Medical Malpractice Insurance: a primer

To insure or not to insure? Most states require physicians to obtain medical malpractice insurance coverage in order to practice medicine within that state.

But while many hospitals require physicians to carry malpractice insurance in order to see patients in their hospital, some states do not. So as the number of medical malpractice lawsuits filed against physicians (e.g. for HIPAA violations, tort claims, and other professional liability) and the size of the awards increase, physicians are becoming more interested in ways to better protect their practice and other personal assets from claims. This is MomMD's ongoing series on medical malpractice insurance and ways you can protect your assets.

Given a choice between insuring or not, many physicians opt to “go-bare” of medical malpractice insurance. The reasons for going-bare are many. For starters, there is a belief that physicians with coverage are more at risk of attracting malpractice claims. In addition, some medical malpractice insurance companies have a reputation for being eager to settle claims in order to hedge against the high legal costs and the risk of a runaway jury. Medical malpractice insurers that claims prematurely usually damage their clients’ reputation. Finally, the cost of obtaining and maintaining medical malpractice insurance may be cost prohibitive for some physicians, especially when the physician has made multiple past claims. Physicians who “go-bare” must essentially self-fund the cost to defend against medical malpractice claims.

All other physicians who are obligated by state law or by the hospitals in which they are affiliated must obtain medical malpractice insurance. Therefore, before you start managing a medical practice, take a moment to understand some basic principles about medical malpractice insurance. What follows is a simple primer:

How are medical malpractice insurance premiums calculated?

Insurers set premiums based on a number of factors, including, but not limited to:

  1. the expected payout on the insured based on the physician’s risk group
  2. the uncertainty of the estimate
  3. the expected administrative expenses
  4. expected investment income from investing the insured’s premiums
  5. the insurer’s target profit rate

Note that medical malpractice insurance companies don’t reward physicians as with auto insurance policies (i.e., there is no discount for being malpractice-claim-free).

Annual Premium Rate Increases. Medical malpractice insurance rates will vary from company to company and year to year. Consider negotiating in advance the maximum amount (or percentage) of annual increase in the policy premium from year to year. This way you won’t have to shop for replacement malpractice insurance coverage annually.

Defending Claims. The saying that you get what you pay for holds true with medical malpractice insurance. The lower the coverage, the less effort an insurance company is likely to contribute when defending your claim. Generally, the financial strength of an insurer correlates to the quality and levels of coverage provided and are the most important factors to consider when purchasing malpractice insurance.

Support Staff Insurance. Generally, medical malpractice insurance only covers physicians. Separate insurance policies are required for registered nurses and other support staff.

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