Tail Coverage Insurance (How EXPENSIVE Is It for a Physician?)
What is Tail Coverage
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.
Medical Malpractice Coverage
Malpractice coverage is professional liability coverage that helps protect physicians and other healthcare professionals from financial risks. It is associated with lawsuits in which patients believe they were harmed due to an incident involving medical care. The coverage depends on how much the policy is worth (premium). 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. Still, it can be higher, sometimes as high as $50,000, depending on individual state requirements and claims history.
How Much Does Tail Coverage Cost?
A good rule of thumb is tail coverage costs around two times your annual medical malpractice insurance premium. Thus, if your annual premium costs $6000, your tail coverage costs 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 essential.
Additionally, doctors who perform below average in malpractice insurance claims will pay less than those who incur higher claims. A provider’s business risk profile is also considered 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 Tail Medical Malpractice Insurance?
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.
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 coverage policy will protect for up to three years after leaving an employer. The tail policy also has other limitations and exclusions. It can make it difficult for physicians who go to 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 covers before purchasing one. There are two types of tails – open and closed – each with its benefits and drawbacks.
How Can a Physician Avoid Paying for Tail Malpractice?
- Negotiate for the employer to pay for it in the Employment Agreement.
- Have your new employer pay for your tail coverage(nose coverage).
- Stay with the same insurance carrier, and the tail coverage will get rolled into a new policy.
Claims-Made Insurance Policy
Physician Claims-Made Insurance is a type of medical malpractice insurance purchased from an insurance company. Provides legal defense to the physician from medical liability arising from clinical care resulting in a patient’s injury or death. Each policy provides limits, the maximum amount an insurance company will pay per event. Thus, if your insurance policy has a limit listed 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 happens. And when a lawsuit is filed against the doctor (when the claim is made). Thus, there is a chance a lawsuit can be filed after a physician leaves an employer. In situations like this, with claims-made medical malpractice insurance, a tail policy must be purchased by the medical provider. It will cover the gap between when physicians leave an employer and when the statute of limitations on filing a medical malpractice claim ends.
Other Blogs of Interest
- Why is Physician Tail Coverage so Expensive? | Tail Insurance
- Should a Physician Choose Claims-Made or Occurrence Malpractice Insurance?
Physicians Contract Review
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 a long and arduous process, legal representation is necessary to ensure that your rights are protected.
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 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 essential contract terms and clauses which can present complex and diverse issues for any physician, including:
- Non-compete clauses
- Verbal guarantees
- Insurance statements
- Paid Time Off (PTO)
Additionally, often the most effective 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 have an employment agreement reviewed before it is executed. Attorney Robert Chelle has practical experience drafting and reviewing physician contracts for nearly every specialty.
Benefits of Physicians Contract Reviewed
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 having a complete understanding of the contract, you will be in a better position to decide whether 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. Suppose these crucial terms in the contract are not spelled out in contracts. In that case, disputes can arise when the parties disagree on the specifics of the 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?
Essential Terms That Should be Included in Your Contract
Spelling out the details of your job is crucial to avoid contract conflicts during the term of your employment. Below is a checklist of important terms that contracts should contain (and a brief explanation of each term):
- Locations: Which facilities will you be scheduled to provide care at (outpatient clinic, surgical sites, in-patient services, etc.)?
- Outside Activities: Are you permitted to pursue moonlighting or locum tenens opportunities? Do you need permission from the employer before you accept those practice medicine-related positions?
- Practice Call Schedule: How often are you on call (after-hours office call, hospital call (if applicable))?
- Electronic Medical Records (EMR): What EMR system is used in the practice of medicine? Will you receive training or time to review the system prior to providing care?
- Base Compensation: What is the annual base salary? What is the pay period frequency? Does the base compensation increase over the term of the Agreement? Is there an annual review or quarterly review of compensation?
- Productivity Compensation: If there is productivity compensation; how is it calculated (wRVU, net collections, patient encounters, etc.)? Is there an annual review?
- Practice Benefits Summary: Are standard benefits offered: health, vision, dental, life, retirement, etc.? Who is the advisor of human resource benefits?
- Paid 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?
- Continuing Medical Education (CME): What is the annual allowance for CME expenses and how much time off is offered?
- Dues and Fees: Which business financial expenses are covered (board licensing, DEA registration, privileging, AMA membership, Board review)?
- Relocation Assistance: Is relocation assistance offered? What are the repayment obligations if the Agreement is terminated prior to the expiration of the initial term?
- Signing Bonus: Is an employee signing bonus offered? When is it paid? 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?
- Professional Liability Insurance: What type of liability insurance (malpractice) is offered: claims made, occurrence, self-insurance?
- Tail Insurance: If tail insurance is necessary, who is responsible to pay for it when the Agreement is terminated?
- Term: What is the length of the initial term? Does the Agreement automatically renew after the initial term?
- Without Cause Termination: How much notice is required for either party to terminate the Agreement without the case?
- Non-Compete: How long does the non-compete last, and what is the prohibited geographic scope?
- 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, contact Attorney Robert Chelle for assistance.
Contact Chelle Law today if you have questions about your current medical malpractice policy or are interested in having your employment agreement reviewed.
How Important Tail Coverage Is?
How important tail coverage is. First, we’ll talk about what tail coverage is and what type of policy you need, then its importance, and the kinds of negative repercussions if the physician does not have tail insurance. First, you will only need tail insurance if you have a claims-made policy. A claims-made policy means a policy must be in effect when the claim is made when it’s filed and served to the physician. If a physician leaves a job, there’s going to be a gap between the last patient they see for that employee and then the last day somebody can sue them, which is called the statute of limitations.
In most states, a malpractice claim is two years. And that’s from when either the patient knows or should have known of the malpractice incident. That’s why it can sometimes go past two years if there is no way of knowing about the malpractice until later. Suppose the physician has a claims-made policy in the employment contract. In that case, it will state who is responsible for paying for the tail insurance policy. So, if you are an employed physician, maybe a small physician-owned practice, it’s very likely that you’ll have to pay for a tail. If you work for an extensive hospital network, it is unlikely you will have to pay for a tail. Most of the time, the big hospital networks are either self-insured, which means you don’t have to buy tail insurance, or they offer that as a perk of being in that job.
So, the tail insurance policy would be 12,000 to 16,000, something like that. Some of the other specialties, like surgery, and OB-GYN, can be tens of thousands of dollars per year with a tail coverage cost of fifty to a hundred thousand sometimes, so it’s imperative. What happens if you don’t have tail insurance? Well, simple. If you leave an employer, someone has two years to sue you. You have no insurance policy to cover that gap. You can be sued and not have any insurance to back you up, which is a problem.
Even though it sometimes costs a substantial amount of money, rolling the dice on, hoping that a malpractice claim doesn’t arise in that your gap is a bad idea. I mean, malpractice, not depending upon the severity, obviously, but most policy limits are 1 million per occurrence and then 3 million aggregate per year. You can imagine if you don’t have an insurance policy and there’s a million-dollar claim, it could bankrupt some people. So, you need to get tail coverage. Where to find it? Well, you can go with the same insurance company. They’ll give you a cost, pay it, and you’re good to go. I would go shopping a little bit.
You don’t have to go with the same underlying insurance provider. Whoever’s providing you with the annual coverage doesn’t necessarily mean you have to go with them for your tail insurance. I would suggest shopping around. Sometimes, I’ve had people that have found tail coverage that has the same limits, same length of time for 25, 20% less than the cost given to them by their current insurance provider. So, that is the importance of tail insurance.
How Long Does Tail Insurance Last?
And then a little breakdown of claims made coverage as well. How long does tail insurance last? When reviewing a contract with a physician, the malpractice policy and potential payment of tail insurance, if necessary, is always a big discussion point. Let’s briefly go through what scenario a physician would be responsible for tail insurance, the cost of it, and then how long it lasts. There are two main types of malpractice insurance. You have the occurrence-based and claims made. In a claims-made policy, a policy must be in effect when the claim is made.
A physician could leave an employer and then, two years later, be sued. And since they are no longer employed and that policy is ended, they need a gap policy that covers the last day they saw a patient with the employer. Then the last day, they can be sued. In most states, the statute of limitation is two years. However, there are some exceptions that we’ll get into as well. If it’s a claims-made policy, someone must pay for tail insurance. And in an occurrence-based policy, no tail coverage is necessary. It just means a policy must be in effect when the malpractice occurs.
The main difference between claims-made and occurrence is that occurrence is usually about a third more expensive. The physician or the employer must decide whether to pay a third more per year for malpractice or pay a little bit less but then have a big chunk on tail insurance. Let’s say a scenario where the physician is responsible for paying the tail. The contract ends with the employer. The physician is responsible for purchasing the tail policy.
Tail Insurance Cost Computation?
A good rule of thumb is that it’s usually around twice the annual premium for the physician. So, the annual premium is how much money must be paid each year to insure the physician for malpractice. Multiply that by two. And that’s usually a good ballpark of what the physician will have to pay for tail coverage. Now, a couple of considerations as far as how much it costs. One is the length of the policy. Once again, most states have a two-year statute of limitations.
However, it’s two years from when the patient either knows or should have known of the injury. And then there are also some exceptions for minor patients to be able to see once they reach the age majority. In that situation, sometimes, a more extended tail policy makes sense. A tail can be one year, two years, five years, or ten years. There are also unlimited tail coverage policies. Meaning it just goes on forever. And if any claim arises in the future, the physician is covered no matter when it’s filed.
Now, why would a physician pay less or more? Simple, it’s cost. Let’s say that covers five years would probably be around twice the annual premium, like a moderate tail coverage. An unlimited policy may cost more than that. So, if the physician is responsible, they need to think about, alright, what’s my liability here? What’s the potential for me being sued? Indeed, what specialty they’re in, I believe, is essential as well. And then they can make a financial decision.
Two Ways of Getting Out of Paying for Tail
Now, there are two ways of getting out of paying for tail coverage. If you stay with the same insurance company, let’s say we have a cardiologist working for private physician-owned practice. Then, they use whoever the insurance company is, move a job, and that new job uses the same insurance company.
Usually, they’ll roll over the old tail into the new policy. The physician won’t have to pay for a tail. Now, when you start a job, there’s absolutely no way of knowing, if you leave the employment, who the new employer will be if they use the same insurance policy. So, that indeed shouldn’t be relied upon. The other way of doing it is your new employer paying for your old tail, called nose coverage. This doesn’t happen very often. It can, but most employers do not pay for nose coverage. And if they do, it’s almost always a hospital network. It’s exceedingly rare for a physician for a smaller physician-owned practice to pay nose coverage for any of the physicians they’re bringing in.
It just won’t happen. What makes sense as far as how long it should last? Well, the longer the tail, the safer it is for the physician. So, getting an unlimited tail makes sense.
A Scenario Where the Physician was Sued
Now, as I said before, the cost is a factor. Let’s give a scenario where the physician was sued, and the tail is expired. It’s a reasonable claim that didn’t miss the statute limitations. It hasn’t run yet. Well, the physician could be personally liable, not only for whatever the judgment is but for attorney’s fees and things like that.
It could cripple someone financially if they don’t have a malpractice policy in place if they are sued. It’s not worth it. At least, I don’t think it’s worth rolling the dice. It is wise to get a tail policy; the longer the tail, the safer it is for the physician. Anyway, that’s kind of how long the tail policy will last.
How is Tail Coverage Calculated?
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 the excellent cost estimate. 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 that if a physician terminates a contract, there will be a gap between the last day that they work for the employer and the last day that someone can sue them. In most states, it’s called statute limitations.
How long can someone sue? In most states, it’s two years. So, it’s two years from when the patient knows or should have known of the malpractice. That’s why some incidents can go beyond two years if it would be impossible for the patient to understand that a malpractice incident had occurred. Someone needs to purchase tail insurance if a physician has a claims-made policy.
Who is Responsible for Paying the Tail Insurance of Physicians?
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 before signing the agreement. As far as who pays for it, it depends on where the physician is employed. First, suppose a physician works for a smaller physician-owned practice most of the time. In that case, the physician will be responsible for that tail cost.
However, suppose the physician works for an extensive hospital network. In that case, it’s doubtful the physician will have to pay tail because that hospital network will be self-insured. Or it will always cover the tail for any physicians they employ. There is another instance where the physician would not have to pay tail 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 cheaper per year. And when the physician leaves, that tail coverage policy has to be paid. And that’s when that big outlay of cash comes in.
How Much Does Tail Insurance Cost?
How much does tail insurance cost? When talking to a physician, I’ll usually say the best estimates are around two times your annual premium. However, depending on the length of time the physician has been with the employer, it could be shorter or longer. So, I think the best rate range is usually between 150% to 300% of the annual premium for that policy. The yearly premium is simply what the employer pays to insure the physician per year. Let’s take primary care, for instance. A good rule of thumb is that primary care malpractice insurance is usually around 6,000 yearly.
Depending on State
It also depends on your state, but just like an overall general estimate, we’ll say 6,000. In this case, let’s say the physician has been there for three years. They terminate the contract and move on to a new job. In that case, the tail coverage cost would be $12,000 or an estimated $12,000. And if the physician was responsible for paying for that, 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 move on.
There are, I guess, two scenarios where a physician would not have to pay tail coverage if they were responsible for it. One, they could always get their new employer to pay their old tail, called nose coverage. Think of it as a signing bonus that the new employer will 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 private physician-owned practice, the physician won’t be responsible for paying tail.
Negotiation of Tail Insurance Payment
Now, there are a couple of ways to negotiate this. Just say to the employer, I’d like you to pay for my tail coverage. If they’re unwilling to do that, another scenario would be to split the cost based on how long the physician has been there.
I think one good way of doing it is, let’s say, a four-year term for a contract. Then 25% of the tail costs will be covered by the employer for each year the physician is employed. So, if they’re employed for two years and then leave, they would split the tail costs 50/50 with a new or 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 needs to be considered. If the physician is an OB-GYN and must pay for their tail, and they’ve been there for eight years, they could have a tail cost of a hundred thousand dollars, which 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 one of the higher points of negotiation as far as that goes. I hope that was helpful regarding how a tail coverage 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.
Physician Contract Questions?
Contract Review, Termination Issues and more!