Tail insurance. All physicians have heard this term. While this article is not going into details about the types of insurance we know, the two most common forms, Claims Made and Occurrence based are very similar yet have one significant difference. The need to buy ‘tail’ insurance if the policy is terminated.
So, tail insurance can be costly. We have seen quotes for the ‘extended reporting endorsement’ cost from $4,500 to $185,000. Yes, it’s a big difference. Just like car insurance, malpractice is more costly the more risky. Think what it would cost to insure a 21-year old male with 5 speeding tickets in a red convertible sports car. Now, think about that 58 year old with a 40 year clean driving record, driving a 10 year old van. Physician specialties are the same. The more risky work and procedures, the higher the malpractice and subsequent tail cost.
Tail insurance is ‘typically’ 1.2 – 2.5x the annual premium. An employer can usually estimate this but a good place is always, of course, the malpractice broker or company. Tail insurance is not financed, so be prepared if your physician employment agreement requires this on termination.
Most physicians could assume on termination they would be paying a range of $20,000 – $60,000 for their tail. Just a range of course – it could be much better (or worse)!
When it comes to the worst scenarios we have been involved in that involve malpractice tail insurance, two physicians stick out in our mind here at Contract Diagnostics.
One, a general surgeon working for 15 months after training in California moving to the east coast. So not even 1.5 years of cases and work and the tail cost? $78,000. Thankfully, we were able to work with the next employer (we had not reviewed this physician’s first contact out of training) to help cover it in a tax efficient manner. Either way, this cost so early in a career can set a young physician back on many financial goals, even though this physician expected and knew he would have to purchase it.
The second worthy of a mention is even more painful. A physician in Baltimore was moving to Miami. She had been at the small OB/GYN practice for 2 years post residency (we did not look at her initial agreement) and she had to buy tail on termination. This cost was $184,000. Yes – $184k! Remember, you cannot typically finance tail insurance. Unfortunately for her, she didn’t even know her obligation after terminating (again, we did not review her initial agreement). While we were able to help her shop the policy down to $164k, it was of course very painful.
We truly hope to never hear another story like these. But we know we will. Do not let it be you! Make sure you understand your agreement in full and all obligations. The agreement may not be crystal clear so you should always have it reviewed by someone that reviews many physician employment agreements per year.