In this second part of a 3-part series, Presidio Insurance Solutions provides sage advice for new physicians:
2) Consider the longer term strategy and seek advice from an insurance professional. New physicians qualify for substantial discounts on professional liability insurance for the first 3 years in practice. Keep in mind the term “new physician” can include physicians completing military service, coming to the US for the first time, working at a county clinic, even completing work in a Kaiser facility or on a research grant. The “new physician” discounts can vary between 15% and 75%. Rules also differ amongst the various companies as to what constitutes a “new physician”. You’re well-served by asking the question beforehand, since the rules for Norcal Mutual Insurance Company may be more flexible than The Doctors Company or Medical Protective, for a couple examples.
Here’s the scenario: Dr. Smith has finished residency and eventually plans to open a private practice. For the time being, though, Dr. Smith is considering a job with either a county clinic or a private medical group. Both offer medical malpractice coverage and (having read the first segment of this series), Dr. Smith makes sure there won’t be a cost for a tail policy.
While caring for patients at the county clinic is rewarding, the private medical group offers $10,000 more per year and Dr. Smith joins the medical group. After 3 years Dr. Smith decides to leave the Group, ready to start a new practice. Here’s where it gets tricky: Dr. Smith went to work for the private medical group for her first 3 years of practice, thereby the group enjoyed the benefit of the “new physician” discounts. (Remember that the group agreed to pay for the policy.) Premiums paid by the Group were $6,250 the first year (75% discount), $12,500 the second year (50% discount) and $18,750 (25% discount) the third year. The total premium savings on “new physician” discounts gained by the Group is $37,500.
Dr. Smith now applies for a policy for the new practice, but the “new physician” discounts have already been enjoyed by the Group. Dr. Smith’s premium is now $25,000 for the first year in practice (this is Dr. Smith’s second largest monthly expense after rent). The rules state that Dr. Smith no longer qualifies as a “new physician” because private practice was actually entered into when work for the Group began. Had Dr. Smith worked at the county clinic for 3 years, the new practice would have been eligible for the “new physician” discounts, but …
Dr. Smith earned a total of $10,000 per year for 3 years, or $30,000 in additional salary — less taxes — which comes to about $24,000. The loss of discounts equates to $37,500 in additional premium costs for the new practice, and comes at a time when that new practice can least afforded it!
$10k per year x 3 yrs = $30k, less taxes = $24,000
Extra premiums paid by the new practice = $37,500
Net loss to Dr. Smith: $13,500
Good advice from Presidio? Priceless!
Check back for the third and final segment on professional liability insurance!
New Physician Malpractice Insurance Article Series