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 obviously 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, at the end of that, 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

Now, a couple of considerations are that the employee doesn’t really 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’re certainly going to 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.

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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 Malpractice Tail Coverage?

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.

How Is Tail Insurance Calculated?

How is tail insurance calculated? What is tail insurance? Under what kind of malpractice policy do you need it? And then how much does it cost? There are two common types of malpractice policies for healthcare providers. You have occurrence-based and claims-made. In a claims-made policy, you need tail insurance; if it’s an occurrence policy, you do not. 

Different factors are considered to Calculate tail insurance. There are different lengths of tail insurance. You could have one year, two-year, five-year, or infinite, and then with each one, it’s a little bit more expensive. A good rule of thumb in calculating tail insurance costs is about twice your annual premium. Let’s say you’re a family practice physician. On average, your annual premium, so how much it costs to insure you each year, will probably be about $6,000. And so, if you had to pay double that, the tail insurance calculation would be $12,000.

Now, that’s a one-time payment. You do not have to pay it annually. You give it all at once, and then you’re covered for how long the tail insurance is. If it’s up to you how long the tail insurance lasts, it makes sense to get an indefinite tail insurance policy. You are rolling the dice if you have one-year tail insurance, but the statute of limitations is longer than a year because you’re uncovered for that period. And if you do not have malpractice insurance, they could come after you potentially. And that could be catastrophic for a professional. If it’s only a couple thousand dollars more, it’s just simply worth it to get the longest tail insurance policy that you can. That way, it’s just one last thing you have to worry about.

Two Common Types of Malpractice Insurance Coverage

Let’s talk about the differences between the two malpractice insurance. For an occurrence-based policy, a policy must be in effect when the malpractice incident occurs. There is no need for tail insurance in that scenario, and I’ll explain why.

In a claims-made policy, a policy must be in effect when the claim is made. And so, for an employee who terminates a relationship with an employer, there will be a period where somebody can sue them. In most states, it’s two years. It’s called the statute of limitations. And in this scenario, let’s say a physician leaves the practice, they’re no longer an employee, and they have a claims-made policy, and that policy is done.

Well, they need an additional policy called tail insurance that covers the gap between when they leave the employer and the last day an individual can sue them. There are some exceptions in some states when a minor becomes an adult and a few other scenarios, but let’s use two years as a standard amount here. The employment contract will state that the employer will pay for the underlying policy, assuming you’re not an independent contractor.

Who Will Buy Tail Malpractice Coverage?

And then, it will also state who is responsible for tail insurance. Now, if you’re in private practice, like a smaller physician-owned group, they will likely have a claims-made policy. And it’s also very likely they will make the provider pay for tail insurance when the contract ends. If it’s an occurrence-based policy, you’re good; you don’t have to worry about tail insurance when the contract ends.

Why Would Someone Get One Over the Other? 

An occurrence-based policy is around one-third more expensive per year than claims-made. So, if it is a smaller physician-owned practice, they usually use claims-made, so they pay a third less annually for the premium because they’re going to be the ones paying for it. And then two, they’ll usually put the tail insurance cost on the provider. So, they not only pay less per year for the premium, but they also don’t have to pay for tail insurance, and it’s just cheaper for them. That’s why 9 out of 10 private practice owners use claims-made coverage. Some use occurrence-based, but it’s rare. 

If you have a claims-made policy, and it is determined in the employment agreement that you are responsible for paying for tail insurance, let’s break that down. It will state that you must purchase a tail insurance policy prior to your last day of employment with the employer. Usually, it’ll also say how long the tail insurance policy must be. 

How Do You Get the Employer to Pay for Tail insurance?

Well, ask them when you’re negotiating. I’d like you to cover the tail insurance expenses. They may say no. If they do, you could come back at them, and we’ve had some success with saying, alright, well, you’re not going to pay for all of it. What if we do it like forgiveness over the initial term? What I mean by that is, if you signed a three-year contract, you would say, alright, for every year that I complete for you, one-third of the cost of tail insurance will be covered by you. 

So, after three years, when I’ve completed the initial term, you will be responsible for paying for tail insurance if I leave any period after that. You could also have your new employer pay for your tail insurance. That’s called nose coverage. And then the last way of not having to pay for it would be if you stay with the same insurance company with your new position. They’ll generally roll over your old policy into a new one. In that way, you don’t have to pay for tail insurance. So, that’s a little primer on how tail insurance is calculated.

Claims-Made Malpractice Tail Insurance

One of the most frequent things when reviewing a physician’s contract is malpractice insurance coverage, the differences between the different types, and then tail coverage. Today, I’m going to talk about what is claims-made malpractice insurance for physicians. Let’s just do some basics on what malpractice insurance is, specifically, what claims-made coverage is. Doctors are required to have medical malpractice insurance policy.

Who Usually Pays for Claims Made 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. If they continue to pay that premium, the doctor is covered for any of their activities for that employer.

Coverage Limits

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’re having $3 million claims in one year, you have bigger 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, if someone asks or is concerned about the aggregate medical malpractice insurance coverage limit, it’s a bigger problem than that.

3 Types of Malpractice Insurance

There are usually three types of insurance. 

Self Insurance

You have self-insurance programs. Some of the bigger hospitals and healthcare networks are self-insured, which generally means they have a lot of money set aside to pay claims out of. 

Occurrence Coverage

The second would be occurrence-based insurance. And that just means a malpractice policy has to be in effect when the malpractice event occurred. The benefit of occurrence-based insurance is you do not need tail coverage. 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 malpractice policy would. 

Claims Made Coverage

And then lastly, what we’re going to kind of detail today is claims-made insurance. A claims-made malpractice policy must be in effect when the claim is made. If you are with an employer and the agreement is terminated, and you leave, 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 malpractice policy that ended when you left, you need gap coverage. 

Tail Insurance

Another malpractice insurance policy covers the gap between the last day you work for the employer and the last date where the statute limitations run. And that’s commonly known as tail coverage or tail coverage. You must buy tail insurance coverage if you had a claims-made malpractice policy. Let’s talk about that. 

Cost of Tail Insurance

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, and then you would have to pay $20,000 once your employment contract is terminated to cover your tail insurance coverage. 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 it is. 

Some tail insurance coverage 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. There is an infrequent period, but a patient would’ve no way to know about a medical malpractice event until years later. And so that’s kind of when tail coverage kicks in. 

Who Pays for Tail Insurance?

Who must pay for tail coverage? If you work for a hospital or healthcare network, most of them will be self-insured, but let’s just say they had a claims-made malpractice policy. They will generally pay for your tail. Most of the physicians who have to pay for tail coverage are employed with a private physician-owned group. I’d say it’s probably 75% of physicians who work for a smaller physician-owned medical facility that must pay their own tail. 

Is this something you can negotiate? Sure. A couple of thoughts on that. You can just ask them to outright pay for your tail. If they say no to that, which many of them most likely will, then 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 cost. If I finish out a year and then leave, you will pay a quarter of the tail. If I stay for two years, you’d pay half, and so on. And in that way, if I complete 4 years, the employer will pay for the entire tail. I find some employers understand that that is a fair way of doing things. And then you can kind of play with the percentages per year or how much each party pays.

But there are some creative ways of figuring out how to split the cost of the tail coverage with physicians and employers. Most of the time, physicians will not have the choice of either getting an occurrence-based malpractice policy or a claims-made malpractice policy. Whatever the employer or type of insurance the employer decides to go with, that’s the type of insurance the employee will have to use.

Can Physicians Choose Which Insurance To Use?

Usually, physicians 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 before, an occurrence-based malpractice policy is about a third more expensive per year than a claims-made malpractice policy. So, if you’re the employer and you’re going to make physicians pay for their own tail, you’ll say, not only am I going to save a third per year on annual premium cost, but then I’m not going to pay for tail coverage 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. 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. Whereas if you’re with the claims-made malpractice policy, you’re paying $6,000 a year or the employer is, but in the end, the longer with your employer, the tail 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 just to pay if I plan on staying with the employer for ten years?

Well, that might make more sense to a claims-made malpractice policy. Whereas if you’re there for a shorter period of time, maybe an occurrence base malpractice policy makes more sense as well. This certainly is something that you can negotiate in an employment contract. 

Why Who Pays for Tail Insurance is a Big Deal?

And I do think it’s something that most physicians feel is important. It’s also specialty-dependent. I mean, if you’re primary care and you’re paying $6,000 in your annual premium, then $12,000 for tail coverage isn’t that big a deal. Let’s say surgeons, or if you’re an OB-GYN and you’re paying $50,000 a year for your underlying coverage, and you must leave. Your tail coverage is a hundred thousand dollars, well, that’s certainly something that’s going to get your attention, and you may need to discuss the employer.

A couple of ways of getting out of having to pay for tail coverage: one, obviously to negotiate, so the employer agrees to pay for it. Suppose you are with an insurance company, and your new job uses the same insurance company. In that case, generally, the insurance company will just roll over your old malpractice policy and tail into your new malpractice policy. You won’t have to pay for tail coverage. Now, no one’s going to know for certain 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 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, but certainly, it’s not unique that a new employer would pay someone’s old tail. So, that’s what claims-made coverage is. It’s kind of a lot of, I guess, complicated scenarios but simple once you break it down into three different types of insurance.