Understanding Tail Coverage: A Guide for Healthcare Providers

This transcript is from a live webinar hosted by L&J Insurance Services. In it, Hannah Karson explains key aspects of medical malpractice insurance, pecifically tail coverage, its costs, and how to navigate coverage transitions. Edited for clarity.

Introduction and What Is Tail Coverage?

Hannah Karson: [00:00] We are gonna be discussing Med Mal 101, specifically tail coverage today. This is being presented by L&J Insurance Services, which is a boutique medical malpractice insurance brokerage that focuses on individual healthcare providers in small groups, and my name is Hannah. So what are we gonna be looking at today?

First is what is tail? We find that a lot of healthcare providers will know that tail is important. It's , it's something they should be asking about. They don't understand necessarily what it is or why it matters. So we'll be covering that. We'll also be taking a look at the common costs and timelines associated with tail coverage.

We'll take a look at DD&R called Death, disability and Retirement, which is an amazing benefit offered by some, medical and practice insurance companies. We'll also be looking at tail strategies, so how to mitigate the costs associated with tail, or how to avoid having to purchase tail altogether.
We'll also take a look at some common coverage structures for med mal insurance that will influence whether or not tail needs to be purchased,

Hannah Karson: [01:00] and then we'll talk about the benefits of using a broker when navigating this really complex financial decision. So first, what is tail? So tail is known by its formal name in the med mal world as extended reporting period or ERP.

And what this does is it gives a provider extra time to report a claim that comes up after the policy has been canceled, but before incidents that occurred while the policy was in place. So let's put some numbers behind this to kind of create some context. So for example, let's say you were insured with insurance company A, B, C, from January 1st, 2024 to January 1st, 2025.

You canceled your policy in 2025. Three months after canceling, you receive a claim for an instance that happened on 5/1/2024, so almost right in the middle of that one year period that you were insured with a b, C insurance company. If you do not purchase tail, you cannot report that claim. That came three months after the cancellation of the policy.

Why Tail Matters

Hannah Karson: So you are now on the hook for that [02:00] personally and financially. If you do purchase tail upon canceling the the policy, you then are able to go back and report that claim that arose three months after the cancellation of the policy. So really what this does is it closes that coverage gap. It allows you an extended reporting period or an extended period of time to report claims after they've been canceled.
Now, one important thing to keep in mind, and we'll get into a lot more of the nuances of this later, but tail is only necessary when a policy is canceled. If your coverage is active, if it's currently present, you don't need tail coverage at this point in time. So why is this significant? So not only do we just talk about this incredible gap that you can be creating by not purchasing tail, which means that you're gonna then be on the hook for any kind of claims that arise. This really is gonna impact your future insurability with either the same med mal insurance carrier or others. When you fill out an application for medical malpractice insurance, you have to disclose whether or not you have any gaps in [03:00] coverage. Obviously, gaps in coverage are going to be viewed as unfavorable to the current or new insurance company that you're applying with.

What this says is when a healthcare provider does not purchase tail. It says to the insurance company that they are an undue risk taker. We hear from healthcare providers all the time who say, Hey, my patient population is so low risk. They love me. I'm not worried about any claims arising.
But the issue here is that you've been presented with an opportunity to. Shore up your gaps to make sure that you don't have any gaps in coverage and you've opted out of that. And so that says to future insurance companies proceed with caution. And this person is a bit of a risk taker. So what that could result is automatic declinations for coverage when you apply in future instances.
Or debits in which an insurance company will add an extra debit, usually around 10% to your insurance premium from a number of years. So you're now paying this penalty because you didn't acquire tail coverage when you had the opportunity.

Costs and Timeline for Tail

• Tail coverage is usually about two to three times the expiring premium.

• Payment is due upfront, in full, typically within 30 days of policy expiration.

• High-risk specialties may pay up to six figures.

• Most tail policies are non-cancelable and not financeable.

Hannah Karson: [05:00] help explain all of the different potential benefits there that are going to be impactful and that should be considered when thinking about purchasing tail. Now in terms of pricing, tail coverage is usually about two to three times the expiring premium.
So take a look at your declarations page. It's one of the first few pages of your insurance policy, and on that, it's going to list your annual premium. Take a look at that annual number, multiply it by two to three, and it's gonna give you a really good ballpark indication for what you can expect your tail coverage to be.

Each insurance company is gonna have a specific equation by which they multiply the expiring premium, but it's usually within that two to three range. Now, keep in mind that tail coverage usually has to be paid in full upfront, within 30 days of the policy's expiration. So for a really high risk physician, for instance, high specialty risk, this could be up to six figures. So you have to make sure that you have those funds readily available, ready to go within 30 days of the, the policy being canceled.

Death, Disability & Retirement (DD&R)

·       You must be fully retired from paid healthcare work to qualify.

·       Most carriers require 1–5 years of continuous coverage.

·       You often need to be at least 55 years old.

·       Retirement must not be related to loss of license or disciplinary action.

Hannah Karson: [07:00] free tail. Now, retirement is not moving to part-time doing locums work. You know, serving as a medical director retirement truly means from the insurance company that you do not take payment as a form of a he healthcare provider ever again.
So one thing that's really important to keep in mind is because we've talked about how expensive tail coverage can be, it may be worth prioritizing paying a fair, paying a higher premium for a policy that includes death, disability, and retirement, rather than opting for a lower premium policy that does not include this amazing benefit.

So again, that's where you can discuss with your broker. Really identifying what terms are available when you're comparing different insurance policies and looking at premium and doing some back of the envelope math to see whether or not it's more impactful to actually pay a higher premium. Now, in order to have this benefit down the line, now each carrier who offers the DD&R is gonna have their own specific set of requirements in order for you to qualify for that free tail, particularly in the retirement setting.

Strategies to Reduce Tail Cost

• Negotiate a signing bonus to cover tail costs.

• Ask employers to pay all or part of the tail if you leave.

• Consider keeping your solo policy and having the employer reimburse you.

• Explore standalone tail policies through a broker, though these may be limited or costly.

Hannah Karson: [09:00] suspension, surrender revocation or non-renewal of your medical license as requested by an authority. So if, for instance, the medical board says. We have all of this action and activity on you, and you decide, okay, I'm going to actually just surrender my license.
Well, that's been due to a, medical board action, and so you now no longer qualify for that free tail because you are not retiring by choice. You're retiring because you're no longer licensed healthcare provider. So what are some strategies to help mitigate the cost of tail or having to purchase tail in its entirety? You know, tail can be brought on by a lot of different instances in a physician or healthcare provider's career, such as changing jobs, retiring, moving to a new state. So there really has to be a lot of consideration here. One of those is tail versus nose. There's really kind of two ways to skin the cat here when you have a retroactive date.

Tail vs. Nose Coverage

Hannah Karson: [10:00] Again, look at your declarations page, look at that retroactive date, also called prior act date, and you'll see what I'm talking about. So what we can do is you can either purchase tail coverage, which again, is that kind of one lump sum, expensive, cannot be canceled, a fee upfront that you will then use to seal off any exposure when you cancel a policy. The alternative is you can request nose coverage from a different carrier. So what that means is, say you've been insured with a, b, c insurance company for five years, you then apply for coverage with a, b, c, x, y, Z insurance company. So you've been with one for five years and you're moving to X, Y, Z. You apply for those five years that you were with A, B, C. And now onto your sixth year. So what you're gonna do is you're gonna basically move everything that you had at a b, C insurance company over to X, Y, Z, and it'll be like a b, C insurance company. Never even existed any claims that come up. You're gonna be reporting just to X, Y, and Z because you brought your prior acts, all of those previous patient exposures with you to that new medical malpractice insurance company, and this is keeping your prior act state intact. You do not have to purchase tail because in this instance, coverage is still going on. It's still continuous.

Another option is to look for standalone tail coverage. So with that, you would use a broker. We have access to multiple markets that do offer standalone tail. So meaning it's a completely separate policy that really just offers tail coverage for a provider. Now, I. These are a bit tricky. Typically, the terms that are offered under our standalone tail policy are a little bit less desirable than those that are offered by your previous insurance company. So really you have to take a look at that, really have your broker explain the differences and see whether or not the financial trade off is worth it. It can also be incredibly difficult to acquire standalone tail coverage for certain specialties. High risk specialties, it's almost impossible, and if you've ever had previous claims, experience with a previous company can be very challenging to find standalone tail. Another thing that we suggest that providers do when they're looking at new employment, for example, is [12:00] negotiating upfront.

Negotiating Tail in Employment

So what you can do is ask for a signing bonus, and this can help pay for policies that you're currently canceling. So, for example, if you're canceling your solo policy and moving to the group policy, ask for that signing bonus to help cover that cost. Another thing you can do is try to negotiate for your employer to pay all or a portion of your tail upon leaving. We often see in contracts, you know, a physician who stays for five years, for example, under the certain employment contract, will then be eligible for free tail on behalf of the employer. Something else you can do is keep your solo policy intact and ask your new employer to pay the premium or cut you a check equivalent to the premium for your individual med mal policy. Again, because the policy is in place, it hasn't been canceled. You don't need to purchase tail on that instance, and so it's gonna be a big savings to you.
Now taking a look at some coverage structures that are going to be influencing whether or not tail needs to be purchased, there are two kind of main medical [13:00] malpractice insurance policy structures, and that's claims made versus occurrence.

Claims-Made vs. Occurrence Policies

There's gonna be a lot of nuance there in terms of how a claim can be reported out. Timeframes, a lot of things of that nature. But at a very, very high level, occurrence essentially has tail coverage built in, so you do not have to purchase tail upon canceling and occurrence based policy. Now, occurrence based policies are much more expensive. They're typically about two to three times that the cost of the claims made policy, and they can be incredibly difficult to procure. They're very common for ancillary providers, but they're very challenging for healthcare, for physicians to, to get, especially in certain states, physicians in California, for instance, it's almost impossible to acquire an occurrence based policy and nearly everyone is written on a claims made basis. On a claims made basis, if you cancel, your policy tail has to be purchased. The reason why it's so challenging to find claims made policies or recurrence policies, excuse me, is because occurrence policies can be very challenging for an

Shared vs. Separate Limits

Hannah Karson: [14:00] insurance company to price out. They're pricing out for the current market structure, but they're also thinking ahead to if we're offering lifetime tail as a part of this policy. What are those future claims gonna look like? How can the market be changed and be influenced over time? It's just very challenging. So that's why oftentimes claims made is the only kind of real option for a provider. Now, looking at kind of deeper into the policy structure itself, we're gonna take a look at limits and how those affect. Purchasing tail. So there's kind of two ways that limits can be structured, shared versus separate. So let's take a physician in California for example. Their standard set of limits is 1 million, 3 million per usually hospital requirement. So what that means is if a physician has separate set of limits, it means they have their own 1 million, 3 million bucket that's been assigned to them. And that's where money can be pulled from to pay for claims for which they're specifically named. Now, if they have shared limits. So, for example, you have a nurse practitioner sharing limits with an [15:00] MD.

The nurse practitioner and MD are sharing that same set of 1 million, 3 million limits. They're pulling from the same bucket. So if they're both named within the same claim, they're pulling from that same set of 1 million, 3 million limits. The way that this influences tail is if you have separate limits and you leave as the physician, you leave the policy, for example.

You have to purchase tail because your set of limits that was specifically assigned to you need to be closed off and need to be shut down. And that would be in the form of tail insurance if you have shared limits. So for instance, the nurse practitioner decides to leave and she's sharing limits with a physician. The nurse practitioner does not need to purchase tail because the physician is continuing on with their coverage. That 1 million, 3 million bucket that they shared is still continuing on. It hasn't been canceled in its entirety, and so tail coverage is not needed in that instance, I. So why is l and j the broker that you need for this? You know, as we discussed, tail coverage can be incredibly expensive, very

Hannah Karson: [16:00] nuanced. You're under a very tight timeframe in order to make really important decisions for yourself and for your coverage, also for your wallet. And so that's why we're here. We are an independent boutique brokerage, third generation.

We are healthcare provider founded, so my grandmother, nurse risk manager was the one who started LNJ Insurance Services. Really with the goal of taking care of the caretaker. We pride ourselves on being readily accessible. We don't have an 800 number, we don't have an extensive phone tree. Everything goes directly to our cell phones, and we work when healthcare providers work.
So that's all the time. In terms of advocacy, we are here to represent you.

We do not represent the insurance company. Our job is to collect your information, share your story with the marketplace, provide a comprehensive market summary so you understand exactly where you fall within the market search. And we go over all of the terms, all of the pricings you make, and really educated decision for yourself. And we also serve as the role of consultant. We know the right questions to ask, so you don't have to guess. We are here to help you make informed business decisions that are best for [17:00] you and your future.

So what are some next steps we can help you with? Seeking new coverage that's either finding a brand new policy or replacing an existing policy that you have with better pricing In terms. We can also simply take over the servicing of your current policy, so we can do something called a broker of record letter, which means that we become your then primary point of contact.
We interface with the insurance company for you so you don't have to call that customer generic customer service line. We become your point person. We do everything to make sure that you are well taken care of. We can also help you find complimentary coverages.

We specialize in medical malpractice insurance, but do offer a handful of other coverages that are really complimentary to physician, and healthcare provider practices. That could be cyber insurance, for example. Making sure that your entity is covered, making sure that you have vicarious liability, which would mean that you have coverage for any healthcare providers who carry their own med mal insurance. And so on. We're also happy to do a coverage review. We can take a look at all the coverages that you have and see if we can find [18:00] any gaps or existing red flags. And of course, we're here to answer questions. We can provide high level feedback, feedback, explain market trends, explain your positioning when in the marketplace, and everything in between. So thank you so much for attending. In order to keep in touch, feel free to reach out on our website www.customcustommedmal.com.

You're also welcome to send us an email at hello@custommedmal.com. We're here to answer all of your questions. We also have a monthly newsletter of Med Mal 101, and you're welcome to follow us on social media to stay attuned of all of the changes that are happening in the medical mal practice insurance marketplace. Thank you so much.