Straightforward though it may seem, insurance is an intricate and complex business. Beyond its basic function of protecting against risk, it is above all an enterprise which must turn a profit. The gross profit of written policies is in the neighborhood of $10 billion annually; a little more than half of this is spent to fund company operation.
Approximately 1/3 is spent paying out claims. In the early 2000's, this profit margin was considerably slimmer and at times companies were in the red. This prompted insurers to raise rates and turn a greater profit given the enormous costs of operation and the expenses that came with claims. After ballooning profits to $12 billion in the mid-2000's, the figure has dropped to $9 billion in recent years - presumably due to the number of insurers who withdrew from the medical liability market. Because the cost of claims can collectively reach astronomical figures, insurers begin by writing airtight policies that explicitly state the bounds of coverage, so as to avoid the pitfalls of overreaching policyholders. The language within these policies is deliberately narrow, but explicit nevertheless. It is fairly rare for insurers to deny reasonable claims; their preferred method of cost control is to meticulously monitor the costs of defense (and operation) and cut corners when able.
Coverage is a multifaceted endeavor, involving the duty to defend, duty to indemnify and the consent to settle provisions. It should be noted that medical liability insurers may not be the only insurer in the playing field of a medical malpractice claim. Multiple types of coverage and furthermore multiple types of insurers may come into play. The defendant physician may have employer coverage in addition to liability insurance. An individual may also be covered in a group policy in addition to any personal coverage.
As a rule of thumb, the policy increases in price as the level of coverage increases. The most critical elements of policy writing, for the purpose of an insurance carrier are:
- When the instance of malpractice occurs.
- When the claim of malpractice is filed.
The various types of malpractice coverage and their provisions usually center on one of these elements. The most common type of coverage is “claims-made coverage,” which applies coverage so long as the malpractice claim is made within the policy period. The incident which gave rise to the claim may have happened before the policy was instated, but if the patient files the claim within the policy period then the insurance company will cover it. This seems self-evident, but the variant types of policies differ on this count. Occurrence coverage covers a claim if the incident that triggered the malpractice claim occurs within the policy period, regardless of when the patient files a claim of malpractice.
Occurrence policies have become all but extinct from the medical liability market. To illustrate the difference, imagine an occurrence-covered doctor treats a man for a broken bone in 2007. There is an error in treatment, however, the error does not harm the patient until 2009. The doctor's occurrence insurance coverage expired in 2008. The patient, if still within their statute of limitations, files a claim of malpractice against the doctor. Even though the doctor's policy period has presently expired, the insurer is responsible to fund the costs of defending the claim, because the malpractice incident occurred while the doctor was insured. If the same doctor had a claims-made policy, the insurer would not be obligated to fund the doctor's defense because they were not insured when the claim was filed. If the doctor chose a claims-made coverage policy during the period that the claim was filed, then the insurance company would, in fact, cover the costs of defense.
Claims made and reported coverage is a variant of claims made coverage with the addition of a very limiting feature. By tacking on the descriptor of ‘reported,' the insurance companies then require the healthcare provider to report any adverse events which might give rise to a claim to the insurance company. If a claim is made and was not reported by the physician prior, it will not be covered.
Claims-paid policies require a healthcare provider to stay with the insurer until the claim has been successfully resolved and paid. This, in essence, shackles to the provider to that insurer, especially in cases where the claim takes a very long time to settle, which is not uncommon.
Group coverage is a policy which insures all employees or subset employees at a healthcare facility. Depending on the nature and intricacy of their profession, those covered in a group policy may need to purchase additional coverage, such as a nurse practitioner or physician's assistant.
Once the scope of a policy is established, its monetary limits are then determined. Insurance is not the outright, limitless coverage of the costs associated with a claim. While it offers some peace of mind to medical personnel, there are finite limits as to what the insurance company will cover, stated in the policy. Two types of coverage limits exist. These are per occurrence limits and aggregate limits. A per-occurrence limit is the amount that is covered for a single, solitary claim. If more than one claim is made within a single year, then there is an aggregate limit for all claims made. If the per-occurrence limit in a policy is $500,000, then the insurance company will pay no more than $500,000 for a single covered claim. If the aggregate limit is $1.5 million and additional claims are made, then the insurance company will pay no more than $1.5 million for all claims made that year.