Transitioning Residents Helped by Knowledge of Insurance

As Published in LocumLife Magazine, September 2005
- by Aaron Paul, coordinator of the Premier Residency Program

A hot button issue in healthcare today, and a challenging area for transitioning residents, is medical liability (malpractice) insurance. Most residents seem content to let whoever is responsible for paying their premiums (physician group, locum tenens company, healthcare organization) research all the malpractice insurance options. Trusting someone else to do the insurance homework gives up your control over the best tool for protecting your finances and professional reputation- your own opinion.

The insurance policy you are covered with will be responsible for protecting you and your family's financial security. Your medical liability policy, and the carrier who writes it, should be considered a cornerstone of your compensation package. Residents who choose to practice as locum tenens immediately after residency should take malpractice coverage even more seriously. As transitioning residents, learning about liability issues is the best way to protect you and your family's future.

There are two types, or "forms," of medical liability insurance: 1) claims-made and 2) occurrence form. Mary Stone, a professional consultant with Locum Tenens Consulting, Inc. (a firm specializing in locum tenens malpractice issues) says this about these two policy forms, "Both are excellent risk transfer mechanisms. It all depends on the policy holder's long term intent. Is that sleep at night or turning the highest profit? I think that will come down to the philosophy of the agency with whom you are working."

What is a Claims-Made Policy?

Claims-made insurance provides coverage for incidents which occur and are reported during the active period of the policy. Incidents which occur during the active period, but are not reported until the policy has expired are not covered unless an extended reporting endorsement or "tail" has been purchased prior to the reporting of the claim. This means the tail itself, although technically a separate product, is an integral part of the quality of coverage provided under a claims-made policy. Mary Stone puts it this way, "With claims made, you do have the infinite variable of tail options. Will the agency purchase tail coverage in the event of cancellation, sale, or business termination? If they do, will that tail be indefinite? And how do I, as a contracted physician, secure proof of that once it is enacted?" As a transitioning resident, do you feel prepared to make this kind of a decision?

Tails can be purchased in varying lengths going from a year past the expiration of the policy, all the way to the purchase of an unlimited tail. In other words, the purchase of a 5 year tail would extend the amount of time in which the insured would be covered for a claim by 5 more years past the expiration date of the claims-made policy. Factors such as the statute of limitations in your state can be used to help you determine the length of tail which is appropriate for you, but in the end it all comes down to personal risk tolerance- and what you can afford (tails typically cost 150-250% of the mature rate premium). Another factor to consider is the aggregate limits of the tail (or the total amount of money which may be paid out during the life of the tail). These limits may differ from the parameters of your original policy, which may in turn affect your purchase choices. There is no federal law which will compel an insurance carrier to write a tail, or which will force one to be purchased for you. If you will be working with a locum tenens company providing you with a claims-made policy it is essential you negotiate, and receive in writing, the details of tail coverage before signing a contract.

What is an Occurrence Policy?

Occurrence insurance provides coverage for all incidents which occur during the active period of the policy- regardless of when they become a claim. This means that the purchase of an expensive tail is not necessary because the coverage lasts indefinitely. "If occurrence form is written on licensed, admitted paper, then that's as solid as you can hope for. Even if that particular insurer goes bust, the state solvency guaranty funds will pay some percentage on the dollar," Mary points out. In general, this is the type of insurance found in academic medicine, and as a resident it is likely that this is the type of policy you have. Due to the difficulties insurance carriers have predicting loss history throughout the lifetime of a physician, occurrence policies are more expensive up front. The expense of claims-made policies is back-loaded due to the need to purchase tails. Also, insurers will only write occurrence policies for policy holders with the cleanest claims histories- as a resident, this is to your advantage.

Know What You Are Signing

Whether it’s a claims-made or an occurrence policy, get a copy of the policy and inspect it yourself. Make sure you understand the quality of coverage you are receiving before signing a contract to work any locum tenens assignment or accept any permanent position.

As Premier Residency Program Coordinator for Medical Doctor Associates, one of the most common stories I hear from young physicians looking to work as locum tenens goes something like this: "When I came out of residency I did some interviews but I wasn’t really excited about any of the options, so I took the one with the highest salary. I planned to stay for a little while and then look for something else. I found a position in another state which really excites me and I want to go. My group is saying I can go but that I am responsible for purchasing my own tail. It costs thousands of dollars and I don't have the money. What should I do?" The way to avoid this problem is to investigate your medical liability policy before signing a contract. If you will be covered with claims-made, make sure you have in writing who will be responsible for purchasing tail coverage- remember that no tail is necessary with an occurrence policy.

These are just some of the business issues you will have to learn about in order to make the right choices. Educating yourself about liability insurance will make your transition from residency to practice less stressful. Congratulations to the resident who takes the necessary steps to make wise choices with regards to liability insurance, and protects his or her own future and the security of loved ones.