Tail Insurance Cost for a Physician (Malpractice Insurance Cost)
Written by Robert Chelle
Spelling out the details of your job is crucial to avoid contract conflicts during the term of your employment.
Written by Robert Chelle
Spelling out the details of your job is crucial to avoid contract conflicts during the term of your employment.
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 medical professionals from the financial risks associated with lawsuits in which patients believe they were harmed as a result of an incident involving medical care.
The amount of coverage depends on how much the policy is worth (premium) as well as 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.
The cost of tail coverage, or extended reporting period (ERP) insurance, varies depending on multiple factors, such as the individual’s profession, specialty, and claims history. Generally, tail coverage is estimated to cost about 150% to 250% of the expiring claims-made premium. For instance, if an individual’s annual premium is $10,000, their tail coverage could range from $15,000 to $25,000. It’s essential to consult with a professional insurance agent to obtain an accurate quote for tail coverage, as specific circumstances may influence the final cost. Additionally, some insurers offer more affordable tail coverage options or even include it as part of the original policy.
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.
Also, does a resident physician need additional malpractice insurance?
How Much Does Tail Insurance Cost:
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.
Most malpractice insurance carriers provide insurance coverage that has a deductible clause that can range anywhere 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 insurance claims history.
The physician’s employment agreement will specify whether the physician 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 in the matter.
Claims-made coverage is used in cases where there may be periods of time when coverage is not available, such as physicians changing jobs.
In these situations, the tail policy will provide protection for up to three years after leaving an employer.
The tail policy also has other limitations and exclusions which can make 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 type of insurance, it’s important that you understand what your tail covers before purchasing one.
There are two types of tails – open and closed – each with their own benefits and drawbacks.
Length of Practice Matters
One of the most important factors in determining how much you will pay for your tail insurance is how long you have been practicing medicine. If you are just starting out, then your rates could be lower than someone who has been practicing for more than 10 years.
Solo vs. Multi-Physician Practices
The final factor that will determine how much your tail insurance costs is the type of practice you have. If you work in a solo practice, then your rates are going to be higher than if you work with another physician or as part of a clinic where there is coverage and indemnity for each other’s errors.
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 insure 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 a long and arduous process, legal representation is a must in order to ensure that your rights are being protected.
The present-day conclusion is simple: A physician should not enter into any contract without having a physician contract review by legal counsel.
There is simply too much at risk for a physician 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:
Additionally, often times 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 it is imperative that any physician have an employment agreement reviewed before it is executed. Attorney Robert Chelle has practical experience drafting and reviewing physician contracts for nearly every specialty.
New residents, attending physicians, doctors entering into their first employment contract or established physicians looking for new employment can all benefit from a thorough contract review. By employing an experienced attorney for your representation, you can insure that you will be able to fully understand the extensive and complex wording included in your contract. By having a full and complete understanding of 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 make sure that your are fully protected and will assist you in the contract process so that your interests are fairly represented.
Every physician contract is unique. However, nearly all contracts for health care providers should contain several essential terms. If these essential terms in the contract are not spelled out in contracts, disputes can arise when there is a disagreement between the parties as to 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, but the specific workdays are absent from the Agreement; who prevails?
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):
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 employment agreement reviewed contact Chelle Law today.
How is tail coverage calculated as far as the cost is concerned? Let’s first talk about when a physician would need tail coverage, who’s responsible for it, and then kind of what the good cost estimate would be. First, a physician only needs tail insurance if they have a claims-made policy. Claims made policy means a policy must be in effect when the claim is made. It’s possible if a physician terminates a contract that there will be a gap in between the last day that they work for the employer and then the last day that someone can sue them. In most states, it’s called statute limitations.
How long someone can sue for, and in most states, it’s two years. So, it’s two years from when the patient either knows or should have known of the malpractice. That’s why there are some incidents that can go beyond two years if it would be impossible for the patient to know that malpractice incident had occurred. If a physician has a claims-made policy, someone needs to purchase tail insurance. And so, in the physician contract, it’s going to say who’s responsible for it. If it doesn’t, that’s a problem that needs to be worked out prior to signing the agreement. As far as who pays for it, well, it depends where the physician is employed. First, if a physician works for a smaller physician-owned practice, most of the time, the physician is going to be responsible for that tail cost.
However, if the physician works for a big hospital network, it’s very unlikely the physician will have to pay tail because that hospital network, depending upon the size, will either be self-insured or will always cover the tail for any of the physicians that are employed by them. There is another instance where the physician would not have to pay tail and that’s if there’s an occurrence-based policy. Under an occurrence-based policy, a policy must be in effect when the incident occurs. And so, that way, no tail is needed. The difference between occurrence and claims made is price. An occurrence policy is usually about one-third more expensive than a claims-made policy. So, you’ll pay one-third more per year. But then, you don’t have to pay that big chunk at the end for the tail coverage.
Claims-made is obviously cheaper per year. And when the physician leaves, that tail policy will have to be paid. And that’s when that big outlay of cash comes in. How much does tail insurance cost? When I’m talking to a physician, I’ll usually say the best estimates are around two times what your annual premium is. However, depending upon the length of time that the physician has been with the employer, it could be either shorter or longer. So, I think the best rate range is usually between about 150% to 300% of what the annual premium is for that policy. The annual premium is simply what the employer pays to ensure the physician per year. Let’s just take primary care for instance. A good rule of thumb is primary care malpractice insurance is usually around 6,000 a year.
Now, it also depends on what state you’re in, but just like an overall general estimate, we’ll just say 6,000. In this case, let’s say, the physician has been there three years, they terminate the contract, moving on into a new job. In that case, the tail cost would be $12,000 or an estimate of $12,000. And if the physician was responsible to pay for that, then prior to their last day of providing care to that employer, they would have to purchase that policy, show proof of that to the employer, and then they can move on. There are, I guess, two scenarios where a physician would not have to pay tail if they were responsible for it. One, they could always get their new employer to pay their old tail and that’s called nose coverage.
Think of it as a signing bonus that the new employer will just pay the old tail, or if the physician stays with the same insurance company. So, if you’re with one insurance company, your new physician utilizes the same insurer, in that scenario, they’ll generally roll over your old policy into your new one. Then you won’t have to pay tail. As I said before, most of the time, if you’re in a private physician-owned practice, the physician won’t be responsible for paying tail. Now, there are a couple of ways to negotiate this. One, just say to the employer, I’d like you to pay for my tail. If they’re unwilling to do that, another scenario would be to split the cost based upon how long the physician has been there.
I think one good way of doing it is, let’s say, it’s a four-year term for a contract. Then 25% of the tail costs will be covered by the employer for each year that the physician is employed. So, if they’re employed for two years, and then they leave, then they would split the tail costs 50/50 with a new employer or with the old employer. That’s one way of doing it. This is important for some specialties like the higher-level surgical specialties, OB-GYN can have enormous tail costs and it absolutely needs to be considered. If the physician is an OB-GYN and they must pay for all of their tail, and they’ve been there for eight years, they could have a tail cost of a hundred thousand dollars, and it has to be paid all at once.
That’s a lot of money for almost anyone. So, trying to figure out a way to split the cost of the employers is really one of the higher points of negotiation as far as that goes. Anyway, I hope that was helpful as far as how a tail cost is calculated, anywhere between 150% to 300% of your annual premium. The longer you’re there, the higher the range, the shorter you’re there, the lower the range.
What are the different types of medical malpractice insurance? This is a frequent topic that comes up when I’m reviewing a contract. I would say, during med school or training, most physicians are not given a breakdown of the different types of malpractice insurance. So, it’s always a good idea when I’m talking to a physician who is relatively new and doesn’t understand the difference. Just to kind of give a brief breakdown of each one and maybe the pros and cons of each. There are three main types of professional liability insurance for physicians. You have self-insurance programs from big hospital networks, and then most private practices will utilize one of two, either occurrence-based coverage or claims-made insurance.
Let’s just kind of talk about three of them. First, self-insurance. Large hospital networks will usually have their own policy in the simplest way: they’ll set aside a pot of money, pay claims out of that. In that circumstance, generally, the physician doesn’t have to worry about purchasing tail insurance. That’ll be covered by the employer’s self-insurance program. This is great. I mean, it’s great insurance when a physician never has to worry about tail and doesn’t have to worry about paying for the underlying premium, that is kind of a nice, secure feeling. That’s what most large hospital networks utilize. The next type is occurrence-based coverage. And what that means is a policy has to be in effect when the event actually occurs.
Any kind of malpractice event is going to 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 just 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, most of the time, physicians don’t have a choice between an occurrence-based policy or a claims made policy. It’s whatever the employer chooses to provide.
That’s what the physician must go for. The last one is claims made. What that means is a policy must be in effect when the claim is made. When someone terminates a contract and they no longer work for the employer, there is still a gap in 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 simply covers that gap in between the last day that a physician works for the employer and then 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’s possible that it can go past two years if there was no way for the patient to know until a few years down the line. I’d say most of the time, if a physician is working for a private practice, small physician-owned group, or something like that, they’re going to have to be the one that purchases the tail policy. There are employers that will pay for it, but I’d say more times than not, the physician is responsible for their own tail. Tail costs about two times what the annual is. So, if a physician has a $10,000 annual premium, you just 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 every single year until the statute of limitations runs. It’s just a one-time cost. As soon as you finish the employer and then you’re covered for that amount. Now, there can be different lengths as far as the tail policy goes, but most of the time the tail policy will simply cover a reasonable amount of time until the statute of limitations is over. Somewhere two to five years. As I mentioned before, as far as the math equation, if a physician does have their choice of either occurrence or claims made, then you need to think about how long you’re going to be with the employer.
If you’re paying a third more for occurrence coverage per year, but you don’t have to pay tail, then it might make sense to utilize that if you’re going to be there on maybe a short-term basis. Let’s say you’re there for two years, you’re going to pay a third more for two years, but then you don’t have this big 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 then you’ll still have that hit on the end with the tail coverage. Which one is better? It honestly just depends upon the situation. And then certainly, 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 just do the math on that tail cost. It could be forty to a hundred thousand for their tail. 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 are the areas that we can work on more comp, more time off, better bonuses, whatever. But who pays for talent insurance certainly is an important piece for most physicians, especially the ones in those higher-end specialties?
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