38 minutes | Sep 21st 2020

#062 | How to choose the right medical insurance at work

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For most companies, the October/November timeframe is when employees are able to select their benefit options for the next year. It can be a complicated and cumbersome process, but the most frustrating part is usually evaluating the medical plans. They are by design complicated.

To start, you should listen to episode #10 where we discuss car insurance. It’s all pretty similar.

Some key facts to keep in mind about insurance: 

  • Insurance companies make money by paying out less in benefits than they take in fees. They are a for profit business. They’re not your friend or your good neighbor.
  • Over your life, this means that you’ll pay more than you’ll get in benefits. Probably a ton more!
  • You need to identify where you are most likely to incur a loss and choose insurance wisely for that situation.
  • Protect yourself against the catastrophic, not the ordinary expenses.

How Insurance Loss Calculations Work

  • Let’s 1% of customers are likely to have a heart attack. 
  • And it costs $50K for bypass surgery. 
  • The insurance company needs $500 needed per person to cover loss expenses.
  • This is generally how your premiums for any insurance are structured.

Insurance has 4 primary mechanisms:

  1. Premium - Per-period fee to Insurance Company
  2. Deductible - The minimum costs the customer must make before coinsurance benefits start
  3. Coinsurance - The % of expenses covered after meeting the deductible
  4. Out-of-Pocket Maximum - The cost ceiling a customer won’t pay more than

How do you choose what’s right for you?

  • Insurance Providers need to cover roughly the same cost from every customer.
  • Premiums, Deductibles and Expected Covered Expenses combine to equal roughly the same cost based on statistical averages.
  • Providers try to accurately forecast paying slightly less in benefits than they take in premiums.
  • A higher premium means a lower deductible. Whereas a lower premium means a higher deductible.
  • There’s no easy answer because all plans have different details which make rules of thumb hard to provide. However, if you don’t expect to have a lot of medical expenses, the lowest cost plans are the best.  If you do expect to have recurring expenses for chronic issues for example, you might be better off with a higher premium, lower deductible plan. But you need to read the details.
  • Spend time forecasting your specific needs.  Call you doctors to ask what things cost with and without insurance, think about best-case vs. worst-case and forecast it out in different plans, and make sure the doctors you care about are covered. 
  • Check which providers work best for your preferred network of doctors and hospitals.
  • Check which plans cover specific needs the best for known issues you might have.
  • Remember that only a high deductible plan is eligible for a Health Savings Account. Others qualify for a Flexible Spending account only. For more info, check out episode 59.
  • Consider your family situation and how to split things up.  For example:  Kids usually have one fee no matter how many you have, so try to get all of the kids in your household on the same plan, even if you have a blended family.  

Top 3 Takeaways:

  1. Treat all your insurance the same by selecting only what you need based on your lifestyle and likelihood for events. Protect yourself against the catastrophes, not the ordinary and small expenses.
  2. In most cases if you’re relatively healthy, a high deductible, low premium plan will be the most cost effective solution for you.
  3. Do your research though. There are nuances to every plan which could make or break a decision for you. Read the fine print!


Show References

Friends on FIRE episode #10 - Car insurance is just as bad

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Other Links

Maggie’s Blog: Mostly Minimal Life

Mike’s Book: Your New Relationship with Money

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