. Attorney Robert Chelle will personally dedicate his time to ensure that you are fully protected and assist you in the contract process so that your interests are fairly represented.

Every physician’s contract is unique. However, nearly all contracts for health care providers should contain several essential terms. If the contract does not spell out these crucial terms, disputes can arise when there is a disagreement between the parties regarding the details of the specific term. For instance, if the doctor is expecting to work Monday through Thursday and the employer is expecting the provider to work Monday through Friday. Still, the specific workdays are absent from the agreement. Who prevails?

Contract Practice Risks and Policy

Spelling out the details of your job is crucial to avoid contract conflicts during the term of your employment. Below is a checklist of essential terms that contracts should contain (and a brief explanation of each term):

1. Locations: Which facilities will you be scheduled to provide care at (outpatient clinic, surgical sites, in-patient services, etc.)?
2. Outside Activities: Are you permitted to pursue moonlighting or locum tenens opportunities? Do you need permission from the employer before you accept those practice of medicine-related positions?
3. Practice Call Schedule: How often are you on call (after-hours office call, hospital call (if applicable))?
4. Electronic Medical Records (EMR): What EMR system do they use in the practice of medicine? Will you receive training or time to review the system prior to providing care?
5. Base Compensation: What is the annual base salary? What is the payment frequency? Does the base compensation increase over the term of the Agreement? Is there a yearly review or quarterly review of compensation?
6. Productivity Compensation: If there is productivity compensation, how is it calculated (wRVU, net-collections, patient encounters, etc.)? Is there an annual review?
7. Practice Benefits Summary: Are standard benefits offered: health, vision, dental, life, retirement, etc.? Who is the advisor of human resource benefits?
8. Time Off: How much time off does the job offer? What is the split between vacation, sick days, CME attendance, and holidays? Is there an HR guide?
9. Continuing Medical Education (CME): What is the annual allowance for CME expenses, and how much time do they offer?
10. Dues and Fees: Which business financial expenses are covered (board licensing, DEA registration, privileging, AMA membership, Board review)?
11. Relocation Assistance: Is relocation assistance offered? What are the repayment obligations if the Agreement ends before the expiration of the initial term?
12. Signing Bonus: Is an employee signing bonus offered? When is it provided? Do you have to pay it back if you leave before the initial term is completed? Are student loans paid back? Is there a forgiveness period for student loans?
13. Professional Liability Insurance: What type of liability insurance (malpractice) do they offer: claims-made, occurrence, self-insurance?
14. Tail Insurance: If tail insurance is necessary, who is responsible for paying for it when the Agreement terminates?
15. Term: What is the length of the initial term? Does the Agreement automatically renew after the initial term?
16. Without Cause Termination: How much notice is required for either party to terminate the Agreement without-cause?
17. Non-Compete: How long does the non-compete last, and what is the prohibited geographic scope?
18. Non-Solicitation: How long does it last, and does it cover employees, patients, and business associates?

Coming into a new organization with a favorable contract can put the physician in a positive financial situation for years to come. Before you sign the most important contract of your life, turn to Attorney Robert Chelle for assistance.

If you have questions about your current medical malpractice policy or are interested in having your physician employment agreement reviewed, contact Chelle Law today.

Other Blogs of Interest

• How Long Does Tail Coverage Last? 
• Do you Need Tail Coverage for Occurrence?

Why is Physician Tail Coverage so Expensive? | Tail Insurance

Why is tail insurance for a physician so expensive? Let’s get a little background on when a physician would need tail insurance and then kind of cost analysis, and then why it is so expensive. First, the physician must identify what type of insurance policy they have. There are usually three main types. If you’re employed with the hospital network, most large hospital networks are self-insured now, so you would not need tail insurance if you’re working for a big hospital network, usually. 

Some hospital networks have claims-made policies, but the physician won’t need to pay for the tail insurance expenses in most instances. Most of the time, if there’s a claims-made policy and the physician is required to pay for their tail insurance, it’s when a smaller physician-owned group employs them. If you have occurrence-based coverage, you do not need tail insurance. Occurrence-based coverage means the incident must occur when the policy is in place. In that scenario, it doesn’t matter when the claim is filed if there was a policy when the event occurred, then the physician is covered.

 One would purchase claims-made over occurrence-based because occurrence-based is about one-third more expensive than the claims-made policy. So, if you paid 6,000 a year for claims-made, you pay around 8,000 for occurrence. Now, if you do have a claims-made policy, and most of the time, if you have a claims-made policy, it means you’re employed with a smaller physician-owned group. And then, the employment contract will state who is responsible for paying for the tail insurance. In this scenario, the physician is responsible for paying for tail insurance coverage, and there’s a claims-made policy.

Can Tail Insurance Coverage Be Negotiated With the Employer?

Anything with long tail insurance will cost a little bit more. You might not get to the two-times ratio with anything with shorter tail insurance. This is something that you can negotiate in a contract. A couple of ways of approaching it.

Forgiveness Period for Tail Insurance

If the employer isn’t willing to kind of foot the entire cost of tail insurance, you could suggest giving a forgiveness percentage at the end of each year of employment. For instance, you could say, look, let’s say, for every year that I’m employed here, you will cover 25% of the tail insurance cost. If I’m here for one year, the physician’s responsible for 75%, two years, 50%, three years, and 75%. And then, if the physician completes four years of employment, the employer will pay for the entire amount.

We often use that if the employer isn’t willing to pay the entire cost from the beginning. Maybe offer them, alright, well, it’s fair that if I’m here for a very long period, you will cover my tail insurance. I think that’s one good way of negotiating it if they’re not willing to foot the entire bill. 

Nose Insurance

Another way of paying for it is if when you leave the employer and get a new job, the new employer could pay for your old tail insurance, which is called nose insurance. And that could be a part of the negotiation when you’re leaving one job and going to another is alright, here’s my tail insurance cost, I’d like you to cover that—and sometimes used as a signing bonus or in addition. I guess it just depends. 

Same Insurance Company

Then lastly, if you stay with the same insurance company, let’s say you stay in the same state. You’re in the same specialty and just moving to a different practice. They utilize the same insurance company. Most companies will roll over your old policy into a new one, and you won’t have to pay tail insurance. So, is tail insurance expensive? It’s specialty-dependent. I mean, every amount is relative. If you’re making 500,000 a year and must pay a 15,000 tail insurance, it’s probably not as shocking as those in other professions.

When Does a Physician Need to Pay for Tail Insurance? | Medical Malpractice

Tail Insurance, also known as Extended Reporting Period coverage, must be purchased when a physician has claims-made professional liability insurance coverage. Tail insurance covers the gap between when a physician leaves an employer and when the statute of limitations on filing a medical malpractice claim ends. 

Malpractice coverage is a type of professional liability coverage that helps protect physicians and other healthcare professionals from the financial risks associated with lawsuits in which patients believe physicians harmed them due to an incident involving medical care. The coverage depends on how much the policy is worth (premium) and your specialty. Personal injury attorneys are more likely to take cases against physicians working in hospitals than those who practice family medicine or internal medicine in private practice.

Malpractice Claims Coverage Deductible

Most malpractice insurance carriers provide coverage with a deductible clause that can range between $0 -$100k per incident, with most doctors opting for higher deductibles due to lower premiums. A deductible clause in a malpractice policy stipulates that the insurance company will not provide coverage for any expenses incurred by the insured for injuries or damages up to an agreed-upon amount. A deductible clause in a malpractice policy stipulates that the insurance company will not cover any expenses incurred by the insured for injuries or damages up to an agreed-upon amount per incident. The typical company’s deductible is usually $5000, but it can be higher, sometimes as high as $50,000, depending on individual state requirements and claims history.

When Should Tail Insurance be Purchased from the Carrier?

Physician’s Expense: If the physician is required (via their Employment Agreement) to pay for tail insurance, the date the tail insurance policy needs to be obtained will be listed. In most instances, the tail insurance policy must be purchased before the physician’s last day as an employee.

Employer’s Expense:  If the employer is required (via the Employment Agreement) to pay for tail insurance, they will dictate when the policy is purchased. It is a good idea to follow up after the employment ends to ensure the employer purchased the policy.

How Much Does Malpractice Tail Coverage Cost for Physicians?

A good rule of thumb is tail insurance coverage costs around 2 times your annual medical malpractice insurance premium. Thus, if your annual premium costs $6000, your tail insurance would be around $12,000. Your tail insurance cost is a one-time payment; it is not a yearly cost. 

The cost of insurance coverage is based upon the claims history of the provider and the number of individual and group patients seen per year. Providers with high annual visit counts will have a lower insurance premium since their claims are spread out over more people. Thus, the choice of claims-made or occurrence is important.

Additionally, doctors who perform below average in terms of malpractice insurance claims will pay less than doctors who incur higher claim rates. A provider’s business risk profile is also taken into account when determining the rate an insurance company will charge for the occurrence-based policy. Provider age is also factored into the equation, as younger doctors are considered to be at higher risk of committing acts that could lead to liability or making an error than older practitioners.

Claims-Made Physician Insurance

Physician Claims-Made Insurance is a type of medical malpractice insurance purchased from an insurance company that provides legal defense to the physician from medical liability arising from clinical care that results in a patient’s injury or death. Each policy offers limits, the maximum amount an insurance company will pay per event. Thus, if your insurance policy has a limit of $1,000,000 per occurrence, that is the maximum amount your medical malpractice insurer will pay towards any claim filed within the term outlined in your policy.

A claims-made policy will only provide insurance coverage if the policy is in effect when the incident first happened and when a lawsuit is filed against the doctor (when the claim is made). Thus, there is a chance someone can file a lawsuit after a physician leaves an employer. In situations like this, with claims-made medical malpractice insurance, the medical provider must purchase a tail insurance policy, covering the gap between when physicians leave an employer and when the statute of limitations on filing a medical malpractice claim ends.

How Do You Calculate Tail Coverage? | Tail Insurance Policy

How do you calculate tail insurance coverage? If you are a provider and sign an employment agreement or independent contractor agreement, it may state who’s responsible for the malpractice insurance. And then, who’s responsible for paying the tail insurance coverage expense if it’s a claims-made policy? 

Three Types of Insurance

There are three types of insurance utilized by healthcare providers. One would be claims-made, which you do need tail insurance. The second is occurrence-based coverage, where tail insurance is unnecessary, or you could be working for an extensive healthcare network, and then they would be self-insured. In that scenario, it’s implausible you’d have to pay for tail insurance. This is specific to providers with claims-made policies, and then in the contract, it would dictate that the provider would have to pay for the tail insurance policy after the agreement is terminated.

The Easiest Way to Calculate a Tail Insurance

The easiest way to calculate a tail insurance cost is to take your annual premium. And the annual premium is how much it costs to insure you annually. And then you would multiply that times two. Now, it can vary from one and a half to up to three times, but a good rule of thumb is that it will be twice your annual premium. Now, that’s a one-time cost. If you have a tail policy for, let’s say it’s a three-year period, there would be an upfront cost, which would cover the entire three years. You don’t have to pay every year. So, let’s say you have a $10,000 annual premium. Then the tail cost would be $20,000. Most insurance companies expect the entire amount to be paid upfront. Some of them do offer payment plans, but many of them don’t. 

Few Ways of Getting Out of Paying for Tail Insurance

There are a few ways of getting out of paying for tail insurance. And I think it’s probably a good idea to go through those. One is negotiating before signing the employment agreement, stating that the employer would be responsible for paying the tail cost. That’s the first way. The second way would be your new employer would pay your old tail. That’s called nose coverage. You can think of that as like a quasi-signing bonus in some ways. And then the last way would be that this primarily applies to people in private physician-owned practices. Still, if your new job uses the same insurance company, that insurance company will likely roll over your policy into your new one. Then you won’t have to pay for tail insurance.

Now, you have no idea if you just started a job and where your next job will be. So, that’s not something you can count on, but there are many states where specific specialties, I guess, identify and utilize a particular insurer. And so, let’s say you’re in cardiology. There might be an insurer that caters to the cardiology market. In that way, it might be more likely that you would have the same insurance company if you switched to another physician-owned group, but that’s certainly not something you can bank on. The easiest way to calculate tail coverage is to double whatever your annual premium is.

Annual Premium Costs

Now, most people don’t know what their annual premium is. You need to ask the employer or contact the insurance company to find out what it is. It will vary depending on what state I will be working in. You could be in the same specialty in one state and move to another. And the tail costs vary significantly. It’s primarily based upon the states that have imposed strict caps on the med mal damages. Whereas others, insurance can be much more expensive if there are no caps. Texas, for instance, is a pretty physician-friendly market for insurance, much less costly than in other states. So, you need to think about, alright, In what state will I be working? What’s the environment like for malpractice claims? And then, based upon that annual premium, you’d be able to calculate what your tail cost will be.