What is Tail Coverage Medical Malpractice Insurance?
What is tail coverage medical malpractice insurance? There are two types of main policies used in healthcare. A claims-made policy and an occurrence-based policy. If you have an occurrence-based policy, tail insurance is not necessary. It simply means a policy must be in effect when the malpractice event occurs. If you have a claims-made policy, it means a policy has to be in effect when the claim is actually made. It’s possible that you would be with an employer, the contract is terminated for whatever reason, you leave, and then there’s going to be a statute of limitations, which just simply means how long someone has to sue you. For most malpractice claims, it’s two years. And so, you would get a tail insurance policy that covers the gap between when you leave the employer, and then the last day somebody can sue you. That’s what tail insurance is.
Tail Insurance Policy Vs. Occurrence-Based Policy
Now, why would someone get a tail insurance policy versus an occurrence-based policy? The answer to that is price. An occurrence-based policy is about one-third more expensive than a claims-made policy. Most of the time if you are employed by a hospital, hospital network, a physician-owned group, small physician-owned practice, or whatever type of practice you’re in, it’s not going to be up to you what type of policy you have. The employer is usually the one that, one, determines what type of policy they’re going to offer, and then two, they’re going to pay for your annual premium if you’re not an independent contractor. In that scenario, most of the time, you would have to pay for it. So, as an employee, you’re not going to be able to dictate what type of policy is offered.
And so, who pays for tail insurance is the key question when you’re looking into an employment contract for a healthcare provider. So, first, identify what type of policy it is. Is it occurrence-based or claims made? If it’s a claims-made policy, then you need to investigate the language, and usually, it’s going to be titled Professional Liability Insurance, Medical Malpractice Insurance, or something like that. And then, it is going to state in there who is responsible to pay for tail insurance once the contract terminates. Tail insurance is about twice what your annual premium is. Depending upon what healthcare specialty, it could be as low as $500 a year all the way up to $30,000 a year if you’re an OB-GYN. So, who pays for tail insurance is very important depending upon what specialty you’re in because it could be an extraordinary amount of money. Now, it is something that is negotiable. If your employer says, we’re going to put the burden upon you to pay for tail insurance, well, it’s your opportunity to negotiate.
And some successful strategies would be if they’re not willing to pay for all of it, then base it upon how many years you’ve been with the employer. For instance, maybe every year that you’re there, your tail insurance cost is forgiven by 25%. So, if you stay for four years and then leave, then the employer will pay for your tail insurance. That’s one way that I find that some employers are willing to budge because if you stay for four years, then you’re obviously profitable and the amount of money you’ve made for the practice over time is so much larger than just paying at a one-time tail cost that many of them will kind of acquiesce to agreeing to pay for tail insurance.
If the employer doesn’t agree to pay for tail insurance and you are completely responsible to pay the entire amount, there are other ways of mitigating whether you must pay for it or not. One, if your new employer pays your old tail, that’s called nose insurance. And so, getting them to pay your old tail insurance can be thought of as like a quasi-signing bonus. That’s one way out of it. The second way usually only works for a smaller physician-owned practice. If you’re with a smaller practice and you stay with the same insurance company at your new practice, most of the time, they’ll just roll over your policy into a new one, and you won’t have to pay tail insurance at all.
Now, there’s no way to know when you start with an employer that your next job is going to have the same malpractice insurer. And it really varies from state to state. I’m in Arizona, and there’s one company that provides a large majority of the medical malpractice insurance for physicians here called MICA. Whereas in other states, there are dozens of alternatives, and there’s just absolutely no way to know if you’re going to have the opportunity to move with the same company. So, that’s what tail insurance is for medical malpractice.
How Long Does Malpractice Tail Coverage Last?
How long does malpractice tail insurance last? So, if you’re a healthcare provider and you need malpractice insurance which you’re going to need, there are three types of coverage.
Types of Insurance Coverage
One, if you work for a large hospital or healthcare network, many times they’re self-insured, so you’ll fall under their self-insurance policy, and it’s very unlikely tail insurance would need to be purchased by the provider. The other two will apply if you work for a small physician-owned group or even a solo practice. It’s going to be either occurrence-based coverage or claims made. With occurrence-based coverage, you do not need tail insurance. It simply means a policy has to be in effect when the event occurs.
Occurrence-Basedand Claims-Made Policy
The difference between occurrence and claims made is price. Occurrence-based coverage is usually about a third more expensive than claims made. Now, if you have a claims-made policy, then someone is going to need to purchase tail insurance, which will be listed, meaning whose responsibility it is to purchase tail insurance will be in the employment agreement. It will state explicitly. Upon the termination of the agreement, either the employer will cover the cost of tail, or the provider will be responsible for covering the cost of tail. Tail insurance is about twice what your annual premium is. Let’s say you’re a primary care physician. $6,000 is an average amount for your annual premium. If you had to pay for tail, it would be about twice that. So, $12,000.
Tail Malpractice Insurance
Now, how long does tail insurance last? It depends upon the type of policy that you purchase. In most states, the statute of limitations on a medical malpractice claim is two years. Meaning the person who had the event happen to them has two years from where they know or should have known of the malpractice event. And if they miss that window, they cannot sue the provider. There are some exceptions for minors, and they can sue until they reach the age of maturity, but I’m not going to get into that right now. You’ll have the option to determine how long you want the tail to last. For most policies, it would be a minimum of at least the statute of limitations period in the state. So, two years. However, it makes sense to extend it because what could happen is you’re responsible for tail, you buy that two-year policy, and maybe, as I said before, if it was a minor or something happened, they could sue you all the way up until they’re 18.
And then you get a claim 10 years down the line, there’s no coverage for it, and you are out of luck. So, I suggest buying the largest length of time, and you can buy an indefinite tail policy. Just to make sure you have peace of mind, if something did happen well down the road, you’d still be covered. Now, it will be more expensive, and as I said before, on average, it’s around twice what your annual premium is. The longer you extend the period, the more expensive the tail will be. Let’s say you had an indefinite tail period. Well, what will go into that cost would be your claims history and then, obviously, how much it costs to insure you on an annual basis.
It’s a one-time cost, so you don’t have to pay for it every year, meaning if you got an indefinite tail policy, you don’t have to pay every single year for tail. You only pay one amount upfront, and then you’re covered for as long as the tail policy lasts. It may be a little bit more expensive to get coverage that lasts longer, but I can promise you it is well worth not having to worry about any claims in the future. So, that’s a little primer on how long tail insurance lasts.
How Long Does Tail Coverage Last? | Tail Insurance
How long does tail insurance last? When reviewing a contract with a physician, the medical 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 medical 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 actually made. A physician can leave an employer and then be sued two years later. And since they are no longer employed and that policy has ended. They need a gap policy covering the last day they saw a patient with the employer, and 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 end for tail insurance. Let’s say a scenario where the physician is responsible for paying tail insurance. The contract ends with the employer. The physician is responsible for purchasing the tail insurance policy.
Considering How Long the Tail Coverage Last
A good rule of thumb is that it’s usually around twice the annual premium for the physician. The annual premium is how much money must be paid each year to ensure the physician for medical malpractice. Just multiply that by two, and that’s usually a good ballpark of what the physician will have to pay for tail insurance. 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 of majority. In that situation, sometimes, a longer tail insurance policy makes sense. Tail insurance can be one year, two years, five years, or ten years.
There are also unlimited tail insurance 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. Like normal tail insurance, let’s say that covers five years would probably be around twice the annual premium. 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?
How Can You Be Exempted from Paying the Tail Insurance?
What’s the potential for me being sued? Certainly, what specialty they’re in, I think, is important as well. And then they can make a financial decision. Now, there are two ways of getting out of paying for tail insurance. If you stay with the same insurance company, let’s say we have a cardiologist working for a 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 insurance into the new policy. The physician won’t have to pay for tail insurance. When you start a job, there’s no way of knowing if you leave the job and who the new employer will be if they use the same insurance policy. So, that certainly shouldn’t be relied upon. The other way is your new employer paying for your old tail insurance, 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 Is the Advantage of a Longer Tail Insurance Coverage?
What makes sense as far as how long it should last? Well, the longer the tail insurance, the safer it is for the physician. So, getting unlimited tail insurance makes sense. Now, as I said before, the cost is a factor. Let’s give a scenario where the physician was sued, and the tail insurance expired. It’s a good claim; they 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 smart to get a tail insurance policy. The longer the tail insurance, the safer it is for the physician. Anyway, that’s kind of how long the tail insurance policy will last.