Health Insurance Basics

What is "health insurance"?

Health insurance is a contract – a written contract – between you and an insurance company. And, if you have an illness or an injury, and you incur expenses – we all know that if you have a tonsillectomy, it could be ten to fifteen thousand dollars, if you have heart surgery, it could be a hundred to two hundred thousand dollars, cancer could be over a million, plastic surgeries to repair burns from a serious car accident could cost in the millions. The insurance companies that sell health insurance will pay for those expenses. This is a very important insurance – probably the most important insurance somebody buys because whether you are a low-income person or a high-income person, the loss of your health could be at stake if you don't have health insurance. A lot of people don't even go to the doctor without health insurance because they're afraid to spend money. As an example, I once had a client who had just a little mole on his toe, and he really neglected it for years because he didn't have insurance. He finally went to the doctor, and it turns out that the mole on his toe was a melanoma and it could have killed him. Had he had insurance, he might have had that taken care of when it was a very small item and he would have lived a normal life expectancy. Unfortunately, that client of mine is no longer living. These are the reasons you have health insurance. Also, you have unbelievable net worth over the years. You know, our whole goal in America is to have high income and to accumulate assets, and if you had a large expense, or one of your family members had a large expense due to a medical problem, you might have to use all of your money that you've saved for years to pay for that expense. So, health insurance is the most important insurance anybody could buy.

What is an "indemnity plan"?

An indemnity policy is a thing of the past. Very few companies will sell an indemnity plan. An indemnity plan says you go to a doctor in Beverly Hills or New York City and that doctor charges 'X' amount of dollars, $15,000 for a procedure, the insurance company will say, under an indemnity plan, "If that's reasonable and customary for a doctor that does that procedure in that area, we'll pay the full claim." Those policies are extremely expensive, and they're only available usually on a group basis, not on an individual basis.

What are the advantages and disadvantages of an HMO?

The basic advantage of an HMO is that there's very little out of pocket. You go in, you pay $10 for this. You go to the hospital, you pay $200 for that and you have no more expenses. Everything pretty much is covered. The disadvantages are that sometimes you can't use a doctor that's outside of the system that you really want to go to. One of my very, very good clients, and one of my best friends, has a daughter with a back disorder. He (her father, my client) went through the internet and went through tons of doctors all over the United States to find the one doctor that can do a special surgery. He went to that doctor. She did the surgery. His daughter's completely recovered and had 100% recovery. Had she had an HMO, maybe the result wouldn't have been the best. In today's world, if you know that there's the best doctor out there, why not go to him? That's the limitation of an HMO. Not to say that there aren't fantastic HMO doctors, but you have to be extremely proactive. You have to be much more aggressive in the system. You have to go and find the best doctors. You've got to do a lot of homework. You've got to ask a lot of questions of HMO doctors regarding who's the best, and you've got to push to get to that quality doctor.

What are the advantages and disadvantages of a PPO?

The advantages of a PPO program is that you can choose pretty much any doctor you want. And you don't have to have pre-authorization to go to that doctor. As an example, let's say that you start having migraine headaches. Under a PPO program, you can go right to a neurologist on your own. You can find a doctor who's a neurologist in your local area and you can go right to that doctor. That doctor will potentially ask you to have an MRI or a CAT scan. It's done right away with the PPO program. Under an HMO program, you go to a doctor, that doctor might say, "No, let's try giving you pills first. Let's try for several weeks to see if this works or if that works," but may not want to spend the money to authorize you to go to a, to have an MRI on the spot. The good part of that is it saves the HMO money, but on the bad side of it is that you might have a small tumor that's getting bigger every day and it could've been taken care of a lot earlier. So PPO programs typically give you immediate coverage, you can pick your own doctor, pick your own hospital, you're not under any confines as you are with an HMO. The disadvantages of a PPO plan is that there will be out-of-pocket expenses. As an example, you will have deductibles to pay, you'll have, potentially, what they call co-insurance, which means that after the deductible is satisfied, the insurance company may only pay 7% of your bill, you'll have to pay 3%, until you have another $5 or $6 out-of-pocket. So, for a person who doesn't make a lot of money, a PPO plan might mean that you are going to have a lot of out-of-pocket, like $8, $9 potentially. To a person who's got a lot of money in the bank, that person may say, "I'm willing to spend $7 or $8 to have choice of doctors that I go to." So as people start making more money, I usually find that more and more people choose the PPO networks.