Health Insurance Revisited

Health insurance document

To bastardize a quote from the internet: “A healthy person has one thousand wishes, a sick person has only one.” Vitality is part of living a rich life, and the person who realizes this the most is the one who’s lost their vitality.

We don’t tend to view our health as an asset. Insurance in general seems like a waste when you reach the end of the policy’s term and it never gets used. But it does fit in the same notion of “winning in the end”. If you pay up your premiums for the year and you don’t get sick or injured, you win. If you get in an accident, or get diagnosed with something and your insurance gets you back on your feet, you win.

Health insurance is not an expense – it’s an investment in your healthy future. Like any investment, outcomes are not guaranteed, but it’s literally a chance to spend some money upfront to make sure the odds are more likely to be in your favor. Health and wellness is the platform from which all other forms of wealth can be built.

To that end, we are going start reviewing health insurance.

Premiums & Deductibles

For some this will be a reminder, for others this will be new. Regardless, it’s worth going over because everyone’s insurance needs change over the course of one’s life.

The big debate inevitably comes down to balancing the upfront cost (the premium) and the back end cost (the deductible).  Every plan from every provider requires striking a balance between the two.

Think of the premium as the minimum payment to keep healthcare active and ready to use. Think of the deductible as the cost of actual healthcare services – or the portion that you pay before Insurance picks up the difference. Typically the higher the premium, the lower the deductible (and vice versa).

The young and the healthy tend to pick lower premiums and higher deductibles because they tend to use healthcare less.  The wise save up a fund on the side for unexpected emergency visits (breaking a bone for example).

However, not every young person is healthy, and not every healthy person is young.

Those who expect to use the healthcare system more prefer higher premiums because that is more manageable.  Pay a little bit more throughout the year, so when they use the system, the deductible doesn’t dent their savings as much.

Both are valid strategies to keep medical expenses manageable – depending on the situation of the individual.

Healthcare Brands

There are private brands and there are public programs. A few popular private brands you might recognize are Blue Cross / Blue Shield, Humana, Cigna, and Aetna. The public programs are Medicare (for those over 65) and Medicaid (for those with very low income) – both of which are run by the government.

There are five different types of private health insurance: HMO, PPO, EPO, POS, and HDHP. They all do similar things, but in slightly different ways:

Health Maintenance Organizations (HMO)

HMO’s deliver healthcare services through a network of healthcare providers and facilities. With HMO insurance, you can only visit doctors in your network (they won’t cover you if you see a doctor outside the network) and your family doctor must give you a referral before you see a specialist (rather than going to one directly).

Preferred Provider Organizations (PPO)

This plan gives you more freedom to choose your doctor than with the HMO, and a referral from your doctor is not necessary to see a specialist. You will see higher out-of-pocket costs if you see a doctor who is out of network. This plan makes more sense if you’ll be seeing specialists more regularly.

The Point-Of-Service (POS)

This plan is sometimes regarded as a hybrid between HMO’s and PPO’s. You typically select a primary care physician inside the network, but have more freedom to visit doctors outside the network. You are also able to see some specialists without referrals. This costs more, but might be a good option for those who, for example, travel more.

Exclusive Provider Organizations (EPO)

This plan does not cover expenses outside the network (with the exception of emergency visits). You won’t need a referral to see a specialist.

High Deductible Health Plans (HDHP)

This plan has a unique funding model. The deductible in a year is higher, but it is balanced by lower premiums and gives you access to a Health Savings Account (HSA).

The HSA allows you to contribute $3,400 per year (or $6,750 per year for your family).  The funds deposited into this account are non-taxable (giving you a tax break) and roll over year over year – to be pulled out to cover your deductible when you need it.

For perspective, this plan works well for someone who is healthy and likely won’t use much healthcare in the near future, but is incentivized to set aside money for potential healthcare expenses in the future. This might appeal to the healthy person who’s good at saving their money and planning for the future.

Wrap Up

Which one is the right one? Despite different names, these plans generally have more commonalities than differences. The differences between plans tends to come down to factors like ‘do you want to keep seeing a particular doctor’ or ‘do you need to see specialists regularly’ or ‘are you mobile enough that it makes sense to get coverage outside of a given healthcare network’.

These need to be balanced with the premium/deductible amounts you want. Inside each of these plans, you can select different tiers (the balance between premium/deductible).  The tiers are grouped into four metallic colors (Bronze, Silver, Gold and Platinum). The more ‘expensive’ the metal, the higher the premium and lower the deductible.

Addendum: The Affordable Care Act

As of the date this article is published, changes to the act are being debated in Congress. But for the time being the ACA still stands.  

The intended goal of the Affordable Care Act was to make affordable healthcare available to a broader population – particularly those who otherwise wouldn’t be able to afford coverage. The government maintains a website here. Until such time as the act is repealed / replaced, the resources of the website will remain available.

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