What is the difference between claims-made and occurrence-based medical malpractice insurance? This is absolutely a topic that I generally talk to almost anyone about when I’m reviewing their contract. Those coming out of training who’ve never really had to worry about this before, I find don’t really understand the differences between the two, and even those that have been out a while just don’t know the difference. Let’s kind of break down each one and then we’ll compare the two and maybe if you had the choice, which one would you want to go with. First, what is claims-made insurance? Claims-made medical malpractice insurance means that a policy must be in effect when the claim is made.
Claims Made Policy
Why is this important? If a physician leaves an employer, there will be a gap between when they leave and then the last day that someone can sue that physician. In most states, it’s two years. Most states also define that as two years from when the patient either knows or should have known of the incident that generates the malpractice claim. It’s theoretically possible to go beyond the two years, although it’s very unlikely that that would happen. That means because the claims-made policy ends when the physician leaves the employer, they need another policy, a gap policy or what we call tail insurance that covers that gap in between when they leave and then the last day that someone can sue when the statute limitations run. In this case, let’s talk about the cost and then how often the physician must pay for it.
If a physician works for a hospital, medical network, that type of thing, they will never have to pay for tail because usually, in those situations, the employer is self-insured. If a physician works for a smaller physician-owned group, I’d say most of the time in those scenarios, the physician will be the one responsible to pay tail. Now, the cost. A good rule of thumb is tail insurance costs about twice what your annual premium is. The annual premium is how much the employer pays for your insurance each year. Let’s say you are primary care. Most states’ primary care will be an average of around $6,000 a year. So, if the physician was responsible for tail, then just multiply that times two. Their tail cost would be about $12,000 and that’s a one-time payment. It’s usually paid prior to the physician leaving or simultaneous to the date of termination. Other blogs of interest include:
They paid the $12,000, they’re covered for the gap. Some tail insurance policies are generally a specific amount of time. Some of them will just state, they will cover until the statute limitation in that state ends. That’s generally what the cost is, what tail insurance is, and then what claims-made insurance is. Now, let’s talk about the other type of insurance. The occurrence-based insurance. Occurrence-based insurance means a policy must be in effect when the incident occurs. Not when the claim is made, but when it happens. If someone is employed, the event is going to occur while they are employed. And so, a tail policy is simply not needed for an occurrence-based insurance policy. Why would anyone get a claims-made policy instead of an occurrence-based policy?
Professional Liability Insurance
That way they can avoid having to get two separate policies. Well, it’s cost, once again, a good rule of thumb is occurrence-based insurance is generally about 33%, a third more expensive than a claims-made policy. If someone once again is a primary care and they have a $6,000 annual premium. If they had an occurrence-based, then it would be $8,000. For the physician, certainly, if the employer is giving them the choice, then they would want occurrence-based insurance, because then they won’t have to pay for tail when the contract terminates. However, I find that most private small physician-owned groups do not pay occurrence-based coverage. They pay claims-made coverage just because it’s cheaper and they want to kind of put the responsibility for tail coverage onto the physician, it just saves them money. An occurrence-based policy certainly would make more sense for a physician, but the cost is also an issue. Usually, if there is a choice and you need to do the calculation of, alright, how long am I going to stay with this employer? And then whether me paying a third more, if you’re the one that must pay, which usually you don’t, me paying a third more each year would kind of offset having to pay twice what the annual premium is down the road when you must pay for tail.
If the physician has the choice, certainly go with the occurrence-based coverage. If they’re not paying for it, if the employer is going to pay for it, then go for occurrence. If not, then the negotiation part of this goes into alright, well, if I do have a claims-made policy, then who’s going to pay for tail after the agreement ends? Depending upon specialty, this can be a critical part of the negotiation. For instance, if someone is an OB-GYN, their tail costs and their annual premium costs are significant. I’ve seen some tail costs for an OB-GYN is 50,000, 80,000. It’s not an insignificant amount of money and bargaining over who is responsible for that can be a huge part of the negotiation. Some employers will get creative, and they’ll say, alright, well, if you stay for one year, we’ll pay for a quarter of the tail policy, and then for two years we’ll pay for half.
And then if you get to four years, we’ll pay for all of it. Tiering it up is one, it incentivizes the physician to stay because then they don’t have to pay for it at the end. And then two, it’s just kind of fair that both parties would share the cost. Some places will do 50-50. So, alright, well, if you do leave, we’ll pay half your tail, you pay half your tail and then you can move on. So, that is the difference between claims-made and occurrence-based medical malpractice insurance for physicians. Hopefully, that’s helpful.
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 claims ends.
Malpractice coverage is a type of professional liability coverage that helps protect physicians and other healthcare professionals from the financial risks associated with lawsuits in which patients believe they were harmed as a result of an incident involving medical care. The amount of coverage depends on how much the policy is worth (premium) as well as 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 that has a deductible clause that can range anywhere 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, but it can be higher, sometimes as high as $50,000 depending on individual state requirements and claims history.
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