What is the average tail insurance cost for a physician who practices in family medicine? Let’s first talk about the different types of malpractice insurance and then get to how much it generally will cost. First, there are two main types of coverage: either a claims-made policy or an occurrence-based policy. If it’s an occurrence-based policy, the physician does not need tail insurance. I mean, what it means is that a policy must be in effect when the claimant occurs or where the incident occurs. And in that scenario, you don’t need tail insurance. Occurrence coverage is usually about a third more expensive than claims made. And so that’s why some employers only use claims-made coverage just because it’s cheaper. A claims-made policy means a policy has to be in effect when the claim is actually made.
And there’s a scenario where an employee can terminate the employment agreement, then there’s still going to be a gap in between the last patient they see for that employer and then the last day that the patient could sue them. In most states, it’s two years, although there are exceptions that can go longer than that. It’s kind of a gap policy that covers that time, and that’s called tail insurance. A good rule of thumb is tail insurance is about twice what your annual premium is. Obviously, this is state-specific. I can’t give you an exact amount for every state, but a general rule of thumb is most primary care physicians will pay somewhere between 6,000 to 8,000 a year for their annual premium. And so, if the tail costs around twice that, then their tail costs would be somewhere between 12,000 to 16,000.
That’s a one-time payment. It’s not that the physician must pay that amount every single year until the tail period ends. It’s a one-time payment and then usually covers the entire gap. Now, the physician could pay either more for a longer tail, or less for a shorter tail. But it makes sense if you’re going to pay for tail, you just make certain that you get a policy that covers the entire gap. And if you were to get a two-year policy, then it’s two years from when you either know or should have known about a malpractice incident. If the patient couldn’t have known before then, and then finds out, and then sues you after that two-year period, then you are stuck. So, I would suggest getting the longer tail, even though it’s a little more expensive. Now, who pays for tail insurance kind of depends, I guess, on where you’re employed. If you’re employed with a big hospital network, usually most of them, at least nowadays are self-insured. Other blogs of interest include:
And very rarely would they pass the cost of tail insurance or force the physician to pay for tail insurance. Private practice is the kind of, I guess, the most common setting where the family medicine physician would have to pay for tail insurance. Let’s just say, it’s a small physician-owned practice, they use claims-made insurance, and then in the employment agreement, it’s going to state who is responsible to pay for the tail insurance. In the scenario, let’s say the employee is responsible to pay for tail, well, then it’ll state by the end of the contract, meaning, before the last day that the physician works for the employer, they must purchase tail policy and provide proof of that to the employer. Now, a couple of ways of getting out of having to pay for it.
Well, obviously, if you negotiate before signing the contract that the employer will pay for it. I mean, that’s one way of getting out of it. Two, for most states, if you stay with the same insurance company, so if you move from maybe one private practice to another and they use the same insurance provider, then normally that insurance provider will just roll over your old policy into a new one and you won’t have to pay for tail insurance. Now, if you’re going from hospital to hospital, they’re almost never going to use the same insurance company. That just won’t be possible. And then the third way is called nose coverage. And that’s when your new employer pays your old tail. As I said before, you can kind of think of it as a quasi-signing bonus.
If the tail cost is 16,000 and the new employer will pay your old tail, then it’s kind of like a bonus. And in that scenario, it’s kind of specialty dependent. Some specialties with very high annual premiums, like OB-GYNs, or maybe some surgeons, that might be a huge negotiating point for a new contract if they’re responsible for their tail. But in family medicine, it’s a reasonable amount, not going to break the bank for anybody. Certainly, it’s an amount that you would prefer not to pay. But it’s not some crazy amount that’s going to cripple someone financially. I guess the biggest, I don’t know if “problem” is the right word, but if somebody starts an employer and only works for a year and then terminates the agreement, they’re responsible for tail, it may be a little less than twice. But still, you could work for a company for one year and still must pay one and a half to two times the annual premium.
If you were taking short stints with employers and you’re responsible for paying tail, you’re going to lose a lot of money over time, so take that into account. Or maybe if you have the option of deciding, do I want an occurrence-based policy or a claims-made policy? Maybe do the math on, alright, I’m going to pay a third more per year for occurrence, but if you stay with an employer for a longer period, maybe it works out that an occurrence policy would make more sense than claims made. That is kind of a little primer on tail insurance cost for a family medicine physician.
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