New Physicians: The Hidden Expense of Medical Malpractice Insurance, Part 2

Medical Malpractice InsuranceIn 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

Part 1New Physician Insurance Scenarios
Part 2New Physician Insurance Strategy
Part 3New Physician Insurance Risk

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