Medical Malpractice Insurance Coverage
Does a physician need additional resident malpractice coverage? It is usually a topic that most residents are not familiar with and typically doesn’t worry about, but I think it’s a good question and a good primer when you get out of training. Malpractice insurance is something you’ll have to worry about, too.
So, first, there are generally three types of coverage for physicians. And this is not just for residents; it applies to any physician.
If you’re working for a hospital network, many of them are self-insured. That means they have a policy covering whatever events happen with their employed physicians within the hospital or hospital network.
And in that scenario, most of the time, the physician would never have to pay for the underlying premium, which is whatever cost to ensure the physician on an annual basis. Then, if there were some claims-made policy, they wouldn’t have to worry about tail insurance either.
The two most common ways physicians are insured are through a claims-made policy or an occurrence-based policy. If you have an occurrence-based policy, you do not need tail insurance. And I’m going to define what tail insurance is in a second. If you have a claims-made policy, this is the one scenario where you need tail insurance.
Now, if you are a resident, you will never have to pay for your underlying premium, and you’ll never have to pay for tail insurance, either. The residency program covers it, whatever hospital it’s associated with, or the academic institution that might be a part of it.
Do Residents Need Additional Malpractice Insurance?
So, you’ll never have to pay for malpractice insurance when you are a resident physician. The question here is, do you ever need additional malpractice coverage? In short, no.
Almost, and I mean 99.9% of physicians, do not get additional malpractice coverage. They use the underlying range from their employer. Or if they’re an independent contractor required to bring their malpractice, they would pay the premium.
Now, let’s talk about limits. Typical limits for a malpractice policy for a physician are 1 million per occurrence. Then 3 million aggregate, which means for each malpractice incident in one year, the policy limits the most that the insurance company will pay out is 1 million. And then the aggregate amount they’ll pay out over the year is 3 million. Now, if you have three-mile practice incidents in one year and have all reached policy limits, you have more significant problems than worrying about them.
Insurance Policy Limits
There are going to be multiple board complaints. You’ll likely have your license put on probation, suspended, revoked, or something like that. It’s doubtful that anyone would reach the aggregate cap.
So, 1 million, 3 million is standard. Some people in higher-level surgical specialties might have 2 million or 4 million. And some states have heavy damages caps, which limit what a plaintiff can recover in a medical malpractice lawsuit. In those states, the policy limits can be much less because it’s not necessary to have a limit higher than that.
Texas, for instance, is an excellent example of a place where the policy limits can be substantially less. It might be 200 or 400,000, not 2 million or 4 million. In short, a resident physician will always have their premium. If the tail is necessary, it’s paid for by their academic or resident institution, and additional malpractice coverage is unnecessary. So, what does malpractice insurance cover?
I guess one fear that some physicians have when I’m reviewing their employment agreement or independent contractor agreement is this. In discussing malpractice insurance, they fear, “can they ever come after me?” Well, theoretically, yes.
But in practice, it just doesn’t happen. I mean, it would be scarce. In a scenario where the plaintiffs were not willing to settle for whatever reason, it went to trial, and the jury awarded an amount above the policy limits, it’s theoretically possible that the plaintiff’s attorney could go after the doctor personally.
When someone sues any doctor for a medical malpractice claim, they are not just suing the doctor. They will sue the employer, the facility, and any ancillary providers. So, it’s not like the doctor is 100% liable for all this. The jury will apportion the fault if it settles in favor of the plaintiff.
The policy limit is 1 million for the physician and jury awards. Maybe there’s a terrible pediatric mistake, and they award a hundred million dollars. In that scenario, it’s doubtful that the plaintiff’s attorney will go after the physician personally for several reasons.
One, it is a bad look on any plaintiff’s attorney if a physician has adequate coverage to go after them. And what the plaintiff’s attorneys don’t want is just terrible publicity. Or perhaps the physicians band together to push for tort reform or caps on damages. I mean, all states have physicians who want caps on damages. Still, if there was a string of plaintiff’s attorneys going after the physicians personally, you could bet that if it starts to hit their pockets, they’re going to look at it more closely than they already do. So, what happens if a doctor does not have malpractice insurance?
The first thing is that it’s just a sour look on the plaintiff’s attorney. The last thing the plaintiff’s attorneys want are caps on damages. And going after the physicians personally is just an easy recipe for them all banding together, getting lobbyists, and pushing through tort reform. They don’t want to do that.
Then the second thing I already mentioned is that no physician is attempting to commit active malpractice. If the physician has adequate coverage, or perhaps they purchase a usually good amount of tail insurance, they’re not going to go after them and punish them.
And lastly, if they would go after the physician’s assets in the scarce scenario, it’s usually a nominal amount, somewhere between 25,000 to 50,000. It’s not like they will go after your home or anything like that. So, this is so rare that it would not make sense for almost any physician to get limits beyond that.
Unnecessary Malpractice Coverage During Residency
The last thing to think about is if you have those limits if they’re there, it’s red meat to the plaintiff’s attorney. So, they’re going to go after your policy. If you have two approaches, for instance, like the facility that’s paying for your underlying premium, and then you get an additional policy, they’re going to go after both approaches. Instead of having an award limited by the policy for your underlying coverage, there’s another policy they can go after with the program. You’d even have a more significant settlement amount than you wouldn’t have if you just had one policy.
I hope that makes sense. Anyway, that’s a primer on whether a resident physician needs additional malpractice coverage. And the answer is you do not.
What should a resident physician know about tail insurance coverage?
This topic is generally something that most residents or fellows don’t have to worry about. The program you’re training with or the facility where you’re providing all the care will always pay the underlying premium and potential tail insurance, which we’ll get into.
Usually, when someone comes out of training and signs their first employment agreement or independent contractor agreement, a discussion is needed to walk them through the basics of medical malpractice for a physician. I’ll go through that now. Then, we’ll understand what tail coverage is and how it can affect the physician. Medical malpractice insurance requirements by state do vary, so make certain you have the proper coverage after residency.
Primary Tail Coverages for Physicians
First, there are three primary coverages for a physician for medical malpractice.
One, if you’re with an extensive hospital network or hospital, many of them are self-insured, and essentially, they set aside a big pot of money and then pay the claims out of that.
In that scenario, the hospital never asks the physician to pay the underlying premium, which is how much it costs to insure the physician annually. Or if they utilize a claims-made policy tail insurance as well. So, if you’re in that scenario, you’ll never have to pay for coverage.
It becomes vital for physicians in private practice and small physician-owned groups. They’ll use two types of insurance for private practices, corporate-owned practices, etc. One is either claims made, and the other is called occurrence-based coverage.
2 Types of Insurance for Private Practices
An occurrence-based policy means the malpractice event must occur during the policy’s length. Tail insurance is entirely unnecessary if you have an occurrence-based policy.
The other one is claims-made insurance, and with a claims-made policy, someone has to make a claim while a policy is in effect. So, tail insurance is necessary for this reason. Let’s say you’re with an employer for three years, and then you decide to leave for whatever reason, the contract terminates, and the policy ends. Well, there’s going to be a gap between the last day you work for the employer and the previous day someone can sue you.
That’s called the statute of limitations, usually two years. There are some exceptions for minors being able to sue up until they’re an adult, but I’m not going to get into that right now.
Usually, it’s that kind of two-year window where tail coverage is necessary. And who pays for tail coverage will be dictated by the language in the employment contract you sign. If you’re working for a smaller physician-owned practice, I’d say it’s probably 75% of the time that you’ll be responsible for paying for tail insurance after the contract terminates. Let’s get into the details of that.
In the agreement, it’s going to state typically, and it should, whatever type of policy. If it is a claims-made policy, it will say who is responsible for paying for the tail insurance price, and then that policy has to be secured before the last day you’re working for the employer you’re leaving. Tail insurance is generally about twice what your annual premium is. And the yearly premium is how much it costs to insure you every year, and it is entirely specialty dependent upon how much it costs to insure you, and then it also has to take into account where you’re practicing.
Caps on Medical Malpractice Damages
Some states have caps on medical malpractice damages, and it’s more physician-friendly, so the policy limits for malpractice damages are lower, and the potential awards for any settlement are lower. And it won’t be as expensive, but just taking everything the entire United States, on average, has.
Let’s say you’re a family practice. Probably around $6,000 a year, whereas if you’re in the surgical specialties, OB-GYN and neurosurgery are the two highest, and that could be 20 to 30,000 a year, sometimes even higher for those that have been out a very long time. As I said, the average is about twice your annual premium. Let’s take that family practice example. You have a $6,000 annual premium, and your tail cost will be around twice that. So, $12,000, and that’s a one-time payment.
Professional Liability Insurance
It’s not like you have to pay $12,000 yearly until the statute of limitations runs. It’s just a one-time payment that covers the entire gap. Now, it is up to the physician how long a tail policy they get unless it’s dictated in the employment agreement how long it has to be.
Some employment agreements will say it must either be an indefinite policy, meaning you’re just covered forever, and you don’t have to worry about it. Or it needs to be at least three or five years long, or it covers the statute limitations in the state where you’re practicing.
You need to look at the intimate details of the language for medical malpractice, or usually, it’s called professional liability insurance or something like that. Because it will dictate how long it needs to be. Now, how long should it be? Well, even though it costs more, it makes sense to get a policy that covers you for the care you provide all of the time.
Any medical malpractice claim is when the patient either knows or should have known of the malpractice claim. There are some situations where there’s no way anyone could have known about the claim well past the statute of limitations.
I mean, I’ll give an extreme example. A surgeon leaves an instrument or something in a patient’s body. Maybe it didn’t cause any harm, perhaps it did, but no one knows that it was left in there until there’s an x-ray or they were open back up down the road for another procedure or something like that. Well, there’s no way anyone could have known about it until five years from then. And so, that’s when they would then have the two-year statute limitations to sue the physician.
In short, it’s better to get the indefinite policy and not worry about it. It’s cheaper if it’s less; it’s just not worth it. As I said before, the policy’s language will dictate who has to pay for it. That’s something that you can negotiate. The physician can say, all right, well, I want you to pay for the tail. And then the employer could tell, no, we don’t want to.
A couple of successful strategies we’ve used in the past is saying, “all right, well, what if you forgive a percentage of the tail cost over time? For instance, let’s say, all right, I’ll agree that you’ll forgive 25% of the tail cost every year I complete with you. Then each year, another 25%.” So, if I stay for four years, the employer will pay the entire amount of tail insurance. That’s one way some employers will be much more likely to agree than just saying it’s an all-or-nothing thing.
Another way of getting out of paying for tail insurance is having your new employer pay your old tail. That’s called nose coverage.
And then the last scenario only applies if you’re in private practice or a smaller group. If you move and your new job uses the same insurance company as your old job, they’ll mostly roll over your policy into a new one. In states with dozens of different insurance agencies, it’s probably not going to happen.
In some states, one insurance company dominates the subspecialties, and almost everyone uses the same place. And in that scenario, it is more likely that if you left your employer, you could roll over the policy into a new one.
So, that’s a little primer on tail insurance for physicians as a resident. Once again, maybe it’s not that important to know during training, but it’s certainly essential to know after training ends and you sign your first contract.