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 understand 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 Policy

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.

Other Blogs of Interest

• Should a Physician Choose Claims-Made or Occurrence Malpractice Insurance?
• How is Tail Insurance Calculated? | Malpractice Liability Insurance
• What is Tail Insurance for a Physician Assistant? | Medical Malpractice 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 Insurance 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 there is medical malpractice incident, 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, need the gap policy occurrence 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 far as does it make 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 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, in the end, 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

A couple of considerations are that the employee doesn’t 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 will certainly 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.

Should a Physician Assistant Choose Claims Made or Occurrence Insurance? | Choose Occurrence 

Should a PA choose an occurrence-based policy or a claims-made malpractice policy? First, a policy will cover you for PA l medical malpractice insurance if you work for an employer. And suppose you’re working for a smaller physician-owned group or a private practice. In that case, there will be two insurance types: claims-made or an occurrence-based policy. Most of them are self-insured if you’re working for an extensive hospital network or hospital. Therefore you won’t have to worry about the underlying premium or any tail insurance cost after the fact. It’ll all be rolled into their self-insurance program. So, today I’m going to talk about the differences between the two types of insurance when working for a smaller non-hospital employer.

What Is a Claims-Made Policy?

A claims-made policy means a policy must be in effect when the claim is made. You could leave an employer, so the agreement is terminated, but someone could sue you after the fact. Now for most states, there’s a two-year statute of limitations. That means a limit on when somebody can sue someone. There are some exceptions that I won’t discuss further. 

What Is Claims-made Malpractice Insurance?

Think of it as the last day you worked for the employer, and then two years later, you must have a policy covering the gap between the two. And that’s called tail insurance. Now, tail insurance can vary in length. You could choose a one-year, two-year, three-year, five-year, or indefinite policy. It wouldn’t make sense if you were paying for the tail insurance coverage to have a shorter amount than whatever the statute of limitations is in the state where you were working.

Just for peace of mind, it makes sense to get an indefinite policy. Tail insurance coverage cost is usually around twice what your annual premium is. The yearly premium is how much it costs to insure you annually. So, you would multiply that times two, and that’s a good assessment of how much you would have to pay. If you have an occurrence-based policy, you do not need tail insurance. It simply means the policy has to be in effect when medical malpractice occurs.

Difference Between Claims-Made and Occurrence Based-Policy

The difference between the two, and therefore you might want to choose one over the other, is that occurrence-based policy. It is about a third more expensive per year than a claims-made policy. However, even though you’re paying a third less for a claims-made policy, you’ll have twice your annual premium cost to pay for tail insurance coverage. Most of the time, the PA will not have the option of purchasing one. They’re just going to say if you’re working as an employee. It is the policy that we’re going to provide to you. Other topics of interest include:

What is Occurrence-Based Insurance for a Physician Assistant?

Tail insurance Insurance for a Physician Assistant Explained

And then in the job employment agreement, it’s going to state who is responsible for paying for tail insurance. So, it would help if you investigated the professional liability insurance section. Then you need to see what type of policy is offered and who is responsible for paying for the tail insurance coverage cost after the agreement terminates.

Now, you can negotiate with the employer to pay for tail insurance coverage. You can say, hey, I’d like you to cover the cost of tail insurance. Now, they may say no. One thing that we’ve had success with is then saying, alright, let’s say you have a three-year initial term. Then you would have one-third of the tail insurance coverage costs forgiven for every year you complete for the employer. So, after the end of three years, then the job employer would agree to pay for the entire amount of the tail insurance policy.

Claims Made or Occurrence Coverage Cost for Professional Liability Insurance

Now, if you have the choice, you need to figure out how long you will be with the employer. If you’re going to pay a third more per year, but you’re going to work for the employer for ten years, a claims-made policy probably would make more sense. If you’re only going to work for one year, an occurrence-based policy is a no-brainer. Suppose you have a $3,000 annual premium for a claims-made policy. 

An occurrence-based policy is a third more, so you pay 4,000 for occurrence and 3,000 for claims-made. Let’s say you work for a year. And then, if tail insurance is twice the annual premium, that’s a $6,000 cost. That would be $9,000 total if you had a claims-made policy. Whereas if you had an occurrence-based policy that was $4,000 with no tail insurance, that’s all you’re paying is 4,000.

So, 4,000 versus 9,000, go with the occurrence-based policy. Whereas if you’re going to work for ten years, and let’s say, once again, it’s a $3000 underlying premium. So, 3000 times 10 for the claims-made policy is 30,000. 4,000 times 10 is 40,000 for occurrence. In that scenario, purchasing the claims-made policy would make more sense. If you’re using a claims-made policy, you will come out ahead in the end mathematically.

Which Insurance Policy Is Practical for a Less Than 10-Year Employment?

Now, most people will not work for an employer for ten years. If you choose between the two, it just makes sense to go with the occurrence-based policy, even though it’s a little more expensive per year. Suppose you’re going to work as an independent contractor. In that case, you will likely be responsible for paying the underlying premium and purchasing your tail insurance coverage if you had a claims-made policy. Once again, you have to do the math, alright? Am I going to work for this employer as an independent contractor on a short-term basis? Long-term basis? That type of thing.

Physician Assistant Liability When Covered Under a Medical Doctor 

The tail insurance coverage cost can vary based on how long you’ve worked for that job employer. And then also, your claims history, how long you purchased, and how extended coverage you purchased for the new tail insurance coverage. So, it was a one-year, three-year, five-year, or indefinite, that type of thing. It’s not that complicated when you break it down. Still, it’s certainly not something that most PAs are familiar with regarding the different types of insurance coverage. There is one other small caveat for PAs, and sometimes the physician will have a policy that covers the PAs under them. And so, if a physician assistant leaves, it will just roll into the physician’s policy. I’m not going to get into the details of that. But that is one thing you don’t have as a dentist, a vet, an NP, or PA. So, it’s something to consider.

Contract Concerns Outside of Your Liability Insurance Policy

Can a physician assistant break their contract? The answer is yes. They can. However, if breaking their contract means that they’re breaching it and not adhering to the terms they agreed upon, they may have some legal or financial consequences that you will want to consider before making that decision. So, before you break the contract, there are usually many different ways you can be led out of your contract. You always want to go to your job employment agreement and read it very carefully. There are generally many clauses on termination. Your employer can terminate your agreement for-cause if you have violated some policies, lost your practice license, or were convicted of a crime. There’s an enumerated list there.

Without Cause-Termination

And if any of that happens, your employer will terminate the agreement. Another way you can be let out of your employment agreement is a without-cause termination. Most employment contracts you want to read carefully will have a clause that says you may terminate your employment without-cause. It can be for any reason or no reason after giving a certain amount of notice. The range can be anywhere from 60 to 90 days. Occasionally, if you’re in a rural or high-need area, it can sometimes go up to 120 days. If you want out of your contract, you need to give written notice, which needs to be delivered properly. Again, this can be a little unique to each situation, so you want to look at the employment agreement, and it will state how you need to give proper notice.

How Do You Need to Give Proper Notice?

It’s usually always in writing and can be hand-delivered to specific personnel. Sometimes it must go through certified mail. Other times you’re able to email it to specific personnel. So, ensure you give your notice correctly and give your notice at the appropriate time. As we discussed, it’s usually 60 to 90 days, and you can be let out of your agreement. That’s the best way to do it. However, even if you do it this way. There might still be some financial consequences if you receive any sign-on bonus, relocation bonus, or reimbursement. Those bonuses are when you’re given a lump sum upfront when starting your employment. Usually require that you complete a certain period with the company. It is usually anywhere from one to three years.