Accident-year
basis — The
annual accounting period in which loss events
occurred, regardless of when the losses are
actually reported,
booked or paid.
Bundling — The
practice of grouping several individual procedures
or services together for the purpose of paying
for them as one package.
Capitation — A
fixed periodic fee paid to a healthcare provider
by a healthcare carrier for each covered member eligible
to receive healthcare services under the terms
of an
HMO-type plan, regardless of how many times the
member uses the service.
Claim
severity — Refers
to the amount of financial liability resulting from
settling a claim. A claim that is settled with no
payment for damages is generally considered to have
a "small" claim severity, while a claim in which
the carrier pays the full limits of a policy is a "large" severity
claim. Trends in claims severity on a specialty-by-specialty
basis are important factors in setting rates each
year.
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Claims-made
coverage — The most common type
of professional liability coverage available,
it provides protection for claims that occur
and are
reported while the policy is in effect (coverage
period). Within the conditions of a claims-made
policy, a claim must be reported to the carrier
in writing by the insured. Tail coverage,
or a Reporting Endorsement, provides coverage
for claims
that occur during the coverage period but
are
reported after the policy terminates.
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Composite
rate — A composite rate is a unique
component of claims-made insurance coverage.
Composite rates are used by actuaries to calculate
premiums
in specific cases in which the future claims
risk has been significantly reduced or increased.
One
example of applying a composite rate is that of a doctor
who changes his or her practice from full-time to part-time
status. This composite rate is based on both the length
of time that the physician practiced full time and
the length of time spent in part-time practice. In
claims-made coverage, composite rating is necessary
to ensure that sufficient premiums are reserved for
the higher full-time (past) exposure as well as for
the part-time exposure (current). The composite rate
will continue for five years, with a gradually larger
discount each year. Composite rates are also applicable
in cases of change of specialty and practice location.
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Hold-harmless
clause — A hold-harmless clause
(also known as an indemnification clause)
attempts to shift liability from one party
to another
(e.g., from an HMO to an employed physician).
Courts may
modify or refuse to uphold such agreements
if they are deemed harmful to the public
or the parties
are perceived to have unequal bargaining
power.
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Informed
consent — An
agreement obtained voluntarily from a patient
for the performance of specific medical, surgical
or
research procedures after the material risks
and benefits of these procedures and their alternatives
have been fully explained in nontechnical terms.
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Insurance
gap — When
a physician has professional liability insurance
under a claims-made policy, once the coverage period
has expired without renewal, claims that have not
yet been made and reported to the carrier (insurance
company) during the "active" policy period are not
covered. In such cases, a physician is said to be "bare" (uninsured),
unless he or she has purchased an extended reporting
endorsement (tail coverage) from the former carrier,
or has obtained "prior acts" (nose) coverage from
a new carrier.
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Locum
tenens — A
substitute physician who temporarily takes the
place of a named insured policyholder or physician
member
of a medical group. This coverage may be contingent
upon the policyholder or member physician not
practicing during the period in which the Locum
Tenens coverage
is in effect.
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Loss
ratio — A paid loss ratio is the
amount of premium a policyholder has paid to the
carrier through the years versus the amount the
carrier has paid out on his or her behalf for defense
and indemnity. For instance, a paid loss ratio
of 50% means the carrier has paid out 50% of what
they've received in premium from a particular policyholder.
However, the loss ratio doesn’t take into
consideration the carrier’s expense costs,
which usually run an additional 25-35%. As a
result, a loss ratio greater than 75% usually
means the
carrier is losing money.
An
incurred loss ratio is the amount the carrier has paid
out (defense and indemnity) plus the amount they expect
to pay out (reserves) for a particular policyholder
versus the amount of premium a policyholder has paid
throughout the years. A policyholder that has never
filed a claim has a 0% incurred loss ratio.
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Mature
premium — A
step rating system may be used to set premiums
for its claims-made policies. The mature premium
is the
fee a policyholder will pay during the year
the policy matures, generally the 5th through
the
7th year.
The
first level premium is substantially lower than a mature
premium. It is designed for policyholders that are
new to practice and therefore have no claims history.
The mature-level rate reflects the fact that the majority
of claims are filed within four to five years of an
incident.
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MICRA — Medical
Injury Compensation Reform Act of 1975. Legislation
passed by the California Legislature in an emergency
session in response to a medical liability insurance
crisis that resulted in proposed skyrocketing
increases in physician medical liability insurance
premiums
of between 300% and 500%.MICRA places a $250,000 cap
on
noneconomic damages (pain and suffering), limits
attorney contingency fees and allows periodic payments
of future
damages in excess of $50,000. MICRA created the
Board of Medical Quality Assurance (now the Medical
Board of California).
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Nose
coverage — Nose
coverage covers claims first made against the
physician after the effective date of coverage
on the policy.
To be covered, such claims must arise out of
the physician's acts or omissions prior to
the policy's
effective date and after its retroactive date.
(Both dates are shown on the declarations page
of the policy.)
A final note: Nose coverage is also known as
retroactive coverage or prior acts coverage.
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Stop
loss insurance — Insurance
offered to medical groups and hospitals that
hold managed care contracts. This insurance
covers the
policyholder in case its patients suffer catastrophic
medical conditions beyond the standard and
customary.
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Tail
coverage — This
supplemental insurance covers incidents that occurred
during the "active" period of a claims-made policy
but are not brought as claims against an insured,
nor reported to the insurer, by the time the claims-made
policy has been terminated. Generally needed at
the time of retirement, upon the decision to change
claims-made
carriers, or due to death or total disability of
the member, tail coverage is purchased from an
insured's previous claims-made carrier.
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