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Medical Liability Insurance – Factors That Can Affect What You Pay

By Carol Power – CoverMD Senior Contributing Writer

What determines a doctor's liability insurance cost?

When it comes to medical liability insurance rates in the U.S. there is no “one size fits all”. There are a number of factors that come into play when determining the cost of malpractice insurance for a doctor.

Below are some of the main points that need to be taken into consideration when coming up with the rate a physican will pay.

State where physician practices State where physician practices

Medical malpractice insurance rates are determined by a number of different factors
Medical malpractice insurance rates are determined by a number of different factors

Medical liability insurance rates are set at the state level, not the federal level, so rates vary widely by state. The premiums a doctor pays can depend on the "malpractice climate" (level of litigation) and specific tort reform laws within a specific state.

From a physician’s standpoint Illinois and New York are among the "worst" for malpractice insurance (i.e. high rates) while states like California and Texas (with tort reform laws) are more reasonable.

Medical malpractice insurance companies also adjust rates according to the county within a state where a doctor practices. In general, counties that encompass urban areas will have higher rates than rural counties.


Medical Specialty Medical Specialty

Malpractice rates also depend on the medical specialty. The level of risk associated with a particular discipline determines the amount of malpractice insurance paid by the physician. Not surprisingly, the higher the risk the higher the cost. Risk is determined by the frequency and severity of claims. The severity of a claim refers to the amount of indemnity payment made (either via a court judgement or an out-of-court settlement). For example, surgeons have higher frequency of claims and higher severity of claims than say, primary care physicians. The average primary care indemnity payment will be significantly lower than a surgeon's average indemnity payment.

In most cases, doctors who practice in high-risk specialties such as neurology and obstetrics will pay significantly more than doctors practicing in areas such as family practice or psychiatry. Neurosurgeons have the highest frequency and severity of claims followed closely by ob/gyns. Another risk factor for ob/gyns lies in the statute of limitations. While statute of limitations vary by state, in general a patient has two years from time of discovery of alleged malpractice to file a claim. However for ob/gyns the statute of limitations does not begin for a minor until he/she reaches 18 years of age.

To address the very real concern that doctors in high-risk areas will abandon a state because of ever rising malpractice costs, some states give financial assistance to help these physicians so they are able to continue practicing in the state.


 Type of policy selected

There are two main types of malpractice policies available to doctors, namely Claims Made and Occurrence.

  • Claims Made

    A claims made policy is an annually renewing policy that only covers you while the policy is in force. A claims made policy is generally less expensive at the start because the premiums paid in the first three years are a percentage of the mature (full) rate for the policy. For example, assume you are a surgeon who purchased a Claims Made policy whose annual mature rate is $100,000. However for the first three years of the policy you would not pay the full amount. Instead your payments would be structured as follows:
    • Year 1: 25% of mature rate (so you pay $25,000)
    • Year 2: 50% of mature rate (so you pay $50,000)
    • Year 3: 75% of mature rate (so you pay $75,000)
    • Year 4: 100% of mature rate (so you pay $100,000)
    While the lower payments during the initial years make Claims Made policies an attractive option for many doctors there are also other factors to take into consideration with a Claims Made policy. One of the main ones is the fact that because a Claims Made policy only covers you while the policy is in force you have no liability coverage for prior acts once you cancel or non-renew the policy. For example, assume you purchased a Claims Made policy from January 1st 2005 through December 31st 2008 and decided not to renew for 2009. Therefore, from January 1st 2009 onwards if a patient you treated during that four year period decided to sue you for an alleged malpractice event then you are not covered.

    To account for this type of situation, your Claims Made carrier allows you to purchase tail insurance. Tail coverage is insurance that covers you for prior acts when your Claims Made policy was in force. In almost all cases tail coverage can only be purchased from your existing Claims Made carrier and it must be purchased within 30 days of the policy's termination date. The cost of tail insurance is generally 250% of your last year's premium (expiring premium). So using our example above of the surgeon with a $100,000 annual premium - the cost for tail coverage would be $250,000.

    There are three cases in which the insurance company will give you a free tail - in the event of death, disability or if you are over 55 and retire permanently (must be with the same company for five consecutive years).

  • Occurrence

    With an Occurrence policy you pay the full (mature) rate from year one. There are no sliding discounts during the first three years. However in the event you cancel or non-renew the Occurrence policy there is no need to purchase tail insurance. The insurance company that held your Occurrence policy covers you forever for the time period in question.

Depending on your practice situation it is important to know which type of policy is best for your particular needs. Get top-rated, no-hassle assistance from an experienced liability consultant who can advise you on the most cost-effective options for your malpractice insurance – click here to get started.


Premium Discounts Premium Discounts

Many medical malpractice insurance companies also offer a number of discounts that have the effect of lowering the premiums paid. The level of discounts offered vary by carrier so it's important to know which carrier can offer you the best discounts for your particular situation. Submit a free no-obligation malpractice insurance quote request to get top-rated advice on the best options and discounts available to you.

  • "New to Practice" Discount
    There are discounts available to "new to practice" doctors – those who are just completing residency or fellowships. The level of new-to-practice discount offered and eligibility criteria varies by insurance company so it's important to shop around and compare companies. Most carriers give a 50% discount to new-to-practice doctors in the first year and a 25% discount off the second year's rate. New-to-practice discounts are generally only applicable for the first two years.
  • Claims Free Discount

    As a rule of thumb the longer you are in practice without a claim the greater the Claims Free discount. Claims Free discounts are usually factored in at the 5, 10, 15 and 20 year milestones. The percentage discount mirrors the years without a claim i.e. 5% discount at 5 years, 10% discount at 10 years etc.

    The level of Claims Free discount offered by a company needs to be approved by the Department of Insurance in the state of practice. Some companies offer bigger claim free discounts than others so it's important to compare malpractice companies to get the best discounts on offer.

    It's also important to know how malpractice insurance companies determine what is a claim for the purpose of determining eligibility for a claim free discount. Some companies will consider a claim having been made if a summons is received in the mail while others will consider it a claim only if an indemnity payment is made. Some medical malpractice companies can be inflexible when it comes to claims free discounts and a doctor may lose his/her hard earned claims free discount due to a mail summons. This can be particularly frustrating to doctors who feel they are the victims of frivolous claims. If you have lost your Claims Free discount for any reason submit a free, no-obligation quote request and see what options are available to you.

  • Electronic Medical Records (EMR) Discount
    Malpractice insurance carriers are increasingly offering discounts to doctors for using an Electronic Medical Records (EMR) system in their practice. The theory is that the EMR system will reduce risk by helping to eliminate some of the most common reasons for claims within a practice. These often have to do with oversights on patient record reviews (e.g. reading x-rays) or notifying patients of prescription refills. The EMR discounts generally run in the region of 2½ – 5% of the premium.
  • Risk Management Course Discount
    The percentage discount offered varies by company but is generally in the region of 5%. The Risk Management Course is usually in the form of an approved Continuing Medical Education (CME) course that can be taken online. The course is good for one year.

 Current state of the malpractice insurance market

The medical malpractice insurance market moves through "hard" and "soft" cycles. Soft markets are characterized by more stable premium rates, broader coverage, and stronger competition among insurers. Hard markets, on the other hand, are characterized by rapidly rising premium rates, narrower coverage options for doctors, and a departure of insurers from a state. Hard markets are driven by the number of claims submitted. The most recent hard market for medical malpractice insurance peaked around 2004.

In general, the medical liability insurance market has been in a soft cycle for the past 6 – 7 years. This situation is still in effect as we near the end of 2009. However there are some industry analysts who predict that, given the current difficult economic climate, the number of claims is likely to rise significantly. This may cause the market to turn into a hard market nationally in the not too distant future. This could have a profound effect on the cost of malpractice insurance for doctors no matter how exemplary their records.


 Limits of Liability Selected

The most common limit of liability option chosen by doctors is $1 million / $3 million. This is the limit of liability required by most hospitals in order to grant a physician hospital privileges.

The $1 million refers to the amount that the insurance company will pay per Occurrence (per claim) for indemnity purposes and the $3 million is the aggregrate (total) amount the insurance company will pay out for a year.

Some states have different limits of liability e.g. in New York it is $1.3 million / $3.9 million, Florida allows $250,000 / $ $750,000 while Texas has a $200,000 / $600,000 limit of liability. Also hospitals in some states require $2 million / $6 million limits of liability in order to grant hospital privileges.


 Prior Claims

No surprise - past claims may increase the rate and for some physicians the only option may be excess and surplus markets. However many malpractice insurance companies are willing to be more flexible and accommodating when it comes to doctors with past claims.

While each situation is different the more progressive malpractice carriers are increasingly cognizant of the fact that we live in a litigious society and there are often frivilous or meritless lawsuits into which physicians can be dragged without any meaningful basis. There is a recognition that these types of cases should not have a significant impact on the rate paid by the doctor.

For doctors whose past claims will affect their rate significantly there is the option of the excess and surplus market. While often extemely expensive the excess and surplus market is available to physicians who can't get coverage in the standard market. This may be due to the doctor's past claims history or other issues such as if the doctor has had a history of substance abuse.


 Part-Time vs. Full-Time

Part-time is generally classified as 20 hours or less a week while full-time is over 20 hours of employment a week. The typical premium discount for part-time doctors is 50%.


 Choosing the right liability consultant to assist you

There are many malpractice insurance agencies to choose from but selecting the right agent to handle your medical liability insurance requirements can literally mean thousands of dollars in savings for you. You always want to ensure you have the correct amount of quality coverage. The right agent will have access to multiple markets to enable you to choose the best plan for your needs.

In addition, an experienced agent who is well versed in the malpractice insurance climate for the state in question will be able to advise and guide you on what the best options are for your practice needs. Click here for your free malpractice quote



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