Why is tail insurance for a physician so expensive? Let’s get a little background on when a physician would need tail insurance and then kind of cost analysis, and then why it is so expensive. First, the physician must identify what type of insurance policy they have. There are usually three main types. If you’re employed with the hospital network, most of the large hospital networks are self-insured now, so you would not need tail insurance if you’re working for a big hospital network, normally. Some hospital networks do have claims-made policies, but in most instances, the physician won’t need to pay for the tail expenses. Most of the time, if there’s a claims-made policy and the physician is required to pay for their tail, it’s when they’re employed by a smaller physician-owned group.
If you have occurrence-based coverage, you do not need tail insurance. Occurrence-based coverage simply means the incident must occur when the policy is in place. In that scenario, it doesn’t matter when the claim is filed if there was a policy when the event occurred, then the physician is covered. The reason why someone would purchase claims made over occurrence is occurrence is about one-third more expensive than the claims-made policy. So, if you paid 6,000 a year for claims made, you pay around 8,000 for occurrence. Now, if you do have a claims-made policy, and most of the time, if you have a claims-made policy, it means you’re employed with a smaller physician-owned group. And then in the employment contract, it will state who is responsible to pay for the tail insurance. In this scenario, the physician is responsible to pay for tail and there’s a claims-made policy, obviously.
In that scenario, tail usually costs about twice what the annual premium is for the physician. The annual premium is simply what the practice pays per year to ensure the physician. You need to, one, find out what is your annual premium. And then two, you must figure out how long you’ve been with the practice. Tail costs can go anywhere from one and a half all the way up to three times what the annual premium is. And it’s usually based on the length of time that the physician has been with the employer. If you’re only there for a year or two, it might be closer to the 1.5 ratio, whereas, if you’ve been there two decades, it could be closer to the three times your annual premium. Specialty is also certainly important. OB-GYN, a lot of the surgical specialties have extremely high annual premiums, which means their tail cost could be like a hundred thousand dollars potentially. Other blogs of interest include:
Whereas if you’re family medicine or pediatrics, your annual premium is probably 6,000, meaning, your tail costs might be somewhere around 12,000 per year. Tail covers the gap in between when you leave the employer and then the last day somebody can sue you. It’s called the statute of limitations. In most states, it’s around two years from when the patient either knew or should have known of the malpractice. There are some exceptions for minors allowing to sue up until the date of majority, but a good rule of thumb is it’s around two years in that scenario. There are tail policies that are shorter. You may get one that’s only two years long, or you may want to get a policy that covers an infinite amount of time. The length of time that the tail lasts can also affect the cost of the tail itself.
Obviously, anything with a longer tail will cost a little bit more, anything with a shorter tail, you might not get to the two times ratio. This is something that can be negotiated in a contract. A couple of ways of approaching it. One, if the employer isn’t willing to kind of foot the entire cost of tail you could suggest maybe giving a forgiveness percentage at the end of each year of employment. For instance, you could say, look let’s say, for every year that I’m employed here you will cover 25% of the tail cost. If I’m here for one year, the physician’s responsible for 75%, two years, 50%, three years, 75%. And then if the physician completes four years of employment, the employer will pay for the entire amount.
We use that quite often if the employer isn’t willing to pay the entire cost from the very beginning. Maybe offer them, alright, well, it’s fair that if I’m here for a very long period, that you would then cover my tail. I think that’s one good way of negotiating it if they’re not willing to foot the entire bill. Another way of paying for it is if when you leave the employer and you get a new job, the new employer could pay for your old tail and that’s called nose insurance. And that could be a part of the negotiation when you’re leaving one job and going to another is alright, here’s my tail cost, I’d like you to cover that. And that can sometimes be used in a signing bonus or in addition to it, I guess it just depends. And then lastly, if you stay with the same insurance company, let’s say you stay in the same state, obviously, you’re in the same specialty and you’re just moving to a different practice, they utilize the same insurance company.
Most companies will just roll over your old policy into a new one, and then you won’t have to pay tail at all. So, is tail expensive? It’s kind of specialty dependent. I mean, obviously, every amount is relative. If you’re making 500,000 a year and must pay a 15,000 tail, it’s probably not as shocking as for those in other professions.
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