Free is perhaps one of the most powerful words in the English language because it advertises to us that we’re about to get something… for nothing.

It’s a favorite word of businesses because nothing will drive short terms sales quite like free. The truth of course is that nothing is ever really free, and often times, free can be one of the most expensive prices of all. It can also be one of the most damaging to a business or brand, but yet, without thought – many even very intelligent companies use it in vain.

So how can free be one of the most expensive options available? Well, let’s look at a ridiculous example first to illustrate the point.

If you are looking for a baby sitter, you’ll have a large number of options available to you. You could hire a nanny for maybe $30,000-$100,000 and beyond.

You could maybe drop the kid off at a drop-in day care type place or hire a neighborhood kid for maybe $10-15/hr depending on your neighborhood.

They all accomplish something similar, having a warm body in the house with your children. However, what if a convicted felon with a sex offender registration had an ad out there that said they’d come baby sit for free.  Would it really be a deal then? I hope the answer is of course, no.

So the reality is that “free” comes with it’s own price tag. It’s just usually somewhere else. Either in the quality of the product or service, the time to get it (standing in line for an hour or two), the inconvenience, your privacy, or any number of other things.

We live in an ever more “entitled” society where more and more people have come to expect things for free — with no regard to the time, money and effort that it takes to produce those things. After all, it’s all available for free on the internet. Youtube, Facebook, Twitter and so on are believed by many users to be free. But they’re not really.

Youtube is one of the most popular brands around, but has never really been profitable to Google. They have been built on one of the worst, unsustainable business models around, but have been fortunate to have deep pockets behind them. Their model is to get a lot of traffic and then show targeted ads to the user. So there are costs even if you don’t see them.

What are the costs? Well, for one, your privacy. Google and youtube both keep a very detailed dossier on what you watch and search for. They then sell your information to advertisers and can even release that information to authorities if you were to become a suspect in a crime – whether you committed it or not. For someone who is unfortunate enough to have googled some stuff from a CSI episode and then have their spouse turn up missing, this could be a rather high price indeed.

On the lighter side, you pay with your time watching commercials, and being distracted too of course. While most people consider commercials, most people are also broke and constantly running out of the only truly limited, irreplaceable resource on the planet – time

So-called free government programs come with great expenses.

The programs come at the expense of the tax payer, our privacy,and are usually staffed by underpaid, under appreciated staff which leads to poor service and long waiting times and red tape.

Facebook, the beloved “free” company, is a company that is the equivalent of trusting your child with a convicted sex offender…you’re entrusting your photos, your life, really, to a goofy looking guy who has been on record many, many times saying that your privacy is not important. I rest easy though both not using facebook and knowing that their business model is completely unsustainable. Wall Street is starting to agree.

All this leads me to a personal and concrete example.

For years, I’ve sold a book on how to do an engine swap for a few differnet Honda vehicles. The majority of the customers I get come from Google where my site is listed along side hundreds of free alternatives. Despite that, I still sell quite a few of these books every month almost 10 years after putting it together and I should use the term book lightly because it’s really a 50 page PDF document. There is no worse competition than free is there? A business could never possibly stand to compete against free, right? I do every day – because some wise customers see the high costs of free.

Smart customers know that yes, there is free information but it’s often worth that.  Of the sites listed along side of mine, I know that on at least 2 of the sites that show up on the first page, that there are factual errors in the instructions that would cost a customer several hundred dollars in repairs. Why? Because the wiring information is wrong and it has been for over 5 years.

Probably because the producer of that content isn’t getting paid anything, they haven’t bothered to correct the problem. They have no motivation to do so.

As a result, not spending the $50 on my book thinking they could save a few bucks by using the free alternatives – they wind up costing themselves hundreds. Spending is not always spending, and price is a terribly thing to base a decision on–especially when you’re buying expertise.

Intelligent buyers understand that the price paid is not usually the actual cost. Some things are just spending. Knowledge, instruction, coaching, information, and things like equipment are often investments that essentially make them “buying money at a discount.”

One of the BIG breakthroughs then is when you start seeing opportunities to buy time and knowledge at a discount. Like the other day, I paid a developer to develop a piece of software for my site. It’ll save me a ton of time and effort. The average business owner would have said it was too much money and just done it by hand.

That would have cost them dearly in both time (every time they’re doing it by hand, they’re not doing more valuable things), but also in the opportunity to do what I did. I bought the software development services, but also the rights to it. So now I can sell it to other business owners who need this same thing I needed.

Within 3 minutes of paying the developer who wrote it – I had a big chunk of my money back, and within 3 days, had all of it back and was now making money on that initial expense.

If you’re a business owner, you need to learn that while free can be useful – it has to be done intentionally, with a very strategic purpose in mind. I use it strictly to start a relationship with a potential client, for example. That said, it’s not a topic I’ll discuss here, probably in the Inner Circle newsletter, but free must always be used strategically or you will wind up with a customer base of freebie seekers – not so great if you want to make a living and provide awesome service to your customers.

This is a HUGE breakthrough, when you stop looking solely at short term expense and start looking for long term gains. This also is why most personal finance experts who pride themselves in being “frugal” might be the worst people to take your advice from. Just a thought for the week.

Actually, I bought two of them.

Neither of these phones were my first smart phones. I have had 3 such devices since they came into existence, including the old Samsung Blackjack. However, all 3 of them either got sold or sent back. Matter fact, for years I simply went under contract to get the latest smart phone, called and got the unlock code for the phone, and then sold the phone for several hundred bucks on eBay while keeping my old dumb phone for my own use.

This time, I bought a Samsung Galaxy S2 for a popular, nation-wide “no contract player.” I liked the company’s plans, I liked the coverage map, and I liked the fact that I didn’t have to sign a lengthy, nasty contract with them or give them all of my personal information in addition to a blood sample.

However, the first phone, would not receive phone calls in certain areas of town. I had a heck of a run around with this company’s customer support, a company which rhymes with burgeon. But in any case, the phone and the plan got sent back.

Now I’m back with one of the major carriers. Which meant either buying the new phone outright or being put into one of those nasty contracts.

Well, I’ve been with this major carrier for 10 years, nothing has really been a big issue and the monthly service fee is the same whether I take the contract or not – so I chose to do so.

So now I have a Samsung Galaxy S4. I chose it for reasons that are unimportant here, except to say that if I was going to be put into a contract, the carrier was going to pay through the nose for the device they “subsidized for me.”

And boy did they. I looked up the price today, and on eBay right now, an unlocked S4 is over $750. Makes me consider selling it and going back to my old phone .

Anyhow, with price tags like these – it can be easy to be worried about being out of $750 if you should happen to lose, drop, or have your phone stolen.

The “insurance” is ONLY $7-10 a month they say. So of course, most consumers go ahead and get it. Unfortunately, this coverage is similar to rental car insurance – it’s a duplication of coverage you may already have, it’s actually EXPENSIVE, and there are better ways to deal with the “risk” of loss here.

One of the most important lessons you can ever learn about insurance is that you buy insurance to cover you from REALLY big losses, and do everything you can to avoid insuring small losses. While $750 may sound like a lot, think more like $5,000 and beyond.

Insurance is a house-wins game. They know the odds of you having a loss better than you ever will, and they charge an amount that’s going to make them the winner 9 times out of 10. That’s why you only insure losses that would be truly crippling to you financially. It’s one of those thing where the less you’re insuring, the more expensive it is to insure.

So while it costs $200-240 to insure a $750 device for 2 years, about 1/4 the cost of the replacement in the first place…

There are forms of insurance such as umbrella insurance which can pay out as much as $5m for less than the cost to insure your $750 phone.

Then we must discuss the nature of these insurance policies. Standard insurance policies like car, home, umbrella, health, etc are highly regulated and are fairly comprehensive in what they cover.

Gadget insurance and extended warranties are NOT and they often come with a ton of fine print. In the case of cell phone insurance, one thing to know is that they do not pay for a new device, they will send you a phone. It will likely be refurbished (used), and they may not have your exact phone in stock, so they may try to give you a different phone of typically lesser value.

Aside from the catches, here’s what you need to know about coverage you probably already have:

* Always double check, but MOST Mastercard and Visa branded credit cards have several forms of buyer protection that you can use to cover a lost/stolen/damaged phone. The first is that by default, these cards regardless of the bank, tend to extend the warranty of any product you buy by a year for free. That’s any product purchased on that card.

* Visa and MC tend to offer theft insurance on your phone. If it’s stolen, you can file a claim, pay a small deductible (which you have to do with your carrier’s insurance too), and they’ll pay to replace your phone.

* Both TEND to also allow you to have gadgets that break shortly after getting them, repaired or replaced for free. Why? Because they don’t want you mad that you’re paying for something that broke in the parking lot.

Not sure if these apply to you – they probably do. Call your card’s customer service and ask for a brochure on Mastercard or Visa protections that you get with your account. They’ll know what you’re talking about. There are many other neat little things to know about in there, so get it anyway if you’re unfamiliar with these features.

Then there are the far more practical protections. The preventative measures.

Always invest in a good case for your phone. It’s essentially a laptop computer so treat it like one. The bulkier and more substantial the case. The better. Look for weather protection features when possible as well, to protect against the …well, nearly everyone’s done it, or will at some point in the future …drop in the toilet, sink, or bathtub.

Finally, if you’re still worried about it. My recommendation with extended warranties is this. Instead of paying the extended warranty, put that money in a separate savings account called “stupid mistakes” or “warranty” or whatever makes sense to you. You can do this at an online bank and you can automate it if it’s a monthly fee. This way, if you need to replace the phone, you’ll have some cash you can put towards it, or, if not, guess you’ll find something to do with that money you DIDN’T lose.

Matter fact, they impact everyone around you. Your kids. Your spouse. Your Community. Everyone. They do not exist in a vacuum where the only person that is directly impacted is you, fortunately or unfortunately.

So while some of our leaders (looking at you Washington) do seem to behave as if attitudes and behaviors related to money have no effect on the world that we live in – there’s no denying that it has a massive impact.

The problem is while many of us have been hurt by other people’s money habits and motivations and thus fully understand what it’s like to be mislead financially, many do not know what it looks like to be led financially in a positive way. Beyond that, we have no idea what it means to be a financial leader in our community, or at very least in our family.

I frequently talk to parents who are upset that their children do not do what they say, yet as I listen to them talk about how they treat their spouse, boss, and other people, and find that really the problem is that their children are listening loud and clear. The problem is, people and especially children don’t hear what you say – they hear what you do.

This past weekend I got a great letter from a woman who is a financial leader to her family. She purchased my book “Your 33 Day Money Action Plan” a few months back and rather than keeping it to herself, decided to buy not one, but 4 copies to give to all of her nephews and nieces.

Here’s what she wrote:

Nathan, it’s been a pleasure reading your Twitter posts! I truly think children need to be taught your wise advice when they are the ages of middle school and high school, as part of a common-sense economics curriculum. That way, they would be better prepared for adult responsibility instead of having to learn from the school of “hard knocks” as I have done.

God bless you and your family!

Now, this is a woman who clearly understands financial leadership. She’s sharing her story with her family and encouraging them to develop good money habits – preferably before it’s too late. I’ll bet too that she understands that more than just giving them a book on “personal finance” that she’s gotta live it out in front of them too.

You see, we all have an incredible opportunity to impact the lives of others in a positive way by simply living ours out the way we know we should. People are inspired when they see you succeeding and as long as you’re not waiving your success around in their face or lecturing them, in time, they’re going to want to know what your secret is.

We have a whole generation of people working harder than ever, and getting absolutely no where, looking to places like Washington DC to save them. The problem is, until we have more people like you out there showing them that there’s a better way of living out your financial life – that problem is only going to continue.

As a result, families will continue to be destroyed by finances, charities and good causes will continue to struggle for funding, businesses and dreams will continue to be crushed, and worse.

However, you have a unique opportunity, right where you are, to start living as an example of sound money management and the entrepreneurial spirit. If you can’t do it for yourself, do it for those around you.

I’ve found in one-on-one coaching environments, and heard from students first hand how their lives have been changed by “getting their money right.” I got an letter the other day from Gold Inner Circle member Mike Zakrajshek in which he told me that he and his wife have been communicating about money and life in a way they never did before. I get dozens of these stories each week where marriages are being repaired, family bonds being mended, people taking more time off, sleep better at night, and finding themselves with a better self image as the result of what? Taking action and getting their money situation handled. Investing in themselves, learning new skills, and most importantly – setting ambitious goals and leading their family, their friends, their community in every action they take with their finances.

I bought into it hook line and sinker, as it was around the time that Google started getting into seemingly unrelated businesses at record pace.

Of course, one I started reading the description, I realized pretty quickly that I had been duped.

I felt foolish, but I had to admit – they got me good.

Ever since, I’ve always gotta see what Google has done for their annual April Fools gimmick. This year, it’s a treasure map theme for google maps complete with a periscope enabled street view which I found to be absolutely inspired .

So perhaps “foolishness” isn’t all bad. I once heard that a fool is someone who knows better in their mind, but behaves counter to their best knowledge.

In other words, a fool is anyone who knows what they SHOULD do, but then does something completely different.

Funny enough, as “negative” as we view the word, I think we’re all programmed a little foolish from the start.

We all know, for example, that diet and exercise are good for us. Some of us might even be pretty good at eating right and exercising… but I’ve never met anyone, even in phenomenal shape that didn’t at least dread the gym and the diet a little bit.

We all know, that we should put money aside for a rainy day. Yet, actually doing it is just completely against every fiber of our being. As-if we were programmed to behave a different way.

.. and honestly, every one knows that the “bad boy” is a bad idea… but yet, it’s the basis of almost every romance story imaginable.

Our human nature is to be…frankly, a little foolish. A little counter to our own success.

So one of the secrets of success is learning to admit that we’re wired a little funny and more importantly figure out the ways to “reprogram” or “rewire” our minds a bit so that our behaviors can match more of what we know we SHOULD do, rather than simply knowing what to do …yet still doing the opposite.

Why are we wired this way? Well, there are a two theories I’ll offer.

The first is a very “intellectual” theory. The world we live in today is very different from the world that our ancestors lived in. Not but a few hundred years ago, food was limited and sporadic, so when we had it – we ate. We didn’t limit our portions because who knew when we might have access to food again, not to mention it was very difficult to save it for later since we didn’t have refrigeration, let a lone a freezer.

The same is true of money. We didn’t live to 70+ years of age until very recently, so there was little environmental reason to save for retirement let alone for tomorrow since – life was statistically and metaphorically short.

The second is more spiritual and has to do with “the fall.” In Christianity, the story goes that we were created to live in a perfect, ideal world. Everything was as it was designed to be and everything was flawless. However, when Adam and Eve disobeyed the order of things by eating the fruit of the one tree in the garden they were commanded not to eat… the world changed, forever.

Often called “the fall of man,” this event resulted in the earth being cursed with imperfection. Now, in practical terms, we see this “curse” in the imperfection of the world around us. The imperfection in our minds, in fact.

We see that for example, we know to avoid debt. We know it’s bad for us. We probably also know that it’s advised against heavily in the Bible.

However, we still allow ourselves to be subjected to it.

So whichever way you look at it, whether it be a completely spiritual issue, a biological/intellectual issue, or both… the fact remains that we are hardwired to do things that are NOT in our best interests, even though we KNOW better.

So what to DO about it?

The solution is often to acknowledge the wisdom that we have heard or that we already have and to put it into practice. In other words, we need to stop saying stuff like “I know I should work out more,” or “I know I should save some money for that upcoming thing” and just stinkin’ do it.

We don’t need more time, more money, more information… so much as we need more positive action. You can always get more time, more money, or more information – if it’s an active priority for you.

So here’s where the hard question comes in that we have to ask ourselves…

When it comes to this area of my life, right now, am I being wise or foolish?

The only person who can answer that question for you, is you… and I can assure you that if you take your answer seriously, it will take you a long way in accomplishing your goals.

It’s been a while, but I’m back. Today discussing the rather perplexing problem of why we tend to slow down when we start to get results. How important is financial freedom to you? Once you get past those initial steps towards the prize, and things improve, are you still serious or were you only being motivated by pain?

“…admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.” ~ Bob Dylan

In the new and emerging economy, financial independence is going to become increasingly important if you value your time and quality of life. This isn’t meant to be alarmist, but as his Bobness once said… the times, they are a-changin’.

In the old economy, the formula for a “reasonable” and even prosperous life was pretty straight forward. Study hard, get a decent job with a big company and put in your time and retire after 30-40 years of working for the same company. I don’t have to tell you that those days are long gone and dead. If you’re still working that formula, then this is your warning… the flood waters are coming.

While some of the baby boom generation did benefit from the formula, I’m not even sure that it worked out that well for them either as the social security stats seem to indicate that just as many of them are going to retire broke as any previous generation. The only difference is that the ones that will retire with a good sack of change to play with, are going to retire with a bigger one than their parents did perhaps.

Today, it’s not uncommon to change careers multiple times, to be on unemployment for LONG stretches of time, amongst other big changes. The cost of health care, the cost of long term care,  the cost of everything, as well as our life expectancy are continuing to climb.

So unless you wish to be slung into poverty in various stages of your life – the time to start getting serious about your financial well being, and your understanding of things like entrepreneurship and how money really works is now. It’s no longer going to be good enough to simply “kinda know” what your doing and it’s probably not going to be good enough to simply follow the “rules” (and I’ll explain what I mean by that in a moment).

This new economy, this new landscape, requires a different level of sophistication and a unique set of tools, systems, and strategies to be successful. Heck, even getting a decent job these days takes a whole new level of sophistication and an entirely different approach than it did even 5 years ago.

The formulas and “rules of thumb” used by your parents or even by you not all that long ago, are all now ruled obsolete.

Your peers, friends, co-workers, and family members might sit around complaining about how things aren’t how they used to be. However, smart professionals and entrepreneurs are just going to start playing by a different rule book.

One of the key differences between the whining majority and those who thrive despite the economic and situational changes is that the successful group learn quickly how to use the rules to their advantage, or how to bend the rules ethically.

When I was in elementary school, I was involved with Odyssey of the Mind, which is a program that encourages creative thinking in youth. They have different kinds of competitions, but I participated in a type of competition where they gave you a set of restrictive criteria and then asked you to do a performance of some kind with that criteria.

I did this for 3 or 4 years but one thing that one of my instructors told me sticks out in my mind, even to this day…

If they didn’t say you CAN’T do something… then it’s fair game.

In other words, always work within the rules, but be as creative as you can around those rules. Including considering ALL the things that they DIDN’T say you couldn’t do.
So for a really basic example, most people know the formula of making money by getting a job. If they can’t get a job for one reason or another, then they’re stuck. The “system” or the “economy/industry” is telling them no for whatever reason and so within those rules they feel like they’re just screwed.However, no one said you couldn’t create your own job or business. You may not know how to do that right off the bat, but why not try to figure it out if you can’t get what you want within the rules of the old rulebook?Matter fact, this is true of “climbing the corporate ladder” too. You could follow the rule book on that, work your way up slowly by doing this and that, and in maybe 10-20 years you might reach the “top.”However, the successful mind says well, why not just START at the top? and goes out and does the work to create their own business. Sure it’s harder and scary, but then again, if your goals are lofty, your courage better be too.So remember, no matter what changes in the economy, the country, the business you’re in… there’s always a whole different set of rules you can play by and the question isn’t how am I going to thrive under the changes… it’s how am I going to figure out how to thrive IN SPITE of those changes.

However, bear with me for just one more post because this one in particular is probably the most important part of this little series on health insurance. What you don’t know… really can hurt you in a big way here.

So in Part I and II we talked about one reason that you really can’t afford to say “I can’t afford health insurance” and in the other we talked briefly about the issue of monthly cost. Today we’re going to explore that second one a bit more, and hopefully clarify some of the last remaining bits about health insurance.

COST at the time of service is the FINAL consideration and is EASILY the most misunderstood part of health insurance.

Health insurance is NOT, under the current system, intended to allow you to go to the doctor whenever you’d like for free. You are obviously well aware of that as it may cost anywhere from $15 to hundreds for you to go under your current plan.

The reason for this wide variance in something as simple as going to the doctor is the tens of thousands of plans that attempt to bend and shape themselves to different employer/individual requirements using three main “Cost controlling factors” if you will.

These for simplicity are: co-pay, co-insurance, and deductible. There are also inside limits but I won’t talk much about them here. Inside limits are simply policy limits for specific services (ie, you only get 2 office visits per year, or something like that). You are probably familiar with all of these but let’s talk about the spirit in which they are used to get a better understanding of how it works.

To make it clearer, we’ll use the analogy of a car insurance policy as we have previously…

If you have a high deductible plan, your health insurance works similar to your car insurance. You agree (or your employer did this for you) to pay for the routine maintenance and minor repairs on the car (doctors visits, blood work, etc) up to a certain dollar amount and the insurance company agrees to pay for LARGE losses – ie, you wrecked your car (had a major medical issue).

This is the basic model for a modern health insurance policy and in this case, what we’re insuring against is LARGE financial losses. In addition to a deductible, your plan may have a co-insurance as well. This is typically 80/20 but can be any percentage. In this case, if you have a LARGE bill from the hospital or something, you would be responsible for your deductible (just like in the car crash example) plus a percentage of whatever the insurance paid over and beyond that. Usually, this will be subject to a “stop loss.”

A stop loss is just a maximum out of pocket for the year that you can be held liable for, in the worst case scenario.

Co-insurance is meant to prevent people from “over using” their insurance, whatever that means. However, for me, it just means that it’s another amount on top of the deductible that I might be held responsible for, if I go in for a surgery or something like that.

You may also have co-insurance on your doctors visits. In which case, the insurance will pay the doctor a percentage of the claim, and you’ll pay the rest.

Finally there’s CO-PAYS. Now Co-pays are the part that trip us all up. Especially those of us who are young, sexy, and reasonably healthy.

I frequently hear people complain about paying $50 to see a doctor. This is because their copay is a set $50 to see that particular kind of doctor. While I’d rather not pay anything either, the increase in monthly premium is often quite steep to have a lower copay.

The reason is that if your copay is $15 you’ll probably go to the doctor anytime you think something might be wrong. You’ll think about it harder if it’s $50 though. The result is less small claims being submitted…which means less expense to the insurance company.  So it’s a trade off… and to be honest, one that can be a wise to make.

Think back to the car insurance example. You typically do not have a $15-$50 deductible on a car policy, nor do you expect them to pay for any of your car repairs or maintenance. The same applies here. Sure a low copay is great, but don’t let the lack of a low copay make you believe your insurance is inferior.

Remember, the real purpose of health insurance is to prevent you from suddenly being plunged into tens or hundreds of thousands of dollars of medical debt. Not necessarily to make doctors visits super affordable, though it certainly can help with that.

That said, also remember that you must be proactive about your own financial situation. The more sturdy your personal finances and the more you can afford to cover “just in case”, the less you’ll have to pay out to an insurance company.

In closing, I’ll mention that the last thing I just said is important. Insurance is a game where the house (usually) wins. Therefore, the less you rely on the insurance company (by picking up the tab on the smaller expenses), the more likely you are to build your own wealth over time.

In any case, always consult with a licensed agent or broker to figure out exactly what your needs are and what plan will best suit your needs. Just don’t put it off until it’s too late.

Now regardless of who pays for your insurance, whether it be you or your employer, it’s important that you play a proactive role in your healthcare. Frankly, you are responsible for making sure that if something happens to you, that you’re taken care of. No one else will advocate for you quite like you can for yourself. If you get nothing else from this series, I hope that will stick in your mind.

So last time we said that not health insurance of any kind can really leave you without proper health care. Even if you’re young and are rarely sick, it takes only one small incident or change in luck to be thrust into a situation where frequent doctors visits or hospital visits can become a reality. Without insurance, you’ll find it hard to get in the door, let alone pay for your treatment.

Now in this part, I want to talk about the primary reason people give for not having adequate health insurance. Monthly cost.

I get it, health insurance is “expensive” in that it has a large monthly payment. That said, let’s talk about why it’s not really expensive at all and how many different options you really have on cost.

First of all, what is the purpose of insurance? When asked this question, most people can pretty much answer it correctly for car insurance or to a lesser degree their home insurance. The main purpose of insurance is to transfer a known risk (peril in the insurance business) onto someone else.

All that means is you’re paying someone/some company to take the brunt of a financial loss if one should come your way. Essentially, you’re hiring a fall guy when you buy an insurance policy.

So with your car, you are paying someone to pay up IF you wreck it and wind up with no car but a $20,000 car note outstanding. You wouldn’t want to drive around without insurance because if you wrecked, YOU would be on the hook for all that money PLUS replacing your car.

Most people understand that clearly. However, I find that when we change the word to health insurance, the understanding breaks down very quickly.

For the most part, most people view health insurance purely as the admission price to see a doctor or go to the hospital. In other words, I hear people say all the time that their health insurance sucks ….because they have to pay $50 to see a doctor.

Now I think the main reason for this is that at the end of the day, we’re insuring our well being and that’s very different to us than our property. A car is just a car, but our life is a very different matter.

This is one of the toughest parts of the healthcare industry. Everything costs real money, from the supplies to the doctors, to the tests, to the software that manages it all, and so on. Sure there’s waste and there are people in the system that are taking unfair advantage. However, while that all sucks, it would also suck if that money was no longer there and there was little motivation for companies and individuals to spend their time researching medical advances and so on…

That said, the point of health insurance IS NOT to make going to the doctor free or very low cost.

It’s simply to keep you from being on the hook for a LARGE loss. The fact that many health plans also cover smaller losses is really just a BONUS.

See, if we were talking about our car, we wouldn’t expect our insurance company to cover minor repairs or routine maintenance. Yet when we switch to health insurance, we (in general) do.

Nothing wrong with that, but we DO wind up paying for it in our monthly payment (or our employer does).

Just understand that the real point of health insurance is to keep you from being on the hook for $250,000 after you get a cancer diagnosis or to keep you from being out of pocket $20,000 a year after receiving the news that you’re a diabetic. It’s not NECESSARILY to make going to the doctor cheap.

So monthly cost is GREATLY impacted by how many claims you’re likely to file each year. Your health at the time of getting the insurance is also a major factor. Again, it’s not perfect, it’s what we got for now so we need to learn how to work with it.

Inexpensive insurance plans are typically going to behave more like your car insurance policy. You’ll have a deductible of some amount, say $2500 that you must meet before the insurance company pays ANYTHING. Typically you get a discount on the services up to $2500 (so it’s still better than paying $2500 on your own), but until you’ve suffered a loss of $2500 out of YOUR pocket, they’re not paying for anything.

However, in this situation, they pay for EVERYTHING beyond $2500. This plan would probably be reasonable on a monthly cost basis, but you’re going to pay a hundred or two to see a doctor if you get a runny nose. As you might imagine, it’s usually cheaper if you look at the yearly cost savings of having this high deductible plan than paying that one or two doctor visit cost.

To further help folks out, insurance companies came up with what’s called an HSA (health savings account). With this, you attach a savings account to your high deductible plan. All money you put into this account is tax free money and it rolls over from year to year, so you never lose it.

Your employer might have you in an HRA plan which is similar, but for practical purposes, the money in the HRA account are put there by your employer and a few other differences.

With an HSA, you can put money aside, tax free, to pay for your various medical expenses up to your deductible. This allows you to balance a reasonable monthly premium with good coverage against catastrophic financial losses.

Now let’s contrast that with a full comprehensive policy, the “Cadillac” plan if you will.

In these plans, you have a co-pay that may vary from a few dollars up to maybe a few hundred for something like an ER visit. In these situations, the insurance company asks that you pay something when you go to the doctor, but they are going to pay something on ALL visits and ALL testing that you have done.

The great news about these, are you don’t have to think about going to the doctor before you go, you can just go because the cost of going is going to be low.

The down side is that they are very expensive relatively speaking because of the number of claims your likely to file in a given year. Small claims are almost as expensive for an insurance company to process (administrative cost wise) as really big ones, so needless to say – they don’t like small claims.

Now of course, everyone would love to have free healthcare where they can go to the doctor whenever. However, the costs would be enormous for this kind of coverage and over-use of services would probably be a real issue.

The good news is, regardless of your monthly budget, there is probably a plan that can cover you AT LEAST against the really big losses and THOSE are the ones that can ruin your life. So, before you say a plan “sucks” because it costs money to go to the doc… just remember the car example. The primary purpose of health insurance is to prevent you from going bankrupt when something major happens.

I’ll see you back again in part 3. Take care!

I am currently in the process of obtaining a health insurance license in the state of North Carolina, and while I don’t plan to talk about health insurance much on this website, I thought it’d’ be appropriate to clear up some things about one of most misunderstood products that people (or their employers) pay for.

Health insurance is a HOT topic right now, and really, it has been for some time. I have no opinion one way or the other about the system right now and who in congress or power is right or wrong about what to do about it because frankly there’s only thing for sure: It’s a broken system, and no one actually knows WHAT to do about it.. yet.

What I can tell you are a few things you probably didn’t know about the current system that can help you protect yourself and your family as best as possible.

Having worked inside of a primary care physician’s office, I know that for the most part, most people do not understand their plan let alone what health insurance is and isn’t. That’s not good news considering it’s one of the most expensive things that you pay for (even if your employer “pays for it”).

You can gripe all you want about the system, but at least for now, you MUST be proactive about your own healthcare or no one else will.

One of the most important things to know about health insurance is that you cannot afford to have no health insurance at all. You may not be able to afford the top of the line plan, but you really need to have some form of coverage in this day and age, even if it’s covers only very expensive bills. Frankly, by 2014 or so, the new laws on insurance are going to demand that you have it so you might as well learn about it now even if you’re going to put it off.

If nothing else, some form of coverage will open up treatment options significantly and reduce the odds that you’ll be financially liable for tens, hundreds of thousands of even millions of dollars.

One of the best ways to find coverage that suits your needs is to consult with a licensed health insurance broker in your state. These agents typically do not cost you anything to work with, do not increase your costs in any way, and they can help you find the coverage that is right for you, your budget, and your medical needs. Working with a good one is definitely a win-win, especially if you must get your own coverage or would like to have additional coverage (in the case of a poor employer plan).

This is going to be long but hopefully helpful, so I’ll be breaking it into 3 parts.

The FIRST hurdle with health care in the current system is getting treatment in the first place. Sure, if you’re uninsured you CAN go to the E.R and more or less be treated for “free.” However, you will wait a long time, they will push you out the door as soon as possible, and unless you’re really sick – you’re probably not getting care. You will also have serious problems if you wind up with a chronic health condition and need to see a specialist or general practitioner on a regular recurring basis.

In any case, the company you choose will impact your options of who will see you in the first place. Medicare/Medicaid are only taken by certain practices, Blue Cross by most but not all (depending on state), Cigna/Aetna/Wellpath/many others only by certain providers. This is further complicated by the available of many different types of plans by those many insurers.

Understand that this is absolutely broken, but the blame rests on everyone involved, not any entity in particular.

This hurdle has nothing to with what you’ll pay when you get there. This has to do with having the option to get treatment at all. While under the current law you must be treated in the case of life threatening illness or injury, that’s about as far as it extends. If you are merely sick or have a chronic health condition – you’ll find yourself in a world of hurt trying to just get an appointment.

Essentially the problem is this… the doctor/facility has bills to pay. They are not bankers, and they are not in the business of extending credit to patients. While they may very much want to see you, they simply cannot afford to do so. The other problem is even if you can afford to see your general practitioner on a cash pay basis, you’re going to run into two major issues.

The FIRST is that he or she will have to be very reluctant about ordering tests or procedures for you because they know that these are all very expensive and you’ll be on the hook for them. Therefore, you’re getting health care, but you’re very unlikely to get the full care you’d want simply because at the end of the day – everything costs money.

The SECOND is one of my least favorite facts about health care in America and it’s that if you DO NOT have health insurance, the cash pay price (what you’ll pay as a cash payer without insurance) is almost always higher than the contract rate that the insurance company has negotiated with your provider.

All that means is this… if a patient comes in with let’s say Blue Cross, and the doctor participates with them, Blue Cross and the doctor have an agreement that all Blue Cross patients get a discount on their visit. Think of it as a AAA card kind of thing…show your card, get a lower price.

This discount (which most patients are unaware of) ranges from a few dollars to tens of thousands of dollars depending on what’s done and where. Interestingly, if a patient comes in with another provider, say Medicare, the doctor will get a completely different amount of money from them for the same service. To give you an idea, the bill for my bicycle accident years ago totaled over $30,000 but I believe my insurance company agreed to pay about $12,000 at the end of the day. I would have had to paid $30k unless I could have qualified for an economic hardship which would be unlikely since I have means to pay. Even if I had a high deductible plan at the time, I’d have much preferred to pay back $12k instead of $30k – follow?

The sad part though is that under most of these contracts, the doctor must charge the cash pay patient MORE than they charge those with insurance even though the doctor would probably prefer you just pay cash as then they don’t have to pay billing people to chase down your insurance claims.

So if nothing else, you want to have coverage with a major insurer so they’ll let you in the door and so that you’ll at very least get a (often steep) discount on all services rendered.

In the next 2 parts of this little series, I’ll be talking about monthly cost and then in the final part I’ll really break down how co-pays, deductibles, and co-insurance work and how you can put together a plan for yourself that’s both affordable and makes sense for your needs.

Not too far from you, you see a life boat which is empty and floating just to your right. You climb into the life boat and collapse into the bottom of a boat very unlike the one you were recently enjoying, gasping for air and shivering from head to toe.

All around you, you see members of your family, and long time friends who are not far from you, but certainly not in any condition to swim yet. Your heart sinks and you want to save every one of them and so you begin to prepare to move the raft toward them.

You notice that your feet are now submerged in water as you realize the awful truth… this boat has a hole in it, and it’s not going to be afloat much longer.

You have two choices now. Try to move the boat towards your family/friends and save them now, or first address the hole that is gushing water into your life raft and quickly sinking beneath you.

This is the position I find many people in every day. They are surrounded by friends and family members that they love and want to help…. yet, they’re standing on an unstable and possibly sinking foundation, financially.

They tell me that their brother, sister, son, daughter or friend needs a place to live but they’re draining them financially. Their 32 year old is still calling, asking for money. Their family always does a yearly cruise and they can’t imagine telling them they can’t afford to do it this year.

It’s a tough place to be, no doubt. However, the thing to keep in mind is that you cannot help others while standing in a sinking life boat. If you’re not 100% on stable ground yourself, then it does them no good, and it does you nothing but harm to try to help.

That may seem heartless, but understand that like the lifeboat in the Atlantic, you’ve got to first fix the holes in YOUR BOAT, before you can truly save or help the others. Otherwise, the only thing that will inevitably happen is that you will all sink to the bottom.

On a more positive note though, if you can fix that hole in the boat, and if you can shake off the cold of the ocean breeze and paddle strongly to your friends and family, you CAN help them and perhaps even show them how to save themselves.Matter fact, I tell my students all the time that if they wish to help their families and friends that the best thing that they can do for them is educate them in how to fix their own life boats, pray for them, and to make sure they put as much work as possible into building a strong foundation for themselves.

You can be infinitely more generous and a far more effective leader when you’re not be pulled down constantly. So if that means taking some time to work on yourself, I don’t see that as selfish at all. I think it’s the most generous thing that you can do.

Keep this analogy in mind as you work on getting your financial house in order and I can assure you that while it may hurt in the short term, the long term gain will be far more worthwhile than you can imagine.