Who typically pays for tail insurance coverage? We also need to discuss underlying malpractice policies to talk about tail insurance coverage. We’re going to hit both of those. First, when do you need tail insurance coverage? There are three main types of insurance for physicians. They may be self-insured if you’re with a large hospital or healthcare network. And in that scenario, you usually would not need tail insurance. If you have an occurrence-based policy, it means a policy must be in effect when the malpractice event occurs. You do not need to buy tail insurance for that as well. And then the third is claims-made. Under a claims-made insurance policy, a policy must be in effect when the claim is made.

Why You Need to Add Tail Coverage in Claims-Made

And since you could terminate your relationship with that employer, there will be a gap between the termination date and the last day somebody can sue you. That’s called the statute of limitations. In most states, it’s two years. Now, two years from when the patient either knows or should have known of the malpractice event. Sometimes, it can go past two years. A tail insurance policy is a coverage that covers that gap between when you leave, and the last day somebody can sue you. Why would an employer use claims-made versus occurrence? Let’s say it’s a private employer. We’re just going to assume hospitals are self-insured. In this scenario, let’s talk about a private physician practice. If they must choose between occurrence and claims-made, nine times out of ten, they will choose claims-made because it’s cheaper.

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Who Must Pay for Tail Coverage Depends on the Work Set-Up

An occurrence policy is generally around a third more expensive per year for a physician. But as I said before, tail insurance is unnecessary for an occurrence policy. A claims-made policy, if they’re cheaper than an occurrence-based policy. It’ll be cheaper if the physician pays for the tail coverage in the long run. And that’s why they do that. The premise of this blog is who typically pays for tail insurance. If you’re a physician who does shift work, say hospitalist or ED, it’s almost always the physician who will pay for your tail insurance. If you work for a hospital and they’re not self-insured, and they have a claims-made policy, it’s extremely rare. Maybe one out of a hundred would the physician have to pay for tail insurance. Almost whenever a physician is employed by a hospital or health network. The employer will pay for your tail insurance.

If you’re in private practice or an employee of private practice, 9 times out of 10, they’ll have claims-made coverage. And then, I’d say, probably 50% of the time, maybe a little bit above that. The physician is going to be the one that must pay for tail insurance. Is that fair? It’s just a matter of negotiation. Tail insurance costs about twice what your annual premium. Let’s take a primary care physician. Their annual premium is between $6,000 to $8,000. If the physician had to pay for tail insurance, multiply that by two. So, it would be somewhere between 12,000 to 16,000. They’d have to pay for the tail coverage. That’s a one-time cost. You don’t have to pay annually for tail insurance. It’s just a one-time fee when the contract terminates. Then you’re covered for normally the entire gap, or it’s a specific period.

Tips on Negotiating Who Pays for Tail Coverage

You want to get a policy that goes well past the statute limitations. It’s a real specialty, depending on whether this is a huge deal. In primary care, you must pay 12,000 for tail insurance. It isn’t very pleasant, but it will not break the bank for you. If you are an OB-GYN with a $50,000 annual premium and must pay a hundred thousand dollars for tail insurance. That’s something completely different. And so, negotiating who must pay for tail insurance could be the key point in negotiating an OB-GYN. It would help if you did the math on this. If you can increase your base salary by 15,000 versus negotiating with the employer paying for tail insurance, that’s a no-brainer. You’re going to get that 15,000 every year. And that’s worth much more than just having a one-time $15,000 cost for tail insurance.

Before signing the employment agreement, you must negotiate who pays for the tail insurance. Usually, the employer will send the agreement. The physician will look it over. If they’re smart, they’ll have an attorney review it. And then we’ll come up with a list of things that we need either clarified or that we’re going to ask for. And in that scenario, we figure out what is most important to the physician and then situate the counteroffer.

Negotiate Tail Malpractice Coverage With Your Employer

Every situation is different. Some things are more important to a physician than others. Maybe some physicians need the non-compete amended because they cannot leave the area once the contract terminates. Maybe a bonus is most important to a physician to help them pay a down payment on a house. Or, in other cases, if they’re, as I said before, an OB-GYN. They don’t want to pay a hundred thousand dollars when the contract terminates. That might be the most important thing to them.

Two other considerations: if you’re with an employer and you must pay for tail insurance, but you move to a different employer that utilizes the same insurance company. Usually, that insurance company will allow you to roll over your old policy into your new one. Thus avoiding paying for the tail coverage. Now, there’s no way you’ll know that when you start a job. That it will have the same insurance company, but that’s one way of getting out of paying for it. The other way would be having your new employer pay your old tail insurance. That’s called nose coverage.

In nose coverage, it simply would be a negotiation with your new employer that says, once the contract terminates with your current employer, they will pay your old tail insurance or reimburse you for whatever you paid for. Nose coverage doesn’t happen very often, but it certainly does. And it’s a possibility for a physician. So, who typically pays for tail coverage? I’d say, typically, it’s the physician. Still, it’s not completely out of the ordinary for a physician to be provided. It’s just a point of negotiation.

Other Blogs of Interest

• What are Restrictive Covenants in a Physician Contract?
• Can you Pull out of a Signed Physician Contract?

How Important is Tail Coverage?

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How important tail coverage is for physicians. First, we’ll talk about tail coverage and what type of policy you need. Then the importance of it, and what kinds of negative repercussions if the physician does not have a tail.

First, you will only need a tail insurance if you have a claims-made policy. A claims-made policy must be in effect when the claim is made, filed, and served to the physician. If a physician leaves a job, there will be a gap between the last patient they see that employee. Then, the last day somebody can sue them is the statute of limitations.

Add Tail Coverage To Your Claims-Made

In most states, a malpractice claim is two years. And that’s from when either the patient knows or should have known of the malpractice incident. That’s why it can sometimes go past two years if there was no way of knowing about the malpractice until later. Suppose the physician has a claims-made policy in the employment contract. In that case, it will state who is responsible for paying for the tail insurance policy. Suppose you are an employed physician. Maybe a small physician-owned practice, it’s very likely that you’ll have to pay for a tail. If you work for a big hospital network, it is unlikely you will have to pay for tail insurance. Most of the time, the big hospital networks are either self-insured. This means you don’t have to buy tail coverage, or they offer that as a perk of being in that job.

How Much Does Malpractice Tail Coverage Cost?

If you’re in private practice or employed with a private practice, you’re likely to be the one paying for the tail. One question I get very often is how much does it cost? A good rule of thumb is that tail insurance costs about twice your annual premium. How long you’ve been with the employer can fluctuate. Sometimes from 150% up to 300%, but the average is about twice what you pay annually for your premium. The annual premium is how much the employer has to pay to cover you for one year. Some people have no idea how much it costs. Let’s say you’re in primary care. Usually, your annual premium will be somewhere between $6,000 to $8,000.

So, the tail coverage would be 12,000 to 16,000, something like that. Some of the other specialties like surgery and OB-GYN. It can be tens of thousands of dollars annually with a tail cost of fifty to a hundred thousand sometimes. So it’s very important. What happens if you don’t have tail coverage? Well, simple. If you leave an employer, someone has two years to sue you. You have no insurance policy to cover that gap. You can be sued and not have any insurance to back you up, which is a problem. Even though it sometimes costs a substantial amount, rolling the dice on hoping that a malpractice claim doesn’t arise in your gap is a bad idea. I mean, malpractice, not depending upon the severity. But most policy limits are 1 million per occurrence and then 3 million aggregate per year.

Search for Better Tail Coverage

You can imagine if you don’t have an insurance policy and there’s a million-dollar claim, it could bankrupt some people. So, you need to buy tail insurance coverage. Where to find it? Well, you can go with the same insurance company. They’ll give you a cost, pay it, and you’re good to go. I would go shopping a little bit. You don’t have to go with the same underlying insurance provider.

Whoever’s providing you with the annual coverage doesn’t necessarily mean you have to go with them for your tail coverage. I would suggest shopping around. Sometimes, I’ve had people who have found tail insurance coverage with the same limits. They also have the same length of time for 25, 20% less than the cost given to them by their current insurance provider. So, that is the importance of tail coverage. And then a little breakdown of claims-made coverage as well.

Why is Physician Tail Coverage so Expensive?

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 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 large hospital networks are self-insured now, so you would not need tail insurance if you’re working for a big hospital network, usually.

Some hospital networks have claims-made policies, but the physician won’t need to pay for the tail insurance expenses in most instances. Most of the time, if there’s a claims-made policy and the physician is required to pay for their tail insurance, it’s when a smaller physician-owned group employs them. If you have occurrence-based coverage, you do not need tail insurance. Occurrence-based coverage 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.

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One would purchase claims-made over occurrence-based because occurrence-based 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, the employment contract will state who is responsible for paying for the tail insurance. In this scenario, the physician is responsible for paying for tail insurance coverage, and there’s a claims-made policy.

Considerations for Tail Malpractice Insurance Calculation

In that scenario, tail insurance coverage usually costs about twice what the annual premium is for the physician. The annual premium is what the practice pays annually to insure the physician. It would be best if you found out what your annual premium is. 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 up to three times the annual premium.

And it’s usually based on the length of time 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 and many surgical specialties have extremely high yearly premiums, meaning their tail insurance cost could be like a hundred thousand dollars.

Whereas if you’re in family medicine or pediatrics, your annual premium is probably 6,000, meaning your tail insurance costs might be around 12,000 per year. Tail covers the gap between when you leave the employer and 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 knew or should have known of the malpractice. There are some exceptions for minors allowed 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 shorter tail policies. 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 the tail insurance lasts can also affect the cost of the tail insurance coverage itself.

Can Tail Insurance Coverage Be Negotiated With the Employer?

Anything with long tail insurance will cost a little bit more. You might not get to the two-times ratio with anything with shorter tail insurance. This is something that you can negotiate in a contract. A couple of ways of approaching it.

Forgiveness Period for Tail Insurance

If the employer isn’t willing to kind of foot the entire cost of tail coverage, you could suggest 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 insurance cost. If I’m here for one year, the physician’s responsible for 75%, two years, 50%, three years, and 75%. And then, if the physician completes four years of employment, the employer will pay for the entire amount.

We often use that if the employer isn’t willing to pay the entire cost from the beginning. Maybe offer them, alright, well, it’s fair that if I’m here for a very long period, you will cover my tail insurance. I think that’s one good way of negotiating it if they’re not willing to foot the entire bill.

Nose Insurance

Another way to pay is leaving the employer and getting a new job. The new employer could pay for your old tail insurance coverage, 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 insurance cost, I’d like you to cover that—and sometimes used as a signing bonus or in addition. I guess it just depends.

Same Insurance Company

Then lastly, if you stay with the same insurance company, let’s say you stay in the same state. You’re in the same specialty and just moving to a different practice. They utilize the same insurance company. Most companies will roll over your old policy into a new one, and you won’t have to pay tail insurance. So, is tail insurance coverage expensive? It’s specialty-dependent. I mean, every amount is relative. Suppose you make 500,000 a year and must pay 15,000 tail insurance coverage. It’s probably not as shocking as those in other professions.

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