Explaining the Very Basics of Medical Malpractice Insurance

The author discloses that he is not a medical malpractice attorney or a Medical Malpractice Insurance (MMI) agent/broker and that any information within this blog is based on personal experience.

Along with clear and concise documentation, medical malpractice insurance (MMI) is a necessity to protect you and your career. One simply cannot practice without it. Yet, many don’t know that there are two varieties, and specific intricacies within each. The following are the very basics, that, in my experience, when evaluating an employment contract, you should know and ask about.

The two types of MMI are Claims Made, and Occurrence policies. When your an employment contracts person shares that your employer will cover your MMI, I find this generally means they will pay for the Claims Made type. It is, in my observation, much less expensive to cover this type. This invariably means that it could become much more expensive for you down the road. Let me explain.

Claims Made MMI means that the policy must be currently active at the time there is a claim made against you.¹ For instance, if the policy was active between 2020 and 2022, and someone puts forth a claim against you during that timeframe but after the policy has been cancelled, you are not covered for that claim. This is when buying a “tail” comes into play. Under this pathway, you are responsible to pay for an additional insurance policy (tail) or to continue the old one to maintain continuity of coverage. This is one of the reasons that claims made seems to be the less expensive of the two types of policies. In my experience it behooves the practitioner to make sure the employment contract specifies who is responsible to purchase the "tail” insurance, should the relationship dissolve. In most cases, it’s on the employee to cover that cost.

This becomes a serious issue when you realize that “tail” insurance can cost up to double the annual MMI rate. If your MMI for the year is $12,500, your “tail” insurance can be upwards of $25,000, which you will be responsible for—out of pocket.

In my experience, one should first try to work with one’s new malpractice company to cover the retroactive date on the previous MMI, to avoid having to pay for a “tail.” Or, if you are keeping the same malpractice insurer, they hopefully can work with you to eliminate this huge expense. It can be as simple as just continuing to pay the premium on the policy. Although that may not seem to be an issue, if there is a month or two between your current and new place of employment, you have to keep the policy going by paying the monthly premiums out of your own pocket. This is all a very good reason to get to know your MMI agent/broker. They can answer these questions for you including any options that may exist for interim coverage.

The only caveat to this is if you are coming into or leaving the state of Pennsylvania like I did. You must buy a tail to get into that state if you are coming from another and had a Claims Made policy. I learned this the hard way when entering Pennsylvania for a new position. The “tail” for my policy in Virginia cost me $20,000 when I left practice in that state. Happily, Pennsylvania subsidizes tail insurance, so when I left Pennsylvania to practice in New Jersey, my tail was under $3000. You can now see how important it is to know these details. Your experience may vary by state.

The other type of MMI is the Occurrence policy. This type does not require the policy to be active to protect you. So even though the policy isn’t active anymore, you are still protected—no “tail” required.¹ This is likely why it’s so pricey. The cost of an Occurrence policy, in my observation, can sometimes approach the cost of a Claims Made policy and the “tail.” That’s why I find most companies will only cover a Claims Made policy. It’s a much smaller investment for them, and the protection is the same while you are employed there.

The other thing to be aware of is whether your employer is offering to pay for an individual policy, or if you will be part of a group policy. Group policies can be advantageous because if it is a Claims Made policy, you may not have to invest in a “tail” when you leave. The policy will still be active and protecting the other doctors in the group. The policy itself is still active even though you are still not technically part of it. The disadvantage is that your employer is not obliged to tell you if the company cancels that policy. And you, as an individual, do not own the policy. With the individual policy, you are the owner of the policy. Your employer has just agreed to pay the premiums. When you leave that place of employment, it is still your policy.

Hopefully I’ve given some food for thought and motivation to start learning these important aspects of everyday practice management. Talk to your MMI carrier or get to know your MMI agent/broker if your employer uses one. A little bit of information and knowledge can go a long way.

Dr. Raducanu is a Diplomate of the American Board of Foot and Ankle Surgery and practices in Galloway, NJ.

Reference

1. MedPli. Occurrence vs. claims-made malpractice insurance—what's the difference? Accessed Jan. 6, 2023.

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