Understanding Health Care by Matt Rhode

Matt is my nephew and he has always understood health insurance better than most people. One day I asked him to write an article about it, which he did. Even though it restates some of the things we have been discussing, he has his own insightful slant on the matter, especially as it pertains to cost, so here it is.

Understanding Health Care by Matt Rhode

A lot has been made lately in the news and politics of our seemingly “broken” healh care system. My opinion: IT DOESN’T NEED TO BE FIXED.

Many people make the common mistake of confusing health care with health insurance. Everyone has access to healthcare, there are no shortages of doctors, hospitals, clinics, or urgent-care centers. Some folks don’t have health insurance, which is a contract between you and a company detailing who will pay for what and in what amounts should you get sick or injured.

What’s the scope of that problem? Those who work for a large company or a government entity have a health insurance plan. Seniors have Medicare, a form of insurance. Workers injured on the job have workman’s compensation. Veterans are covered by the VA. People injured in vehicles or at someone’s house or place of business have auto or homeowner’s coverage. Illegal aliens have emergency rooms, as do all the poor and indigent and those without social security numbers.
Who’s left? CNN did a study that suggested 86.7 million went without health insurance in the last two years, 75% of whom did so for more than 6 months. That figures to 65 million.

What can they do? I looked online and in 5 minutes I found a health insurance policy that would be right for me at a cost of $95 per month with United HealthCare. I call that affordable. So you say it’s not? Then how about we just pick up the tab for those people? 65 million times $100 is 6.5 billion, that’s 0.05% of Gross Domestic Product.

Ok, ok. So you just can’t stand it, you have to CHANGE something right? Well here are my suggestions:

1) Allow people to buy insurance across state-lines, increasing competition and
reducing cost.
2) Allow people to opt-out of coverage they don’t need. Single males don’t need
maternity coverage or pre-natal care, sane folks don’t need mental health
coverage, and tea-totallers won’t need drug rehab.
3) Require doctors/HMO’s/urgent care centers/ER’s to post their prices PRE-
insurance.
4) Outlaw withholdings of health care premiums. People should write a check
for their premiums, then they’ll realize the true cost of healthcare.

Do you have any ideas that would reduce cost, increase access, and not steal money from the wealthy to give to the poor? Or do you want the U.S. to play Robin Hood when it comes to healthcare?

Health Insurance Basics

A fair number of us are inserted into some sort of group Health Insurance plan without much input. If you work for a large employer, a government entity or if you are in a union, you may have very little choice as to what type of plan you have. However, many of those groups have several different plans from which to choose. If you have any say-so in your health insurance plan, knowing the correct one for you can save you hundreds of dollars every year, and thousands of dollars over your lifetime.

The first thing you need to do is ask yourself what kind of risks you pose. Is pregnancy in your future? Do you have some preexisting condition? Do you need to add a spouse or children to your plan? Is your high-school student on the football team or driving? After you have done a risk analysis, you are prepared to select the policy that best suits you. In most cases that means, paying the least amount possible for your protection and care.

If you are not automatically inserted into a group plan, do not assume that you need to be in one. Many people get better value through good individual policies. (Pros and Cons of Group Insurance Plans) In fact, my wife and I performed a quick on-line search, and ended up cutting our monthly premiums by nearly 40% by leaving a group and finding our own individual plan. (Example of How) Here is why.

When insurance companies offer group plans they have to spread their total risk over the total group. (How group rates are determined) Therefore people with higher risks can pass along some of the cost for their risks to the younger and healthier people within the group. Conversely, the healthy young person is less likely to have a heart attack or come down with certain types of cancer, so their share of the premium will probably be disproportionally high to the risk they represent. If you are a male and there are women of child-bearing age in your group, your premiums are higher to help the insurance carrier offset the expenses that do not affect you. On the other hand, if you select an individual policy you can eliminate paying for other people’s risks.

There are three different ways you can contribute to your health care costs. You should create a couple of possible scenarios to determine which plan suits you best. Your time might reward you with big savings.

Co Pay
Many people write relatively small checks for their visits to the doctor’s office. Oddly, some of those people really think they only had to pay $20 for the doctor to put a cast on their broken arm, because they do not factor in the monthly premiums that they also pay…whether they get hurt or not.

Deductibles
If you have a deductible, you have to pay that amount for any claim before the insurance company pays any of their money. It is fairly common for consumers to take on more of the financial risk via their deductible. In our case, we agreed to a $2,500 per year deductible. In exchange for taking this risk off of the insurance company’s shoulders, our premiums were lowered by nearly an identical amount. Therefore in any year that we spend less than $2,500 in doctor’s visits, we come out ahead. If we spend more than that the insurance company shares the cost.

Co-Insurance
If you will agree to share the risk with the insurance company via Co-Insurance, your premiums should come down. For example, you might agree to pay 20% of any claim up to a maximum of $2,000 out of your pocket. So, if you should break your arm, for which the doctor charges $1,400, you would first pay your deductible, lets say $200. That leaves $1,200 unpaid. Since you have not reached your maximum contribution, you would have to kick in an additional 20% of that amount, or an additional $240. In the end, you will have paid $200 for the deductible and $240 for the co-insurance, for a total of $440, and the insurance company would have paid the remaining $960.

Now let’s suppose you have a mountain climbing accident and need major knee surgery, which carries a cost of $16,000. You will first have to pay your deductible of $200 and then 20% of the remainder, but not more than $2,000. So, you will pay the maximum under your policy terms of $2,000, and the insurance company will pay the remaining $14,000.

People often get disappointed when they are submitted a medical bill and have to pay hundreds or thousands of dollars; but, they will frequently discover that the cheapest route, in the long run, is to keep the premiums down each and every month and then accept a bigger share of the responsibility when there is an actual claim. Unfortunately, too many of them fail to set aside the premium savings as they go and then the random problems they encounter are more financially painful.

So, in most cases, I suggest the consumer share the risk by accepting relatively high deductibles and co-Insurance. That will lower premiums substantially. Then set aside the monthly savings until there is enough money in reserves to cover the annual maximum out-of-pocket expense. (Which is exactly what the insurance company does) From then on, you should have some extra money in your pocket to save and invest.

Auto Insurance

There ought to be a college-level course entitled “Understanding Insurance” because very few people are sufficiently informed to make intelligent choices when the various options present themselves. That ignorance is very costly. If you are joining us for the first time in a while, we have talked about insurance scams and life insurance. Today’s topic is auto insurance.

Since driving is a privilege, not a right, every driver is required to have at least Liability Insurance. It protects other people and their property if you cause an accident. Each state sets its own minimum levels, which are expressed in a series of three numbers, like 25/50/25. The first number is how much the insurance company will pay for injuries to any one person; the second number is the total they will pay for injuries to multiple persons in any one accident and the last number is what they will pay for property damage. If you cause more damage than that (which is very easy to do), you are obligated for the remainder.

You can also get Comprehensive Insurance which protects you if your vehicle is damaged by things like hail storms or theft. In addition, you can obtain Collision Insurance in case you wreck your own car in any way. If you have all three types (liability, comprehensive and collision) it is called “Full Coverage.” Ordinarily, this is what is required if you have an auto loan.

There are several other options for you. For instance, if you are hit by someone who has no insurance or too little, there is uninsured motorist coverage and underinsured coverage. There is extra medical coverage, work loss coverage, custom equipment coverage and others. (see explanations and more options) Generally, I do not recommend these products unless your state requires them.

If you file a claim your “deductible” becomes an issue. This is the amount you must first shell out before the insurance company pays for any of the loss. The higher the deductible amount, the more risk you take on, so the lower your premiums. (Lori Mandell explains the debate in more detail) Unless you have a habit of bouncing off of other vehicles, this is usually what I would recommend. You can save up to $200 per year just by raising your deductible.

If you have a loan on a newly purchased SUV and you also drive an old truck with no loan, you can obtain different coverage for each vehicle. Don't let them try to tell you that you have to have full coverage on both vehicles.

Regardless of your circumstances, you should discuss your policy, in detail, with your carrier. But remember that agents usually have a bias toward being over-insured. For example a specific agent may always recommend Full Coverage but if your vehicle is only worth $5,000 or so, you might do just fine with liability only. Or if you are only 25 years old and have very little net worth, you may only need minimum coverage.

If you have a loan and pay it off, you are not required to carry the same insurance. You can raise the deductible, or drop some of the coverage and pocket the savings.

Here are some good questions and the answers I got from my carrier, but do not assume your policy provides the same protection. Call your own agent to be certain.

Question: What happens to my rates if I get a ticket or am in an accident?
Answer: One such incident does not ordinarily raise your rates but any two of them probably will, depending on how much time has elapsed between the incidents.

Question: What if I get a speeding ticket in another state?
Answer: Other states do not usually report to your home state, so rates are not likely to be affected.

Question: What if I pull a boat or rent a hauling trailer?
Answer: Your auto policy should cover any damage or injuries you cause somebody else, but any damage to your boat or trailer is not covered without specifically obtaining extra insurance for that risk.

Question: What if I have a specialty car or a work truck which I only drive a couple hundred miles per year?
Answer: You do not need year-round coverage. You can obtain insurance on an “as needed” basis.

Question: If I only have liability coverage are other people in my car covered when I am at fault?
Answer: Yes.

Question: If I have passengers in my vehicle and I am involved in an accident, which is the fault of the other driver, and our injuries exceed the coverage provided by the other driver’s insurance, do you pay for the additional medical expenses?
Answer: No. but the injured party’s health insurance policy can be used, or you may have to sue the other driver to recover your losses.

Question: If I let someone else drive my vehicle, are they covered to the same extent as if I was the driver? Even if they are a worse driver?
Answer: Yes. Yes.

Question: What happens to my premiums if I let someone else drive my car and they have an accident?
Answer: This is a grey area. The insurance company will want to know if that person is going to continue driving your vehicle and other facts before they decide what to do.

Question: Will my rates go up if I am hit by an uninsured motorist and your company has to pay to fix your car?
Answer: No.

Question: Will your company pay to patch chips or repair cracks in my windshield?
Answer: We will cover the full amount with no reduction for your deductible, provided you have full coverage. But, windshields are not covered if you only have liability insurance.

Question: If my driver’s license or license plates should expire, does your insurance stay in force?
Answer: yes.

Question: Can I obtain additional medical coverage in case I injure someone else beyond the standard coverage of my policy.
Answer: Yes, and if you have a substantial net worth, this might be a good idea because of the high cost of health care these days. Another option is to get an umbrella policy (this is what I do).

Question: What, if anything, can I do, or drop from my policy, to reduce my premiums?
Answer: Varies

If you ask these questions you should be able to design a policy that is perfect for you. But, if you don’t ask them, there are two bad possibilities. 1) You may be paying for coverage you don’t need or want; 2) You might need insurance some day and find out you don’t have the coverage you thought you had.

Over time, circumstances change. For example your vehicle will depreciate, and you want to switch to a liability policy. Therefore, each year when your policy renews you should review the details to make certain you still have what you need.

Spend your savings wisely.

Next up, Health Insurance

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