INSURANCE IS VITAL TO OUR FINANCIAL WELL BEING…
Insurance of all types is a vital piece of everyone’s financial plan. We typically insure risks that, if the unthinkable happened in any of these areas, would cause a financial hole that we, or our loved ones, may never be able to climb out of in our lifetimes. For example, we buy life insurance to protect our loved ones from the awful consequences that would arise if the breadwinner(s) were no longer alive to “bring home the bacon.” We buy auto insurance for the chance that we could be involved in a car crash in our everyday travels, and lastly, but far from finally, we buy disability insurance to protect against the awful consequences that could arise if we would incur an injury that would prevent us from “bringing home the bacon” in the manner that we are trained or educated in doing so.
Along the same lines, health insurance provides peace of mind that a medical emergency followed by a lengthy hospital stay, won’t force us into bankruptcy. While some may question the need or importance of many of the different types of insurance out on the market, I don’t think many people would question the importance, or need for health insurance. I’m sure any human resource professional would tell you that questions about health insurance, its costs, and what it covers are among the most frequently asked questions of both new hires, as well as “seasoned vets.”
While we are licensed to sell health insurance here at Halas Consulting, and have helped countless clients as well as friends and relatives obtain health insurance at a reasonable cost, it is not our primary business,. We typically gather the required information and turn it over to one of our trusted independent brokers. However, we recognize it as a vital part of a complete financial plan, and we do ask about it and regularly review coverages for all current as well as perspective clients.
… BUT THIS IS NOT INSURANCE
The reason for this article is the new crop of healthcare coverages that have arisen to solve the common coverage problems that we have here in the USA; people who can’t afford conventional health coverage, and/or can’t qualify for conventional coverage due to health issues. While there is no doubt that these healthcare coverage problems are in dire need of a solution, these new plans aren’t necessarily it. While I’ve known about these types of plans for awhile now, and knew their pros and cons. I really had no problem with them as the companies offering them were pretty blatant about the fact that these health plans were not insurance, the commercial that I saw on TV the other day set my blood to boiling though when I went to the advertising company’s website and saw “health insurance” as a drop down item on the tool bar across the top of the page. While what they are offering is a healthcare plan, it is NOT insurance, and I’m going to tell you why.
HERE IS WHY
The primary purpose of all insurances, as I mentioned above, is to protect us against a catastrophic loss. That is, a loss that if we incurred it, would render us possibly unable to repay it in our lifetime. For example, if I, a 38 yr old man, incurred a medical catastrophe that cost say $300,000 when all was said and done, there is a great chance that it may take me years to pay it off, if ever, and even if I did, there probably wouldn’t be much there for me to enjoy retirement with. Golf and fishing excursions to Ft. Lauderdale would definitely be out of the equation. But if I have a typical, off the shelf major medical plan offered by a leading insurer, with a $500 deductible, and 80/20 co-insurance up to $10,000, with the insurance company paying the remainder up to the lifetime maximum of say $1 million, the maximum that I would pay out of pocket would be $2500 ($500 deductible + 20% of $10,000 which is $2000.) I think that even if I was hard up for cash at the time, I could probably pay that amount back in my lifetime, so the bill would get paid even if I had to borrow the cash from a friend or relative if the need arose. If I’m following the advice myself that I give to clients, I should have more than $2500 in my emergency cash stash kept in the highest yielding FDIC insured bank account at my favorite online bank.
While $2500 is not pocket money for many I’m sure you’d agree that it is a far cry more doable than $300,000. The new healthcare plans, which are the focus of this article do things a bit differently.
IT SOUNDS GOOD AT THE OUTSET
Hey, what more can you ask? Nobody gets turned down, reasonable monthly costs, not limited to doctors and hospitals, little or no waiting period for pre-existing conditions, discount prescription drug and dental programs, and coverage for the aforementioned doctor office and hospital visits, X-rays and lab tests, pregnancy, emergency room visits and much, much more. The only problem is…
FIRST DOLLAR COVERAGE vs. CATASTROPHIC COVERAGE
…this is what I call “first dollar coverage.” The first dollar coverage that most people have experience with is their insurance “deductible.” The purpose of the deductible is to eliminate smaller “nuisance” claims. Not having to pay these claims, of which there would be many, allows the insurance company to keep and invest the money they would otherwise have to pay out for what would be numerous small claims, and pass the savings, via lower premiums on to their customers. If one would purchase a policy that covers everything ( a $0 deductible policy), the premiums are typically much higher than a policy that has a deductible, and as the amount of first dollar coverage you as the insured agree to take on increases, your premium correspondingly decreases. While it is possible, by paying additional premium dollars, to get a conventional major medical insurance plan to provide first dollar coverage, it’s primary purpose is to provide protection from catastrophic claims, which is what most people expect their insurance to do. The trouble is, these new healthcare plans do things in reverse. They will cover you for your first dollar coverage and then some, all the way up to thousands of dollars, depending on the set payout limit for the health issue or service, but once that pre-determined maximum is hit, then that’s the end! You don’t have coverage for the larger, and potentially more painful financial loss.
To be honest, many of the plans do, as I said above, mention that the plan is not a major medical/catastrophic loss plan in the small print, in several places, but not everyone thoroughly reads the small print. I just didn’t like the one company using the term “insurance” to describe what it is they are offering because it’s NOT insurance.
Is there a place for these plans? Absolutely! If you are unable to procure major medical coverage at all or the price is just too cost prohibitive, then, as the old saying goes, “sumthin’ is better than nothin.'”
If you have a high deductible plan and want something to cover the gap between $0 and the deductible amount and the premium of the healthcare plan is reasonable, it might be worth it. The discounts for being a member in the group that typically have to join, to purchase one of these healthcare plans, is usually pretty good. Just be careful if your health plan is a high deductible plan with a Health Savings Account (HSA)attached to it. Some HSAs may not allow these additional healthcare plans, and continue to give the HSA its tax advantages. It would be best to check with the high deductible plan provider to see if it can be done.
Covering the health of you and your family, with insurance, and the best way to do it is one of the more important decisions that you will make If you are not covered by an employer’s plan, and are forced to go out on your own to purchase health coverage, make sure that you know what you’re buying, what it costs, and most importantly what it covers. An emergency is not the time to find out your coverage is not what you thought it was. If you need further assistance on this or any other insurance, tax or investment issue, feel free to contact me at the email address listed below.