Malpractice Insurance Options
Whether it’s a change in employment, a move to a new state, or the sale of your practice, almost every doctor will need to evaluate malpractice insurance options.
When it’s time to review your malpractice insurance, you may feel overwhelmed with making decisions in a time crunch. You still have patients to care for, a life outside of medicine, and now you need to solve your malpractice insurance problem.
Fortunately, you are not alone.
Read on or contact one of our medical malpractice insurance specialists to make sure your medical liability protection transfers seamlessly.
When changing jobs, doctors should seek to better understand their options regarding their medical professional liability insurance. Those doctors who simply “go with the flow” may end up paying thousands more than someone who proactively works with a true malpractice insurance expert. Or worse yet, you may find out that you did not secure the proper coverage after you are named in a lawsuit.
Two Basic Types of Malpractice Insurance
There are two basic types of malpractice coverage – claims-made and occurrence.
Claims-made is the most common type of medical malpractice insurance in the country. When leaving employment with a claims-made policy, you need to either:
- Purchase tail from the current company.
- Purchase a standalone tail from a competing carrier.
- Purchase nose coverage back to your current retroactive date when you obtain a new claims-made policy.
Sometimes the option is yours. Other times, you may be required to buy tail rather than just getting prior acts (aka nose) coverage on your next policy (Pennsylvania is one state that can actually suspend or revoke your medical license if you do not take the proper steps).
Your retroactive date can be thought of as the beginning of an “exposure period.” As long as you have a policy that covers you back to your retroactive date, you do not need tail. Once you stop the policy covering the nose, you need to secure tail so that you continue to be covered for anything that occurred on or after your retroactive date.
Occurrence coverage is simpler to understand, though less commonly offered. Carriers find it more difficult to accurately assign premiums to risk exposure with occurrence, so most do not offer it, or it is offered at a higher price than claims-made, making it less attractive to the potential policyholder.
If you are currently covered under an occurrence policy and looking to change jobs, you do not have to worry about covering your tail (at least for now).
Related: A Physician’s Guide to Protection from Medical Liabilities
If you are an employed physician, you probably fall into one of the following five situations:
- Employer pays for occurrence (no tail necessary).
- Employer pays for claims-made and tail.
- Employer pays for claims-made and doctor pays tail upon departure or cancelation of coverage.
- Doctor pays for occurrence (no tail necessary).
- Doctor pays for claims-made and tail.
Situation 3 is a common scenario. Malpractice insurance is usually discussed during the initial job offer/contract negotiations, and then becomes a dormant topic until it’s time to leave the employer.
While you are working for a group that pays your malpractice insurance, it is their problem, not yours, right? Yes and no. You may be surprised when you tell the administration you are leaving and you soon get a bill for your tail from their insurer and reminded that you agreed (when you joined the group) to pay for your own tail when you depart.
In this case, you can simply “go with the flow,” paying the bill in full with your hard-earned savings. Or you can enlist the (free) services of a Diederich Healthcare tail expert and join our clients who often save around 25% and end up with the same limits and policy features as those who go with the offer from the employer’s company. Same coverage, more money in your pocket – it’s an easy decision if you are willing to fill out an application (which usually takes around 15 minutes to complete).
When evaluating your contract options, you should have a rough estimate of what your tail will cost when you leave employment. Unfortunately, tail cannot be accurately priced until the time you are leaving, since many factors are used to determine the cost of your tail – including claims experience and current carrier tail rate during the exposure period.
However, the general rule of thumb is 200% of the expiring premium. So if your employer is paying $10,000 per year for your policy, you should anticipate paying $20,000 for tail at the time of your departure. Finally, when you have a plan to part ways with the employer, you should contact a qualified medical liability insurance broker to help you find a more cost-effective alternative for tail insurance.
Moving to a New State
Although it’s certainly not brain surgery, malpractice insurance can be quite complex. When you leave a state, you need to make sure that you are covered not only in the new state moving forward, but also for your prior acts exposure in the state you are leaving.
The last thing you need is to pay your own costs to defend your assets and reputation. You are busy as it is – traveling across the country to appear in court can be a huge disruption of your life in the new state.
Make the right decision about your malpractice insurance, and you need not worry.
Covering your prior acts exposure from the prior state as well as nose from the new state can be accomplished by carrying out one of the following strategies:
- Notifying your current carrier you are moving and getting them to include prior acts for the previous state as well as your new state exposure moving forward. (This is not acceptable in Pennsylvania)
- Purchasing a claims-made policy from another carrier – one that includes prior acts for the previous state as well as your new state exposure moving forward. (This is not acceptable in Pennsylvania)
- Buying a tail from your current carrier. Starting retro date inception (RDI) on a new claims-made policy or occurrence.
- Purchasing standalone tail from another carrier. Starting retro date inception (RDI) on a new claims-made policy or occurrence.
As you can see, there are several potential blueprints to cover both your nose, and your tail. Once you choose one of the above approaches, you still need to compare companies, limits, policy features, etc.
Working with an experienced broker who has a thorough understanding of these concepts increases the likelihood that you will obtain your optimal coverage solution.
Price is important, but the plan must be well-conceived before price even comes into the equation. It’s wise to have a thorough conversation with a malpractice insurance expert before you make the move – this way you have options. Once you act, it may be too late to effectively change the course.
Selling Your Practice
In recent years, many private practice physicians across the country have opted to sell their practice to hospitals and healthcare systems.
Oftentimes, the doctor selling the practice arranges for his/her coverage moving forward to be provided by the hospital (or other soon-to-be-employer), but the tail is the responsibility of the physician.
In this case, the first step is to contact a reputable malpractice insurance broker who can provide you with standalone tail options. You will likely then be advised to notify your current carrier of the last date you will be seeing patients under your current policy, and request an extended reporting period endorsement (aka tail) quote.
If you’re considering any change to your practice, contact a medical malpractice insurance specialist to make sure your medical liability protection transfers seamlessly.
Regardless of your situation, seek the help of a trustworthy broker that:
- Understands complex malpractice insurance concepts and policy features
- Understands the market and represents multiple carriers in multiple states
- Applies knowledge to your unique situation – good advice applied incorrectly is no help
- Returns phone calls/emails in a timely fashion
- Has a history of effectiveness for other physicians
Malpractice Insurance: Who Is Responsible for It?
As with all professions, there are times when it is best to leave and pursue a new working relationship for whatever reason. In the physician world, a change can come with a hefty price tag. That is because malpractice insurance should not or in some cases cannot end on your last day of work.
So who is responsible for the cost of continuing the insurance plan after you leave?
In most cases, it’s you.
Now, what sort of amount are we talking about? It can be anything from $10k to over $200k depending on specialty, history, location and overall claims experience by the group.
Most employers have claims based which only covers you while working within the organization. Once you leave it ends… but the risk of being sued does not. In light of this, another 2-4 years of protection is necessary. Who picks up this cost? Normally you have to. And this is what you’ve probably heard of before. It’s called tail coverage.
If you find yourself in this situation, it’s best to know at least how much you should be saving up for this going away gift or shall we say expense.
If you’re about to enter into a new agreement it’s better to approach the situation with a strategy of getting the employer to pick up all, half or at least some of the cost. One way you can address it is by saying ‘whoever is responsible for termination is going to pick up the cost’. That doesn’t remove 100% of the liability to you, but it is better.
Another thing you can do is say, “the longer you stay there the more the employer picks up.” You could go at it with a straight up 50/50 sharing of the cost. At the end of the day, you should have a conversation with them about it because in more than 80% of the cases that we negotiate, we are finding employers are willing to change and offer something more favorable. If you have nothing to do with termination you should not be responsible for 100% of this cost.
A question we often get asked is, “can I just ask my new employer to give me occurrence based coverage so that this risk is addressed?” The answer is usually no because this is a group benefit change and it would require everyone to get a new policy at an entirely new cost which we’ve seldom seen an employer do.
Whatever the case may be… know what you have or what you’re going to get. Have an action plan to address it. The earlier the better and know that it is OK to have the conversation and you are not the only one doing it.
We hit this topic with every contract negotiation we do and the worst kind of response we’ve gotten is that they say “No.” It’s worth a shot and it makes the transition to a new organization much smoother.