Employer Health Insurance Plans and PPO vs. HDHP

Date:


Today, Dr. Dahle and Dr. Spath answer questions all about health insurance. They talk about PPOs vs. HDHP plans. They discuss the difference between co-pays and out-of-pocket maximums. They cover the difference between bronze and silver and platinum plans and talk about why HSAs are so awesome. They answer questions about when you should or should not pay cash for your house and if 1099 employees need to create an LLC or not. There is a little something for everyone today.

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Employer Health Insurance — PPO vs. High Deductible Plans 

“My wife is a school teacher. She’s currently in her insurance enrollment period. I’ve never really looked at it before, but I am this time. I think employer insurance offerings would be a great topic for your show, as well. Below are the current coverages that are available to my wife and the employee cost. I have no idea if they’re all worth it, but maybe you could elaborate on that during a podcast sometime.”

Dr. Spath:

Here is what her offerings are per pay period, which is twice a month. They have two dependents. For medical, for just one person, it’s $13 a month, dental is $37 a month with two dependents. Vision is $9 a month with two dependents. They also have access to accidents, cancer, life, critical illness, which he’s not paying for currently. Spouse and children life insurance, legal services insurance, short-term disability, and long-term disability. The short-term was $9 per pay period and the long-term is $7 per pay period.

Dr. Dahle:

The amazing thing about this email is these prices. I actually buy my health insurance. I pay for, not only myself, but my employees and that is around $1,400 a month. These premiums of $13? Is it worth it? It’s $13. Yes. It’s worth it at $13. It’s free. Your employer is picking up the whole thing. You might as well do it. That was my first thought with this email. But let’s talk about all this stuff. Let’s talk about these employer health insurance plans, the differences between them, etc, and try to give people some background. Even people that work in healthcare, which are most of our listeners, know surprisingly little about health insurance. I’m amazed how little doctors know about health insurance. They don’t even cover this in medical school. It’s amazing.

Dr. Spath:

Right, and being on the primary care side, I deal with this with patients a lot because they’re always talking about their “out-of-pocket” and I try to explain to them what’s going on and why they’re getting so many bills. Let me go through some of these options with you, and I’m going to try to be comprehensive but not bore you too much. Let’s talk about PPOs. The PPO is kind of the insurance of the past, what we used to think insurance was like—where your insurer contracts with several hospitals and doctors, and you can go for a discounted rate to any of those doctors that they are contracted with. Or if you are going out of network, then you’re, of course, going to pay a higher fee. This was the old-fashioned insurance. It’s still available, but it’s more costly these days.

With the PPO, you basically pay a little bit more for the freedom to choose from a larger pool of doctors and have usually lower out-of-pocket expenses. A high deductible health plan, in contrast, is something that’s made to be cheaper for you in the short term. It’s going to have lower monthly premiums most of the time. I say that because that’s not always the case. In general, high deductible health plans have lower premiums, but they have a high deductible. So, there are a lot of out-of-pocket expenses that you’re going to have initially in the first half of the year, most likely. There’s the minimum deductible and there is the annual out-of-pocket maximum that you have. A lot of the high deductible health plans, the minimum deductible for these, for a family, is $2,800. That is actually the minimum. A lot of employers have a much higher deductible than that. I’ve had plans that were $5,000 minimum deductible.

Then, you have the out-of-pocket maximum. Remember you’re going to have cost sharing even after you meet your deductible, unfortunately. Most health plans have out-of-pocket co-insurance that comes out even if you’ve met your deductible, then you’re paying co-insurance until you reach your out-of-pocket maximum. That number, the out-of-pocket maximum for a high deductible health plan, usually is around $14,100 for a family. If you’re going into a high deductible health plan, you should budget to pay $14,000 in healthcare costs. And this is going to be a painful $14,000 because it’s going to come to you in little drips and little bills that you have to pay over time. It can really grate on your psyche, but if you are prepared for it, then you just say, “OK, I’m going to pay this until we get to the $14,000, then I’m not going to pay any more.” Then the insurance is going to cover everything.

Dr. Dahle:

This is basically how the health insurance companies are trying to get you to not spend so much. The first part, you’re paying for everything, that’s your deductible. The next part, you’re splitting it with health insurance. That’s the co-insurance part. After that, once you have paid your entire out-of-pocket max, the insurance company picks up everything else. They’re basically trying to get you to spend less, in essence.

Dr. Spath:

Exactly. The good thing about a high deductible health plan is you do get access to the health savings account or the HSA with a high deductible health plan. In the finance world, everyone loves HSAs. The reason for that is it is triple tax-protected. You don’t get taxed on the money that you put into it; it’s pre-tax. You don’t get taxed on the growth, and you don’t get taxed when you take the money out as long as it’s for healthcare expenses. If you want, you can let that money grow. You can pay the $14,000 out-of-pocket just from your cash flow and then keep that money in the HSA growing tax-free until you retire. Then you can use that money to pay your retirement healthcare costs, or you have the option of dipping into it if you need the money now. The HSA access is really key. What do you think, Jim, do you like HSAs?

Dr. Dahle:

I’m a big fan of HSAs. Do you have an HSA? I’m just investing in mine right now. I haven’t gotten around to taking anything out of it, but we’ve been doing an HSA now for a long time. I think our HSA is $150,000 or something because we keep putting money into it and it’s invested, just like our 401(k) or anything else. There has been a lot of growth. But eventually, we expect to be taking some money out of it. I’ve got a bunch of receipts I need to get around to logging together and actually pulling out that money from receipts we’ve spent on it. But it’s essentially another retirement plan for us.

Dr. Spath:

The hard part with the HSA could be keeping up with those receipts. We have a system where we have a Google Drive where we take pictures of any healthcare cost and put it in there. That way we have a digital backup, but we also have a paper folder of everything just in case we need it in the future.

Dr. Dahle:

The question I get a lot from people is should I get a high deductible health plan just to get an HSA? I think that’s putting the cart before the horse. I think you first need to decide what’s the right plan for you. Then, if the right plan is an HDHP, then sure, use the HSA. But if you’re the type of person who has, let’s say rheumatoid arthritis, you’re going to hit your out-of-pocket max every year. The right plan for you is almost surely not a high deductible health plan. The high deductible health plan is the right plan for my family. There are six of us, and we’re all pretty healthy. Yes, we spend some money every year on healthcare costs, but I don’t think we’ve hit our deductible in the last five years. A high deductible health plan is totally the right plan for us, but it’s not the plan for you.

If you’re actually hitting your deductible every year, you’re hitting your out-of-pocket max every year, that’s probably not the right plan for you. Especially if you’ve got an employer who is paying most of the premiums. If your out-of-pocket is $13 a pay period, you ought to take the best insurance they’re going to give you because that’s really valuable. Health insurance is a $10,000 or $15,000 or $20,000 or $25,000 a year benefit. It’s really valuable. I’ve got employees here at The White Coat Investor, and we pay for 80% of their health insurance. And it is not an insignificant expense to the company. It’s a lot of money. Health insurance is not cheap, and that’s because people actually use it. That stuff you do all day at the hospital or in your clinic is expensive stuff and it’s got to be paid for.

Dr. Spath:

Yes, absolutely. I will caveat that you really have to look at the employer. You sit down and go through the options and just make sure, because in our situation, Josh has a lot of chronic health illnesses. His heart valve was getting worse, and we could see it coming that he would need surgery. This year, we looked at our health options, and we were fully mentally prepared to go PPO because we knew we’d be having a lot of expenses. But when we actually looked at it, the PPO premiums and out-of-pocket was actually higher than the high deductible health plan that they were offering us. The high deductible health plan that Josh’s company has is amazing. Our out-of-pocket was lower than the PPO. So, we just ended up going with a high deductible, and it’s worked out really well for us. Finally, we’ve hit our out-of-pocket maximum, and it’s only May.

Dr. Dahle:

You’re right. You definitely have to run the numbers. I’ve even seen the opposite situation where people come to me who really wanted to do the high deductible health plan because they wanted to do the HSA. But their PPO plan is actually cheaper for them. Their employer is actually charging them more for the high deductible plan, which is bizarre. But that’s the way it was. So, you’ve got to look at what’s offered to you and run the numbers.

Let’s talk a little bit for a minute about this bronze, silver, gold, platinum thing. Do you want to explain how that works?

Dr. Spath:

Obamacare and the open market have different levels of insurance. A bronze plan is where the insurance company pays about 60% of your costs and the insured pays 40%. It’s the lowest monthly premium, but you are getting a lot of the out-of-pocket expense. You’re getting 40% as compared to say, you go to the platinum which is the highest level. The insurance company pays 90% of the cost, and you pay 10% of the cost.

This is the highest monthly premium and the lowest deductible. It portrays how much the insurance is going to be paying and how much you’re going to be paying. You need to choose that knowing how much cash you have to pay out-of-pocket costs vs. how many healthcare expenses you might be having in the near future. You need to look into your cloudy crystal ball and make a decision, basically. Good luck with that. Sometimes you can see it coming, sometimes you can’t. If you do have a lot of disposable income, a lot of cash sitting around that you have at the end of the month, then maybe something with lower coverage and higher out-of-pocket expense might be OK for you, because you have lower monthly premiums. It’s up to you.

Dr. Dahle:

We’ve talked about deductibles. We’ve talked about co-insurance. What is a co-pay? How is that different from co-insurance?

Dr. Spath:

Co-insurance is when the doctor sees you and they send a bill out for the service they provided. The insurance then divides up the cost and they pay 80% or whatever, and you pay the 20%. They send you a bill. They say that you’re going to have to owe the 20% to the doctor. The co-pay is what you pay at the front desk when you walk in. It is the cash you pay when you walk into the appointment. That co-pay has been predetermined between your doctor and the health plan that you’re with. If you have reached your out-of-pocket maximum, I don’t think you have to pay the co-pays anymore.

Dr. Dahle:

Let’s run down through this list of insurances from the email. Medical: $13. Yep. Get that. That’s a great deal. Dental for you and two dependents: $37. That’s a pretty good deal. Dental insurance is really interesting, though. Dental insurance is not like insurance. Insurance you usually pay the small amounts yourself and the big amounts are covered by the insurance company. Dental is the opposite. It covers the small stuff. It covers the cleanings and the exams and half of a cavity and that sort of stuff. But then it maxes out at $1,500 or $2,000 a year or something. But even so, being able to pay for dental care with pre-tax dollars, I think it’s usually worth getting dental insurance. If for no other reason, it encourages you to actually go get the dental preventative care that you should get.

Next is vision. This is $9. I mean it’s $9. If either of you wears glasses or contacts, it’s probably worth getting vision. Accident and cancer insurance: this is classically insurance you don’t buy because your health insurance covers accidents. Your health insurance covers cancer. You don’t actually need this additional coverage. In the case of this emailer, it’s $8 and $16. It’s not super expensive, but I’d probably still skip it. That is insurance that is designed to be sold, not bought. They’re giving you some free life insurance. Take that. Obviously, anything the employer’s just going to pay for you, you might as well take it. That’s usually not enough life insurance. Usually if you need life insurance, you need a lot more than an employer can give to you. Typically, they’re only going to give you about two times your income, and that’s just not enough. It’s not enough if you have people actually depending on your income, besides you.

Next up is critical illness. I view that as another insurance designed to be sold, not bought. Life insurance on your spouse and children, in general, if you’re not depending on the income from your spouse or children, they don’t need life insurance. It’s not always true. Keep in mind, even a stay-at-home spouse is doing things that would cost money that you would have to pay a lot to replace. Imagine what it would cost to get childcare or what other services they’re doing. Whether it’s meal preparation or house cleaning or running the kids around or whatever, there is a cost to that. It may be worth getting some insurance on your spouse.

Next on the list is legal services insurance. That’s super interesting. I don’t know. I’d have to look into that. That might be interesting to get.

Dr. Spath:

I had that for a little while with my husband. He works in the tech industry. They get all kinds of good benefits and the legal insurance was really worth it because we used it to make our will and trust. It was all free and covered by the employer, which was pretty cool.

Dr. Dahle:

That might be worth paying for. Short-term disability: $9. I mean, at $9, I might take it. I’m feeling the employer’s paying 90% of these benefits. So, when someone’s going to pay for something that I might not otherwise buy, I might just take it. Long-term disability: again, most of the time you probably want the better long-term disability policy than what you’re getting from your employer. But at $7 a pay period, I’m probably taking what they’re offering, too. You just want to coordinate that if you’re also buying an individual policy

Dr. Spath:

I’m going to caveat the short-term disability piece with, if you are a woman and you’re planning on having kids, definitely get that because you’re going to need that for maternity leave. But make sure it covers maternity leave because some do and some don’t. You have to make sure that most of the time they won’t cover you unless you’ve worked there for a year or a certain set amount of time. Make sure you’re looking at all of that when you buy that insurance.

More information here:

Read Your Health Insurance Policy

Should I Get an HDHP Just to Use an HSA?

How to Choose a Health Insurance Plan from Your Employer

 

Should I Form an LLC? 

“Hi Dr. Dahle. This is Matt. I’m a current resident who is going to be graduating this year. I’m moving to a mid-size city in the Midwest with my wife who’s a graduating fellow. She’s been offered a 1099 employee position with a private practice group with the hopes of eventually working toward W2 employment with them. I’ll be employed for two years in my fellowship by the hospital with an associated benefit and pension plan. From her side, we were wondering whether it made more sense for her to form an LLC. We’re planning on doing a solo 401(k) rather than a SEP-IRA or SIMPLE IRA with hopes of eventually doing a Backdoor IRA in the future for ourselves.”

Dr. Dahle:

I get this question a lot and people feel like, “Oh, I need a business entity. I need an LLC. I’ll be more official.” Or they think they’re going to get some additional liability coverage from doing that. But here’s the truth. If you are an independent contractor, if you have no employees, you essentially have no business risk. There’s no business risk that you need to protect yourself from. You don’t have employees or contractors or a place of business, or you’re doing something dangerous like guiding people down a river or something like that. You don’t need an LLC. Remember, an LLC is not going to protect you from malpractice. Malpractice is always personal. Whether you form an LLC or not, your malpractice risk is exactly the same. All you’re doing is adding hassle into your life for no additional benefit.

Now you do need an EIN, an employer identification number with the IRS. That’s free. It takes you 30 seconds to get online with the IRS. You’ll need that if you’re going to open the solo 401(k), which is the right retirement plan for her to use at this point. You don’t need an LLC. If you’re just a 1099 independent contractor, nobody works for you, sole proprietorship is perfectly fine. You’re not going to get any additional benefits out of an LLC, and you’re going to introduce complexity and cost. I’m not against LLCs. I love LLCs. White Coat Investor is an LLC. My real estate investments are LLCs, but you don’t need it in this case.

More information here:

Can a Doctor Form a Corporation to Reduce Liability and Save on Taxes?

SEP-IRA vs. Solo 401(k)

 

What Do I Do with All This Money? 

“I’ve been a regular reader and listener for the past five years, ever since my son became a resident and bought your book. When he finishes his fellowship, he plans to still live like a resident, even on a surgeon salary. I thought it might be interesting for you to interview someone about, What do I do with all this money? My son is fortunate he doesn’t have any student loans and he’s been frugal and intends to remain frugal, but he’s interested in hearing how others manage their new windfalls.”

Dr. Dahle:

What a great problem to have. Let’s talk about this because this can be hard. Everybody struggles with this. Especially if you’re living like a resident, you come out of training and you have all this great stuff to spend your money on that you need to do. There are all kinds of things.

Dr. Spath:

First of all, I want to say how blessed we are to have this awesome problem. This is definitely a problem for rich people, and it’s awesome. So, tax advantage first is what I would say. Make sure you’re filling up all of the tax advantaged buckets before doing anything else because that space doesn’t come back. Every year you are guaranteed just the 401(k) or whatever retirement account you have access to. Make sure you fill those up. Then we generally say, high interest debt, that should go. Anything that’s above 10% should go. What do you think, Jim?

Dr. Dahle:

There’s not actually a right answer to this. It’s all about what matters to you. Then you go and you put everything in a row according to how much it matters to you, and you go through it until you can knock them out. You go as far as you can, until you run out of money. Maybe you don’t have an emergency fund. Now’s time to get a real emergency fund. Maybe three months’ worth of your spending. Maybe you’re still carrying around a car loan for a car you bought a few years ago. Maybe you’ve got some credit card debt that you used to pay for residency interviews or job interviews or something. Knock that stuff out. Another high priority, if your employer is giving you access to the 401(k) already and they offer you a match, obviously not using that is leaving money on the table. So, that’s a pretty high priority. But truthfully, most employers don’t let you use the match the first year anyway.

At this point, a lot of people are saving up a down payment for a house. Even if they’re not buying it right now, maybe they’re waiting six months or 12 months to make sure their employer likes them and they like their employer. But that’s a pretty high priority for most people coming out of residency. Then, of course, all those great retirement accounts. You may have access to an HSA and a 401(k) and Backdoor Roth IRAs for you and your spouse. Your spouse probably has some retirement accounts, and maybe there’s a 457. Everybody’s going to be a little bit different in this regard. Maybe you want to get started with building a real estate empire. It just comes down to your priorities, listing them out, and knocking out as many of them as you can. Just realize that you’re going to run out of money. Even with that extra $100,000 or extra $200,000, you’re going to run out of money before you get through everything you want to do.

It’s actually really a sign of success when you’re five or 10 years into your career and you’ve only got two things to put your money toward this year because your mortgage is paid off and the student loans are gone. You’ve got an emergency fund, and you’re in your house. Now you’ve only got two or three things to put your money into. In the beginning, you’ve probably got eight or 10 things to spend your money on. That’s not including getting rid of that beater you’ve been driving for eight years or rewarding yourself with a nice trip to Costa Rica or something. But you just have to decide what your priorities are.

Dr. Spath:

Think about your priorities really logically before you get distracted by all the things you want to buy. Sit down with your household team and write down your goals for the year. That’s the biggest thing. Make your plan and then execute it. But because you’re going to get distracted, you’re going to want to take that trip to Italy, you need to know that you have met your goals and your big picture, what you wanted to do for the year. As long as you’ve met that, you can do the extraneous spending guilt-free. There’s always going to be a goal of a good use for your money and then an indulgent use for your money. Just make sure you write down the good uses; get those done. Then you can indulge.

Dr. Dahle:

If you need something prescribed to you, that “Do this, then do this, then do this, then do this,” we can give you that. Just recognize that it’s not set in stone, for sure. If you had to put a list together, maybe the 401(k) match first, then your high-interest debt, maybe then your HSA, because it’s triple tax-free. Then if you’re an attending physician, typically it’s tax-deferred accounts and then tax-free accounts like your Backdoor Roth. But that first year you come out, you might want to do a Roth conversion. If you’ve had a bunch of tax-deferred money that you put in during residency, maybe that’s the year to do a tax conversion. There are always ways that you can personalize it and individualize it for your unique situation.

Coming up with things that you need money for as a new attending is not hard. The money just will not last through all of that stuff. That’s part of the fun of building wealth as you go along through the years. You gradually start meeting those goals. Honestly, once you’ve met all your financial goals, it’s a little depressing because you don’t have any other ones to work toward. You get a little sad that you don’t have goals to work toward, but it’s a good thing. It’s a sign of success.

 

Defined Benefit Plans

“Hi, Dr. Dahle. I have a question about defined benefit plans. I’m interested in using one as a tax saving vehicle and saving for retirement. However, a lot of the ones I’ve investigated have high yearly maintenance views and don’t allow you to choose what funds you’re invested in. In fact, some use actively managed funds with what I’m assuming are high expense ratios. I haven’t been able to find any that allow you to use index funds. I’m having trouble deciding whether tax savings will outlay the cost because at the end of the period of the plan, you can always just roll it into your 401(k). Any insights on whether a defined benefit plan would be worth it from a tax-savings perspective, given that most are pretty costly? Thanks for all that you do.”

Dr. Dahle:

Let’s talk about defined benefit plans. When we’re talking about this from the perspective of doctors, we’re generally talking about cash balance plans. Now, remember a defined benefit plan is technically a pension. Like that pension your father or your grandfather had working at GM. That’s what a defined benefit plan is rather than the defined contribution plan such as a 401(k). In reality, what these defined benefit cash balance plans are is an additional 401(k) masquerading as a pension. They have to follow the pension rules, but in reality, you’re going to close this thing down in five or 10 years and roll it into your 401(k). The contribution amounts might be really small. It might be like $5,000 a year, but it could be as high as $200,000 or $300,000 a year. The contribution amounts can be really big, especially if you’re a pretty high earner, you’re in your late fifties, and you don’t have any other defined benefit plans.

You might be able to put a lot into this plan. But if you’re opening one yourself for your practice or your partnership or you’re opening a personal one, you don’t have to go to a crappy plan with crappy investments and super high expenses. You can get good plans. They always cost more than a 401(k) though, because there’s additional expenses. There are actuaries that have to run the numbers every year to figure out how much you can contribute and all that sort of stuff. It’s going to cost you more than a 401(k) is going to cost you, but it doesn’t have to be actively managed funds. It doesn’t have to be AUM fees, etc.

The best place to go if you’re not sure who to call to put these things into place is to go to whitecoatinvestor.com, go to our recommended tab and scroll down to retirement account and HSA help. Listed there, you’ll find four or five firms that this is what they do. They put in 401(k)s and cash balance plans for your practice. They can help you to do it individually. You can go to, I know Schwab does one that’s kind of a little bit cookie-cutter, but it’s got fairly low expenses. But when I say fairly low, it’s still going to cost you $1,000 or $1,500 to set it up and about that much each year. If you’re not putting a whole bunch of money into it, it might not be worth it.

Everything you put into it is basically like a 401(k) contribution. If you can put in $40,000 or $50,000 or $100,000 into it, it’s probably worth paying those additional fees and dealing with that complexity. Definitely look into it, but don’t feel like just because you haven’t found a decent provider yet that there are no decent providers out there. You can get one with index funds, you can get one with reasonable fees, you can get one that doesn’t charge AUM fees. You just have to keep looking around, and I think those resources on the website will help.

More information here:

Understanding Cash Balance Plans

 

Should You Pay Cash for Your House? 

“Hi Dr. Dahle. This is Dave calling you from California. Thank you for all that you do. I’m getting ready to finish residency here in a couple months, and we are planning on moving to the Midwest for a new position. We ask for your advice. We purchased a home early on in medical school and justified it by the fact that my wife’s home business really couldn’t be run out of a rented space. We’re now in that similar position where we are purchasing another home in our new location. However, it’s very generous, the arbitrage that we are gaining. And so, the question now with this market is what we should do with the equity from our previous home? Really, we have enough that we could buy our new place outright, but this is likely not going to be our forever home. Any advice that you could give us about this would be very appreciated. Again, thank you for all that you do.”

Dr. Spath:

Our theme today is rich people’s problems. I love it. You are in a very wonderful position of having disposable cash and you’re wondering whether you should be taking that cash now that you get as a profit from the sale of your first house to put into your second house and buy it outright, or should you invest it? I’m generally of the mind to have less debt and try to pay off your primary residence. But honestly, in this situation where you could buy a house in cash or finance the house and actually invest it, I would think I would go the other way. When people make the decision of invest vs. pay off debt, they’re usually talking about everyday expenses. The extra money I have left over, should I put that toward my debt or invest it? In that case, behavior doesn’t work out very well. Most of the time people end up spending the money instead of actually investing it.

But in your case, you’re going to get a windfall. The money’s going to be there in front of you. You sound like you’re going to make the right decision and not spend it all. If you can invest it, you’ll come out ahead in this game, because right now the interest rates on housing, on mortgages, are headed up. But they’re still kind of toward the bottom. It’s probably going to go a lot higher. I would dollar cost average it into a stock market, into a brokerage account. In the long term, you will most likely come out ahead if you invest it now. What do you think, Jim?

Dr. Dahle:

I don’t know. There’s no right answer here. This is the classic question: Debt vs. invest. I’m just going to take the opposite position to be devil’s advocate. We paid off our mortgage in 2017. It’s been five years that I haven’t made a mortgage payment. It’s pretty nice. That was our biggest monthly expense back when we had a mortgage. Not having that has given me the freedom, whether it’s psychological or not, but the freedom to make different decisions with both my career, such as dropping night shifts and cutting back on shifts, which I have done since. I can take more business risk. Keep in mind that just because the numbers show if you can borrow 3% or 4% or 5% and earn 8% or 9% or 10%, it doesn’t necessarily encompass the entire story. There’s more to it than that.

When I look at my financial goals, one of my goals was to pay off a house. If your goal is to live in a paid-off house and you’ve got enough money to just buy the house, that’s not a bad thing to do with your money. It depends on what your other goals are. How much leverage risk do you need to run in your life in order to reach your other goals? If 95% of your net worth is in this house, then you might need to take some additional leverage risk and have a leveraged house so that you have some money to invest and have something besides the house. But if you’ve got $8 million of investments and you’re talking about buying an $800,000 house, well, maybe I’ll just pay cash for it and simplify your life. I think we don’t have enough information to really give good advice to this particular questioner.

Dr. Spath:

I think you’re right. It depends. If you are still pretty early on in your career and you’re going to be earning good income at least for the next 5-10 years, you could probably take on some leverage risk and be OK. But if you are at the end and you already have a lot of assets like Jim said, you’re already a multimillionaire, then you might as well buy it with cash. Of course, it comes back to what you want. It depends what your priorities are. But if you’re at the wealth-building stage and early in your career, it might work out for you to leverage this. It just seems to me that the housing market is way overinflated right now. Again, this is complete speculation. I have no idea what housing prices are going to do two years from now, but it does seem to me that it might be a little overpriced at the moment.

Dr. Dahle:

Here’s the deal. I don’t mind people taking leverage risk. Maybe it makes sense to take more leverage risk and less market risk. I don’t have a problem with that. I want people to do it consciously, to do it deliberately and say, “Well, I’m going to take on this much leverage risk. I think that’s reasonably safe for me in order to invest. And I think I can beat that.” Because it’s not guaranteed. You want something that’s risk-free, paying off a mortgage or not having a mortgage in the first place is a very risk-free investment. You’re earning at whatever mortgages are right now. For example, if you get a mortgage at 5% right now or whatever they’re at, that’s essentially what that home equity is earning. It’s 5%. That’s not a terrible return risk-free. It’s not necessarily a bad thing to do.

There’s a guy by the name of Thomas Anderson. He’s written a series of books called “The Value of Debt.” If you’re seriously considering taking on significant leverage on purpose in your life, I highly recommend you read one or two of his books. His recommendation is if you can get good long-term, non-callable debt, that you only take out about 15%-35% of your assets in debt. If you’ve got a $500,000 home and $500,000 in retirement accounts and $500,000 in a taxable account and $500,000 worth of real estate, he would say the amount of debt you ought to have is somewhere between $300,000 and $700,000. The truth is most doctors have already got more than that. Taking on more than that, you really have to wonder if you’re not over-leveraged in your life. I just try to do it consciously and deliberately and don’t take on more risk than you need to take on to reach your goals.

More information here:

Pay Off Debt or Invest?

 

Disability Insurance

“Jim, this is David from Monterey who was just listening to your disability podcast. Very well done. Maybe you could have a disability agent on, and after listening to the ladies, comment on the issues raised and explain the reasons and how better to navigate the process of disability insurance claims. Also, what was done wrong? Also, is there a gender difference in disability insurance claim usage among doctors? Is pregnancy considered a disability as far as insurance companies are concerned? Also, do you take into account the problems your listeners have in getting claims when you accept them as a company, as advertisers? And also ask the agent why their product is so user unfriendly that it takes a lawyer to navigate the system for obviously valid claims. Thank you very much.”

Dr. Dahle:

There are lots of disability questions in there. I don’t know if we’re going to have a disability agent on specifically to address all those questions. We’ll talk about some of them today. If you all want to have disability insurance agents on the podcast, I’ve got 10 of them that would love to be on the podcast. They would love to come on and answer all your questions. Heck, they’ll be on here every week if you want talking about disability insurance. They’d love it. But if you really have questions for them, I would suggest you go to whitecoatinvestor.com. Again, our recommended tab, scroll down to insurance agents. These guys are really experienced disability insurance agents. They sell hundreds of policies a year. They know the ins and outs of all the various companies and their policies and can answer all your questions about them. I highly recommend that resource for specific questions and helping you run the numbers on disability policies. But let’s try to address some of David’s questions, at least the ones that we can today. Disha, do you want to take a whack at a couple of them, and we’ll see if we can get them all answered?

Dr. Spath:

I can talk about women’s health issues. There are two types of disability insurance we’ve kind of already hinted at during this episode. There’s the short and the long term. Usually, pregnancy is a short-term disability, which usually means it’s less than three months. Generally, women need to buy short-term disability insurance in order to get that covered. You need to be in the plan with your employer for a little bit in order to qualify for it. Make sure you read the fine print on that. If you’re already pregnant when you buy a short-term disability policy, they’re not going to cover your pregnancy, because it’s a preexisting condition. Most of the time, that’s the case. Those are the things to watch out for. Usually, vaginal deliveries, they’ll cover about six weeks I believe, and for C-sections, they’ll cover a little bit more than that.

Short-term is a very important disability for women to have if they’re planning on childbearing. As far as long-term disability insurance goes, I think that’s what most doctors are concerned with when we’re thinking about what happens if I have a stroke, if I can’t do my job all of a sudden, and I have my whole family depending on me. Who am I going to count on, or how am I going to pay my bills and make sure that we don’t get put out of our house? Jim, I’ll let you take over there.

Dr. Dahle:

Just read the policy and make sure it actually covers it. Don’t assume that because it’s short-term, it’s going to cover pregnancy. For the most part, at least long-term disability, pregnancy is not covered. A complication of pregnancy is covered. If you get preeclampsia or some sort of complication, that’s going to be covered. But just a routine, uncomplicated NSVD, you may not get any coverage whatsoever out of that. You have to read the policy. You can look into special things like Aflac. Aflac’s got some pregnancy-related payouts. In fact, a lot of times you can get a really good deal on that. I would look at it and look at the specifics if you’re thinking about getting pregnant or if you already are and see if you can do really well with something like that. But as far as long-term disability, there’s got to be a complication or it’s not going to cover it almost every time.

Dr. Spath:

Long-term is for disability that lasts past 90 days. Usually with normal pregnancies, you shouldn’t have any disabilities that last past 90 days. Yet they don’t qualify for long term usually, unless you do have something that will last past 90 days, that like Jim mentioned, if you have any complications that do make it difficult for you to work. But then again, anytime you file a claim, insurance companies are taking risk. They’re taking risks that you are going to stay healthy and pay their premiums. When you do get sick and start holding them to their promise of helping you, a lot of the time their business model is made to pay out the least possible. You really unfortunately need to advocate for yourself, have everything in writing, make sure your t’s are crossed and your i’s are dotted. You’re going to have to spend some time trying to get your fair compensation. There’s always variability, but as long as you have things in writing and you get your paperwork done, there’s going to be hoops, they’re going to make it difficult for you. But generally, you will get some help.

Dr. Dahle:

Keep in mind that women are more likely to get disabled. That’s why it costs more. If you’re buying a gender-specific policy, it costs more if you’re a woman to buy disability insurance. Just like you’re more likely to die if you’re a man. Your life insurance costs more if you’re a man. Disability insurance is more if you’re a woman,; life insurance is more if you’re a man. That’s just the way it is. They price it accordingly. If you are a woman, try to get a gender-neutral policy. If you are a man, try to get a gender-specific policy, and you’ll save a few bucks there.

What were some of his other questions? He wanted to know, do I take in consideration how hard it is to get a claim done when I accept an insurance company as an advertiser?  Well, No. 1, I don’t have any insurance companies as advertisers. I have agents, and they’re independent agents that can sell you a policy from any insurance company. But the truth is this process is pretty similar for all of the Big 5 or Big 6 companies selling specialty specific, true own occupation disability insurance. When we had those two women on a few weeks ago, I didn’t tell you what one of the companies was because there were some legal implications. The one who got her claim paid pretty quickly, I told you who the company was. But what you may not realize is it was the same company with both of them. You can have problems. It’s certain that if you have a disability that’s harder to prove for which there’s not great radiologic evidence, you may find that it’s harder to get paid on it.

If you got some vague back pain and you got a totally normal MRI back, it’s going to be harder. You’re going to have to see more specialists. You’re going to have to get more physician opinions. You’re going to have to fill out more paperwork than if somebody poked your eye out. And the first doc that looks in your eye goes, “Yes, your eye is poked out. Where do I sign?” Some disabilities just take a lot less paperwork, a lot less time.

The next question is do you have to get an attorney involved right away? Not necessarily, but a lot of people are glad they did because it gives them an advocate and they can at least understand what their options are. There are lots of things you use an attorney for in life and you wouldn’t necessarily say I shouldn’t buy disability insurance because I needed an attorney to help me get my claim. That’s just part of the price of doing it. Think of it this way. Think if the insurance companies were just, “OK, you say you’re disabled. Let’s pay out.” If it was a really easy process, how much more would your premiums be? Probably substantially more because you’d have more people sneaking in that weren’t really disabled. You got to be able to prove the disability or else the premiums are just going to be so expensive that nobody’s going to buy it.

It’s not all bad to have them actually looking carefully, but there’s no doubt they have a business reason to pay as few claims as possible. It’s going to be a little bit of an uphill battle getting a claim paid. Great reason to become financially independent earlier in your life and not need disability insurance. I’ve canceled my disability insurance. I don’t have to deal with that if I ever get disabled, for better and for worse.

Dr. Spath:

I should mention just in case we have any new listeners that have never heard us talk about own occupation disability insurance. The reason we harp on true own occupation disability insurance is because if you get disabled and you’re not able to do your job—say you could be the receptionist and check patients in, but you’re not going to be able to be a doctor anymore—you have a better chance of getting disability coverage, if you have true own occupation disability insurance. Those are the words we’re looking for in our policies.

Dr. Dahle:

Social security disability, for instance, basically says, it’s not going to pay you if you can do any work, any occupation. You can’t be a doctor anymore, but you know what? You can still take out the trash. They’re not going to pay you. You have to be totally and completely disabled. Obviously, there are a lot of disabilities you can get. They’re going to keep you from doing your job. You can cut off your left hand. It’s going to be really hard for you to intubate, but that isn’t going to keep you from doing any work whatsoever. The vast majority of doctors buy a true own occupation specialty specific policy for those years between when they are interns and when they become financially independent. I’d recommend you do the same. Sometimes the policy you can get from your own job might be adequate. It’s usually not quite as good as what you can get from an individual disability insurance policy that you’d buy through one of these agents that we recommend. It’s just going to be a stronger policy. It’s going to be more likely to pay, but yes, it’s going to cost more. They’re more expensive to get a true individual policy.

More information here:

Physician Disability Insurance

Life Insurance vs. Disability Insurance

 

Now is a great time to start thinking about reviewing your last tax plan or starting a new one to make sure you’re taking advantage of all the available strategies. Waiting too long into the year can result in lost opportunities to keep more of your hard-earned money in your pocket. If you haven’t heard about Cerebral Tax Advisors, physicians all over the country work with them to lower their personal and business taxes through court-tested and IRS-approved tax strategies. Medical professionals rely on Cerebral Tax Advisors for proactive tax planning strategies for doctors, helping them lower their effective tax rate and increase their wealth. If you’d like to find out more or schedule a free consultation, visit their website at www.cerebraltaxadvisors.com.

 

WCICON23 Speakers

We have an event once a year we call WCICON. Its real name is the Physician Wellness and Financial Literacy Conference, and we are looking for people who want to speak at that event next March. We only accept applications during the month of June. Go to www.wcievents.com to apply!

 

WCI Scholarship

We’re going to give away tens of thousands of dollars to professional students. The WCI scholarship is now accepting applications. Only professional students enrolled full time in a professional school, located in the United States for the 2022-2023 school year who are in good academic standing, are eligible. More information can be found here.

If you would like to be a judge for this contest, email [email protected]. We don’t pick the winners at White Coat Investor. Our audience picks them. If you would like to be a volunteer judge, send us an email!

 

Quote of the Day 

Warren Buffet said,

“The stock market is designed to transfer money from the active to the patient.”

 

Milestones to Millionaire

#69 — Graduating Debt Free

Dr. Spath interviews a dermatology resident in this episode who finished medical school with zero debt. It is quite an inspiring story. She had a financial plan and a budget, she lived below her means, applied to all scholarships she laid her eyes on, and had a supportive partner. Together they achieved the goal of a debt-free medical education.




Sponsor: PKA Insurance Group

 

Full Transcript

Transcription – WCI – 266
Intro:
This is the White Coat Investor podcast, where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
Today’s episode is co-hosted. I’m here. I’m Jim Dahle. I’m an emergency physician and the founder of the White Coat Investor, and I’m here with WCI ambassador, Disha Spath.

Dr. Disha Spath:
Hey.

Dr. Jim Dahle:
Welcome back to the podcast.

Dr. Disha Spath:
Thanks so much for having me, Jim. I’m so excited to be here.

Dr. Jim Dahle:
This is number 266 – Employer health insurance plans, PPO versus HDHP.

Dr. Jim Dahle:
I guess we ought to tell you about our sponsor of this episode. Now is a great time to start thinking about reviewing your last tax plan or starting a new one to make sure you’re taking advantage of all the available strategies.

Dr. Jim Dahle:
Waiting too long into the year can result in lost opportunities to keep more of your hard-earned money in your pocket. If you haven’t heard about Cerebral Tax Advisors, physicians all over the country work with them to lower their personal and business taxes through court tested and IRS approved tax strategies.

Dr. Jim Dahle:
Medical professionals rely on Cerebral Tax Advisors for proactive tax planning strategies for doctors, helping them lower their effective tax rate and increase their wealth. If you’d like to find out more or schedule a free consultation, visit their website at www.cerebraltaxadvisors.com.

Dr. Disha Spath:
That’s such good timing right now for this ad.

Dr. Jim Dahle:
It is good timing. I think lots of people are thinking about taxes. They just got done paying their tax bill for the year and maybe they didn’t like it so much.

Dr. Disha Spath:
Painful. Yeah. Definitely could have used this last year around this time of year.

Dr. Jim Dahle:
Yeah, exactly. All right. Well, by the way, this show is all about you. Our goal is to answer your questions, address your needs and let you drive the content on this show. And so, the best way for you to do that is to leave questions, comments, etc, for us on the SpeakPipe.

Dr. Jim Dahle:
You can do that at whitecoatinvestor.com/speakpipe. And you can record up to a minute and a half. You don’t have to use the whole minute and a half. Leave your questions and we’ll get them answered on the show, because we appreciate what you do. What you do is not easy. That’s why they pay you so much to do it. That’s why you spent so many years in training. But thanks for doing that because it’s not easy work.

Dr. Jim Dahle:
We have an event once a year we call WCICON. Its real name is the Physician Wellness and Financial Literacy conference. And once a year, we make a call for speakers. Now is that time. In June we take speaker applications for the conference next March. And you can apply for that at www.wcievents.com.

Dr. Jim Dahle:
Next year, we’re going back to Phoenix. So, it’s going to be in Phoenix, the same place as last year, which was an awesome facility. But if you would like to be a speaker there, that’s how you apply. Now is the time, go apply.

Dr. Jim Dahle:
And if you really want to get in the conference, if you want to be selected as a speaker, because this is a competitive process. I suggest you do a couple of things. One, don’t just make it a general financial talk. Everybody’s got a general financial talk. The sort of thing I’d give if I came out and spoke to your county medical group, that’s not going to be accepted to the conference. You want a more specific topic because there’s going to be 30 or 40 or 50 different presentations at the conference. So, you’re not looking for a general one that’s all about all things financial.

Dr. Jim Dahle:
And the second thing is to apply for more than one. Not only is it helpful for us to have you give more than one presentation at the conference because we only have to fly you out once to give two presentations but it just makes it much more likely for you to be selected. For example, if the only thing you apply for is the same topic eight other people applied for, it’s going to be really hard for you to get selected for that. So, now is the time. Go apply at www.wcievents.com.

Dr. Disha Spath:
Guys, I was a last-minute addition last year. I got the host spot as a surprise at the very last minute. I had no idea what I was getting into. It was such a good conference. Oh, my God. It blew my mind. The food was amazing. The venue is amazing. Of course, the White Coat Investor team did an amazing job. Just getting it all together, so professional, and super biased here, but I wasn’t last year and it was awesome.

Dr. Jim Dahle:
Yeah, it’s really fun. It’s come a long way from the one room production where I was the only person in the room from WCI running it in Park City in 2018. It’s a pretty impressive conference now.

Dr. Disha Spath:
It’s pretty legit.

Dr. Jim Dahle:
All right, let’s get into some content here. We got an email that kind of introduces our topic today. And why don’t you take it away, Disha?

Dr. Disha Spath:
Okay. So, we got this email from a loyal listener and this is actually part of a different email so it kind of starts off with a question in the middle of the email. He says, “My wife is a school teacher. She’s currently in her insurance enrollment period. I’ve never really looked at it before, but I am this time.

Dr. Disha Spath:
I think employer insurance offerings would be a great topic for your show as well. Below are the current coverages that are available to my wife and the employee cost. I have no idea if they’re all worth it, but maybe you could elaborate on that during a podcast sometime.

Dr. Disha Spath:
So here is what her offerings are. Per pay period, two per month. And they have some dependents. They have two dependents. For medical, for just one person, it’s $13 a month, dental is $37 a month with two dependents. Vision is $9 a month with two dependents. He also has access to accidents, cancer, life, critical illness, which he’s not paying for currently. Spouse and children life insurance, legal services insurance, short term disability and long-term disability. The short term was $9 per pay period and the long term is $7 per pay period.

Dr. Jim Dahle:
The amazing thing about this email is these prices.

Dr. Disha Spath:
I know.

Dr. Jim Dahle:
Because I actually buy my health insurance, the whole thing I pay for, not only for myself, but my employees. I mean, it’s like $1,400 a month. And these enterprises of $13? Is it worth it? It’s $13. Yes. It’s worth it at $13. It’s free.

Dr. Disha Spath:
Yeah.

Dr. Jim Dahle:
I mean, come on, you’re paying nothing. Your employer is picking up the whole thing. You might as well then do it. But anyway, that was my first thought with this email. But let’s talk about all this stuff. Let’s talk about these employer health insurance plans, the differences between them, etc, and try to give people some background.

Dr. Jim Dahle:
Because even people that work in healthcare, which are most of our listeners, they know surprisingly little about health insurance. I’m amazed how little doctors know about health insurance. They don’t even cover this in medical school. It’s amazing.

Dr. Disha Spath:
Right. And being on the primary care side, I deal with this with patients a lot because they’re always talking about their “out-of-pocket” and trying to explain to them what’s going on and why they’re getting so many bills and things like that. So let me go through some of these options with you, and I’m going to try to be comprehensive, but not bore you too much.

Dr. Disha Spath:
The title of this show is a PPO versus a high deductible health plan. The PPO is kind of the insurance of the past, what we used to think insurance was like where you insure contracts with several hospitals and doctors, and you can go for a discounted rate to any of those doctors that they are contracted with. And if you are going out of network, then you’re of course going to pay a higher fee. This was kind of the old-fashioned insurance. It’s still available, but it’s more costly these days.

Dr. Disha Spath:
With the PPO, you basically pay a little bit more for the freedom to choose from a larger pool of doctors and have usually lower out-of-pocket expenses. A high deductible health plan in contrast is something that’s made to be cheaper for you in the short term. It’s going to have lower monthly premiums most of the time.

Dr. Disha Spath:
And I say that because that’s not always the case. In general, high deductible health plans have lower premiums, but they have a high deductible. So, there are a lot of out-of-pocket expenses that you’re going to have initially in the first half of the year, most likely.

Dr. Disha Spath:
So, there’s the minimum deductible and there is the annual out-of-pocket maximum that you have. A lot of the high deductible health plans, the minimum deductible for these, for a family is $2,800. And that’s actually the minimum. So, a lot of employers have a much higher deductible than that. I’ve had plans that were like $5,000 minimum deductible.

Dr. Disha Spath:
And then you have the out-of-pocket maximum. So, remember you’re going to have cost sharing even after you meet your deductible unfortunately. Most health plans have out-of-pocket co-insurance that comes out even if you’ve met your deductible, then you’re paying co-insurance until you reach your out-of-pocket maximum. That number, the out-of-pocket maximum for a high deductible health plan usually is around $14,100 for a family.

Dr. Disha Spath:
So, if you’re going into a high deductible health plan, you should budget to pay $14,000 in healthcare costs. And this is going to be a painful $14,000 because it’s going to come to you in little drips and little bills that you have to pay over time. And that it really grates on your psyche, but if you are prepared for it, then you just say, “Okay, I’m going to pay this, I’m going to pay this until we get to the $14,000, then I’m not going to pay anymore.” And then the insurance is going to cover everything.

Dr. Jim Dahle:
Yeah. This is basically how the health insurance companies are trying to get you to not spend so much. The first part you’re paying for everything, that’s your deductible. The next part, you’re splitting it with health insurance. That’s the co-insurance part. And after that, once you paid your entire out-of-pocket max, the insurance company picks up everything else. So, they’re basically trying to get you to spend less in essence.

Dr. Disha Spath:
Right. Exactly. And the good thing about a high deductible health plan, the reason you would opt into this is because you do get access to the health savings account or the HSA with a high deductible health plan. So, in the finance world, everyone, we love HSAs. And the reason for that is it is triple tax protected. You don’t get taxed and the money that you put into it, it’s pre-taxed. You don’t get taxed on the growth and you don’t get taxed when you take the money out as long as it’s for healthcare expenses.

Dr. Disha Spath:
And if you want, you can let that money grow. You can pay the $14,000 out-of-pocket just from your cash flow and then keep that money in the HSA growing tax free until you retire. And then you can use that money to pay your retirement healthcare costs, or you have the option of dipping into it if you need the money now. So, the HSA access is really key. What do you think, Jim, do you like HSAs?

Dr. Jim Dahle:
I’m a big fan of HSA. Do you have an HSA?

Dr. Disha Spath:
I do. I sure do. I have two actually.

Dr. Jim Dahle:
Are you spending from it or are you just investing it?

Dr. Disha Spath:
I am just investing.

Dr. Jim Dahle:
Yeah. I’m just investing mine too. I haven’t gotten around to taking anything out of it, but we’ve been doing an HSA now for a long time. I think our HSA is $150,000 or something because we keep putting money into it and it’s invested just like our 401(k) or anything else. So, a lot of it is growth.

Dr. Disha Spath:
Yeah, that’s awesome.

Dr. Jim Dahle:
But eventually we expect to be taking some money out of it. I’ve got a bunch of receipts. I got to get around logging together and actually pulling out that money from receipts we’ve spent on it. But it’s essentially another retirement plan for us.

Dr. Disha Spath:
Yeah, absolutely. The hard part with the HSA could be keeping up with those receipts. So, we have a system where we have a Google Drive where we take pictures of any healthcare cost and put it in there. That way we have a digital backup, but we also have a paper folder of everything just in case we need it in the future.

Dr. Jim Dahle:
Yeah. What I’ve discovered is that receipt ink fades over time. So, I’ve got a bunch of blank pages in my folder. I should have been doing what you were doing. But anyway, HSAs are cool.

Dr. Jim Dahle:
But the question I get a lot from people is should I get a high deductible health plan just to get an HSA? And I think that’s putting the cart before the horse. I think you first got to decide what’s the right plan for you. And then if the right plan is an HDHP, then sure, use the HSA.

Dr. Jim Dahle:
But if you’re the type of person let’s say you’ve got rheumatoid arthritis. You’re going to hit your out-of-pocket max every year. The right plan for you is almost surely not a high deductible health plan. The high deductible health plan is the right plan for my family. There’s six of us and we’re all pretty healthy. Yes. We spend some money every year on health care costs, but I don’t think we’ve hit our deductible in the last five years. High deductible health plan is totally the right plan for us, but it’s not the plan for you.

Dr. Jim Dahle:
If you’re actually hitting your deductible every year, you’re hitting your out-of-pocket max every year, that’s probably not the right plan for you. And especially if you’ve got an employer paying most of the premiums. If you’re out-of-pocket is $13 a pay period, you ought to take the best insurance they’re going to give you because that’s really valuable. Health insurance is a $10,000 or $15,000 or $20,000 or $25,000 a year benefit. It’s really valuable. And until you buy it yourself, you don’t realize how valuable it is.

Dr. Jim Dahle:
I’ve got employees here at the White Coat Investor and we pay for 80% of their health insurance. And it is not an insignificant expense to the company. It’s a lot of money. Health insurance is not cheap and that’s because people actually use it. And because that stuff you do all day at the hospital or in your clinic is expensive stuff and it’s got to be paid for.

Dr. Disha Spath:
Yes, absolutely. I will caveat that you really have to look at the employer. And you sit down at the options and just make sure, because in our situation, Josh and I’s situation, Josh has a lot of chronic health illnesses and we kind of knew we’d be coming. His heart valve was getting worse and we could see it coming that he would need surgery. So, this year we looked at our health options and we were fully mentally prepared to go PPO because we knew we’d be having a lot of expenses.

Dr. Disha Spath:
But when we actually looked at it, the PPO premiums and out-of-pocket was actually higher than the high deductible health plan that they were offering us. The high deductible health plan that Josh’s company has is amazing. Our out-of-pocket was lower than the PPO. So, we just ended up going with a high deductible and it’s worked out really well for us. Finally, we’ve hit our out-of-pocket maximum and it’s only May.

Dr. Jim Dahle:
It’s interesting. You’re right though. You definitely have to run the numbers. I’ve even seen the opposite situation where people come to me and go, “I really wanted to do the high deductible health plan because I wanted to do the HSA, but their PPO plan is actually cheaper for them.”

Dr. Disha Spath:
Yes. Yeah. That’s true. Most common.

Dr. Jim Dahle:
And actually, their employer is actually charging them more for the high deductible plan, which is bizarre. But that’s the way it was. So, you’ve got to look at what’s offered to you and run the numbers.

Dr. Disha Spath:
Absolutely.

Dr. Jim Dahle:
Let’s talk a little bit for a minute about this bronze silver gold platinum thing. Do you want to explain how that works?

Dr. Disha Spath:
Yeah. Obamacare and the open market have different levels, I guess, of insurance. A bronze plan is where the insurance company pays about 60% of your costs and the insured pays 40%. So, it’s the lowest monthly premium but you are getting a lot of the out-of-pocket expense. You’re getting 40% as compared to say, you go to the platinum which is the highest level. The insurance company pays 90% of the cost and you pay 10% of the cost.

Dr. Disha Spath:
So, this is the highest monthly premium and the lowest deductible. It kind of portrays how much the insurance is going to be paying and how much you’re going to be paying. And you need to choose that knowing how much cash you have to pay out-of-pocket costs versus how many healthcare expenses you might be having in the near future. So yeah, you need to look into your cloudy crystal ball and make a decision basically. So good luck with that. Sometimes you can see it coming, sometimes you can’t.

Dr. Disha Spath:
If you do have a lot of disposable income, a lot of cash sitting around that you have at the end of the month, then maybe something with lower coverage and higher out-of-pocket expense might be okay for you, because you have lower monthly premiums. So, it’s up to you.

Dr. Jim Dahle:
Yeah. All right. We’ve talked about deductibles. We’ve talked about co-insurance. What is a co-pay? How is that different from co-insurance?

Dr. Disha Spath:
Co-insurance is when the doctor sees you, they send a bill out for the service they provided. The insurance then divides up the cost and then they pay 80% or whatever, and you pay the 20%, they send you a bill. They say that you’re going to have to owe the 20% to the doctor.

Dr. Disha Spath:
The co-pay is what you pay at the front desk when you walk in. So, this is the cash you pay when you walk into the appointment. And that co-pay has been predetermined between your doctor and the health plan that you’re with. But if you have reached your out-of-pocket maximum, I don’t think you have to pay the co-pays anymore.

Dr. Jim Dahle:
Yeah. All right. Well, let’s run down through this list of insurances from the email. Medical $13. Yep. Get that. That’s a great deal. Dental for you and two dependents, $37. That’s a pretty good deal. Dental insurance is really interesting though. Dental insurance is not like insurance. Insurance you usually pay the small amounts yourself and the big amounts are covered by the insurance company. Dental is like the opposite. It covers this small stuff. It covers the cleanings and the exams and half of a cavity and that sort of stuff. But then it maxes out $1,500 or $2,000 a year or something.

Dr. Jim Dahle:
But even so, being able to pay for dental care with pre-tax dollars, I think it’s usually worth getting dental insurance. If for no other reason, it encourages you to actually go get the dental preventative care that you should get.

Dr. Jim Dahle:
Vision. This is $9. I mean it’s $9. If either of you wears glasses or contacts, it’s probably worth getting vision. Accident and cancer insurance. This is classically insurance you don’t buy because your health insurance covers accidents. Your health insurance covers cancer. So, you don’t actually need this additional coverage. In the case of this emailer, it’s $8 and $16. So, it’s not super expensive, but I’d probably still skip it. That’s insurance designed to be sold, not bought.

Dr. Jim Dahle:
They’re giving you some free life insurance. Take that. Obviously, anything the employer’s just going to pay for you, you might as well take it. That’s usually not enough life insurance. Usually if you need life insurance, you need a lot more than an employer can give to you. Typically, they’re only going to give you about two times your income. And that’s just not enough. It’s not enough if you have people actually depending on your income, besides you.

Dr. Jim Dahle:
Critical illness. I view that as another insurance designed to be sold, not bought. Life insurance on your spouse and children, in general, if you’re not depending on the income from your spouse or children, they don’t need life insurance. It’s not always true. Keep in mind, even a stay-at-home spouse is doing things that would cost money that you would have to pay a lot to replace.

Dr. Jim Dahle:
Imagine what it would cost to get childcare or what other services they’re doing. Whether it’s meal preparation or house cleaning or running the kids around or whatever, there is a cost to that. So, it may be worth getting some insurance on your spouse.

Dr. Jim Dahle:
Legal services insurance. That’s super interesting. I don’t know. I’d have to look into that. That might be interesting to get.

Dr. Disha Spath:
Yeah. I had that for a little while with my husband. He works in the tech industry. They get all kinds of good benefits. And the legal insurance was really worth it because we used it to make our will and trust. And it was all free and covered by the employer. So that was pretty cool.

Dr. Jim Dahle:
Yeah. That might be worth paying for. Short term disability, $9. I mean at $9 I might take it. I’m feeling the employer’s paying 90% of these benefits. So, when someone’s going to pay for something that I might not otherwise buy, I might just take it.

Dr. Jim Dahle:
Long-term disability. Again, most of the time you probably want the better long-term disability policy than what you’re getting from your employer. But at $7 a pay period, I’m probably taking what they’re offering too. You just want to coordinate that if you’re also buying an individual policy

Dr. Disha Spath:
And I’m going to caveat the short-term disability piece with, if you are a woman and you’re planning on having kids, definitely get that because you’re going to need that for maternity leave.

Dr. Jim Dahle:
Well, you got to make sure it covers maternity leave because some do and some don’t.

Dr. Disha Spath:
True.

Dr. Jim Dahle:
The devil is in the details with these, for sure.

Dr. Disha Spath:
Absolutely. And you got to make sure that most of the time they won’t cover you unless you’ve worked there for a year or a certain set amount of time. So, make sure you’re looking at all of that when you buy that insurance.

Dr. Jim Dahle:
Yeah. All right. Well, let’s get off the health insurance topic for a little bit and let’s take some questions off the SpeakPipe. The first one comes from Matt. Let’s take a listen to this one.

Matt:
Hi Dr. Dahle. This is Matt. I’m a current resident who is going to be graduating this year. I’m moving to a mid-size city in the Midwest with my wife who’s a graduating fellow. She’s been offered a 1099 employee position with a private practice group with the hopes of eventually working towards W2 employment with them. I’ll be employed for two years in my fellowship by the hospital with an associated benefit and pension plan.

Matt:
From her side, we were wondering whether it made more sense for her to form an LLC we’re planning on doing a solo 401(k) rather than a SEP IRA or simple IRA with hopes of eventually doing a backdoor IRA in the future for ourselves.

Dr. Jim Dahle:
Great question, Matt. I get this question a lot and people feel like, “Oh, I need a business entity. I need an LLC. I’ll be more official.” Or they think they’re going to get some additional liability coverage from doing that.

Dr. Jim Dahle:
But here’s the truth. If you are an independent contractor, if you have no employees, you essentially have no business risk. There’s no business risk that you need to protect yourself from. You don’t have employees or contractors or a place of business, or you’re doing something dangerous like guiding people down a river or something like that. You don’t need an LLC.

Dr. Jim Dahle:
Because remember, an LLC is not going to protect you from malpractice. Malpractice is always personal. So, whether you form an LLC or not, your malpractice risk is exactly the same. All you’re doing is adding hassle into your life for no additional benefit.

Dr. Jim Dahle:
Now you do need an EIN, an employer identification number with the IRS. That’s free. It takes you 30 seconds to get online with the IRS. And you’ll need that if you’re going to open the solo 401(k), which is the right retirement plan for her to use at this point. But you don’t need an LLC. If you’re just a 1099 independent contractor, nobody works for you, sole proprietorship is perfectly fine. You’re not going to get any additional benefits out of an LLC and you’re going to introduce complexity and cost.

Dr. Disha Spath:
Yeah, I agree.

Dr. Jim Dahle:
Yeah. I’m not against LLCs. I love LLCs. White Coat Investor is an LLC. My real estate investments are LLCs, but you don’t need it in this case.

Dr. Jim Dahle:
All right. Another question. This one is coming from an email. “I’ve been a regular reader and listener for the past five years ever since my son became a resident and bought your book. When he finishes as a fellowship, he plans to still live like a resident, even on a surgeon salary.” Wonderful. He’ll get very wealthy that way. “I thought it might be interesting for you to interview someone about – What do I do with all this money?”

Dr. Disha Spath:
Good problems.

Dr. Jim Dahle:
Well, a great problem to have. “What did they do the first year they started earning big dollars? What did they invest in? Save it or pay off a mortgage? My son is fortunate he doesn’t have any student loans and he’s been frugal and intends to remain frugal, but he’s interested in hearing how others manage their new windfalls.”

Dr. Jim Dahle:
Well, let’s talk about this because this is hard. Everybody struggles with this. Especially if you’re living like a resident, you come out of training and you have all this great stuff to spend your money on that you need to do. There are all kinds of things.

Dr. Jim Dahle:
So, what do you say? Somebody brand new. They’ve got this spending saving ratio right. They’re living like a resident. Maybe they gave themselves a little raise. But now they’ve got money. $100,000, maybe $200,000. What should they use it for?

Dr. Disha Spath:
Okay. First of all, I want to say how blessed we are to have this awesome problem. This is definitely a problem for rich people and it’s awesome. So, tax advantage first is what I would say. Make sure you’re filling up all of the tax advantage buckets before doing anything else because that space doesn’t come back. Every year you are guaranteed just the 401(k) or whatever retirement account you have access to. And so, make sure you fill those up.

Dr. Disha Spath:
And then we generally say, high interest that should go. Anything that’s above 10% should go. What do you think, Jim?

Dr. Jim Dahle:
Yeah. There’s not actually a right answer to this. It’s all about what matters to you. And then you go and you put everything in a row according to how much it matters to you and you go through it until you can knock them out. And you go as far as you can, until you run out of money.

Dr. Jim Dahle:
Maybe you don’t have an emergency fund. So, okay, well, now’s time to get a real emergency fund. Maybe three months’ worth of your spending. Maybe you’re still carrying around a car loan for a car you bought a few years ago. Maybe you’ve got some credit card debt that you use to pay for residency interviews or job interviews or something. Knock that stuff out.

Dr. Jim Dahle:
Another high priority, if your employer is giving you access to the 401(k) already and they offer you a match, obviously not using that is leaving money on the table. So that’s a pretty high priority. But truthfully, most employers don’t let you use the match the first year anyway. So, you can use that money for other stuff.

Dr. Disha Spath:
You can’t even contribute for the first few months usually.

Dr. Jim Dahle:
Yeah. At this point, a lot of people are saving up a down payment for a house. Even if they’re not buying it right, then maybe they’re waiting six months or 12 months to make sure their employer likes them and they like their employer. But that’s a pretty high priority for most people coming out of residency. It’s to be saving up toward a down payment. So that might be a priority.

Dr. Jim Dahle:
And then of course all those great retirement accounts. You may have access to an HSA and a 401(k) and backdoor Roth IRAs for you and your spouse. And who knows what else? Your spouse probably has some retirement accounts and maybe there’s a 457. Everybody’s going to be a little bit different in this regard. Maybe you want to get started with building a real estate empire.

Dr. Jim Dahle:
It just comes down to your priorities, listing them out and knocking out as many of them as you can. And realize that you’re going to run out of money. Even with that extra $100,000 or extra $200,000, you’re going to run out of money before you get through everything you want to do.

Dr. Jim Dahle:
And it’s actually really a sign of success when you’re five or 10 years into your career and you’ve only got two things to put your money toward this year because your mortgage is paid off and the student loans are gone. You’ve got an emergency fund and you’re in your house. And now you’ve only got two or three things to put your money into.

Dr. Jim Dahle:
But that’s kind of a sign of success. In the beginning you’ve probably got 8 or 10 things to spend your money on. And that’s not including getting rid of that Beater you’ve been driving for eight years or rewarding yourself with a nice trip to Costa Rica or something. But you just got to decide what your priorities are.

Dr. Disha Spath:
The biggest thing is you got to decide, think about it really logically before you get distracted by all the things you want to buy and stuff. Sit down with your household team and write down your goals for the year. That’s the biggest thing. Make your plan and then execute it.

Dr. Disha Spath:
But because you’re going to get distracted, you’re going to want to take that trip to Italy, you need to know that you have met your goals and your big picture, what you wanted to do for the year. As long as you’ve met that, you can do the extraneous spending guilt free.

Dr. Disha Spath:
But there’s always going to be a goal of a good use for your money and then an indulgent use for your money. Just make sure you write down the good uses, get those done. And then you can indulge.

Dr. Jim Dahle:
If you need something prescribed to you, that “Do this, then do this, then do this, then do this”, we can give you that. Just recognize that it’s not set in stone for sure. If you had to put a list together, maybe the 401(k) match first, then your high interest debt, maybe then your HSA, because it’s triple tax free.

Dr. Jim Dahle:
Then if you’re an attending physician, typically it’s tax deferred accounts and then tax-free accounts like your backdoor Roth. But that first year you come out, you might want to do a Roth conversion. If you’ve had a bunch of tax deferred money that you put in during residency, maybe that’s the year to do a tax conversion. So, there’s always ways that you can personalize it and individualize it for your unique situation.

Dr. Jim Dahle:
But coming up with things that you need money for as a new attending is not hard. The money just will not last through all of that stuff. And that’s part of the fun of building wealth as you go along through the years. You gradually start meeting those goals.

Dr. Jim Dahle:
And honestly, once you’ve met all your financial goals, it’s a little depressing because you don’t have any other ones to work toward. Then your financial goals are like, “Well I want to start a terrible foundation” or something like that. There is always something, but it’s a little depressing when the mortgage is gone and the student loans are paid off and whatever your other goals are that you don’t get to work toward them anymore. You get a little sad that you don’t have goals to work toward, but it’s a good thing. It’s a sign of success.

Dr. Disha Spath:
Can I share a goal that I just recently met?

Dr. Jim Dahle:
Yeah, let’s hear it.

Dr. Disha Spath:
Today I just had my brand-new Boston piano designed by Steinway made by Kawai delivered to my door. Last weekend, I went, I walked in, I paid cash for this beautiful piano that I’ve been saving up for and working towards for 25 years. Oh my gosh.

Dr. Jim Dahle:
Is this a grand, a mini grand or upright?

Dr. Disha Spath:
It’s a mini grand. Yeah, it’s a baby grand. Yes. It takes over my entire room.

Dr. Jim Dahle:
And what room is it in?

Dr. Disha Spath:
When we bought this house, because it has a piano, it has a perfect piano room. You walk in and it’s right there. It’s just beautiful. Ugh. I’m overwhelmed.

Dr. Jim Dahle:
And you’re the pianist or who’s the pianist?

Dr. Disha Spath:
I am the “wanna be” pianist. When I was 10, I was just obsessed with learning how to play. There was an emotional pull that I couldn’t deny. I had to do it. And we didn’t have a piano. My uncle did. He had a beautiful Steinway in his house. And so, I would go and play there whenever they weren’t around or they would let me just come and play piano and practice.

Dr. Disha Spath:
And so, I taught myself how to play using my cousin’s books. She helped me a little bit as well, whenever she could. She was in college. She was so kind. I learned how to play and then eventually in medical school I would go and play at the French restaurants and just play little piano jazz and just putter around. And I did that on my year off in San Diego too. It was just so much fun. I just love it so much.

Dr. Disha Spath:
But I haven’t let myself buy that piano for so long, because there were all these other goals we had to meet. We had to pay off my student loans. We had to buy the house. We needed to start building a real estate empire and all this stuff. And so, my husband finally was like, “Disha, get your piano. You’ve been saving for this for so long. Just do it.” And finally, I let myself do it. It’s just the most wonderful thing. I’m just so happy that I finally got to meet this goal and I paid cash for it.

Dr. Disha Spath:
And the good thing is that it actually appreciates in value for the next 20 years. Steinways are actually an investment, rather than something that depreciates. So, I’m just over the moon, speaking of goals.

Dr. Jim Dahle:
Cool. That’s exciting. So maybe we’re going to have you doing some new music for the intro. I tried to buy something this year. I tried to buy a truck, but it’s really hard to get a new car these days. I actually ordered it in December and here it is. We’re recording this on May 13th. I don’t even have a build date yet. They haven’t even started building this truck.

Dr. Disha Spath:
Oh, man. Cars are just so tough right now.

Dr. Jim Dahle:
You may not be able to buy something if you really want it anyway. All right. Let’s take another question. This is supposed to be about you guys, not us. So, let’s talk about defined benefit plans. This is a question from Miriam.

Miriam:
Hi, Dr. Dahle. I have a question about defined benefit plans. I’m interested in using one as a tax saving vehicle and saving for retirement. However, a lot of the ones I’ve investigated have high yearly maintenance views, and don’t allow you to choose what funds you’re invested in. In fact, some use actively managed funds with what I’m assuming are high expense ratios. I haven’t been able to find any that allow you to use index funds.

Miriam:
I’m having trouble deciding whether tax savings will outlay the cost because at the end of the period of the plan, you can always just roll it into your 401(k). Any insights on whether a defined benefit plan would be worth it from a tax savings perspective, given that most are pretty costly? Thanks for all that you do.

Dr. Jim Dahle:
All right. Let’s talk about defined benefit plans. When we’re talking about this from the perspective of doctors, we’re generally talking about cash balance plans. Now remember a defined benefit plan is a pension. It’s technically a pension. Like that pension your father or your grandfather had working at GM. That’s what a defined benefit plan is rather than the defined contribution plan such as a 401(k).

Dr. Jim Dahle:
But in reality, what these defined benefit cash balance plans are is an additional 401(k) masquerading as a pension. That’s what they are. And so, they have to follow the pension rules, but in reality, you’re going to close this thing down in 5 or 10 years and roll it into your 401(k). This is just an extra 401(k).

Dr. Jim Dahle:
And the contribution amounts might be really small. It might be like $5,000 a year, but it could be as high as $200,000 or $300,000 a year. So, the contribution amounts can be really big, especially if you’re a pretty high earner, you’re in your late fifties, you don’t have any other defined benefit plans.

Dr. Jim Dahle:
You might be able to put a lot into this plan. But if you’re opening one yourself for your practice or your partnership, or you’re opening a personal one, you don’t have to go to a crappy plan with crappy investments and super high expenses. You can get good plans. They always cost more than a 401(k) though, because there’s additional expenses. There are actuaries that have to run the numbers every year to figure out how much you can contribute and all that sort of stuff. So, it’s going to cost you more than a 401(k)’s going to cost you, but it doesn’t have to be actively managed funds. It doesn’t have to be AUM fees, etc.

Dr. Jim Dahle:
The best place to go if you’re not sure who to call to put these things into place is to go to whitecoatinvestor.com, go to our recommended tab and scroll down to retirement account and HSA help. In the listed there you’ll find four or five firms that this is what they do. They put in 401(k)s and cash balance plans for your practice. They can help you to do it individually. You can go to, I know Schwab does one that’s kind of a little bit cookie-cutter, but it’s got fairly low expenses. But when I say fairly low, it’s still going to cost you $1,000 or $1,500 to set it up and about that much each year. So, if you’re not putting a whole bunch of money into it, it might not be worth it.

Dr. Jim Dahle:
But everything you put into it is basically like a 401(k) contribution. So, if you can put in $40,000 or $50,000 or $100,000 into it, it’s probably worth paying those additional fees and dealing with that complexity. Definitely look into it, but don’t feel like just because you haven’t found a decent provider yet that there are no decent providers out there. You can get one with index funds, you can get one with reasonable fees, you can get one that doesn’t charge AUM fees. You just have to keep looking around and I think those resources on the website will help.

Dr. Jim Dahle:
All right. Let’s do our quote of the day today. This one’s from Warren Buffet who said “The stock market is designed to transfer money from the active to the patient.” And there’s a lot of truth to that. The stock market, a lot of people think it’s a casino. Well, it’s not a casino when you’re in there for decades. Essentially at that point, you’ve eliminated this speculative portion of the return.

Dr. Jim Dahle:
And all that’s left is what those businesses that you own have produced. They’re earnings is what drives the long-term returns. The short-term returns are driven by speculation, but once you’re in there for a long time, it’s really more of a weighing machine than a voting machine.

Dr. Disha Spath:
What a wonderful reminder for the current times too. I’m not sure when this podcast is going live, but right now the market is on the way down and everyone’s panicking. And we always see the same post. What are people doing to mitigate everyone, the stock market is going downhill. What’s everyone doing different right now?

Dr. Disha Spath:
And honestly, investing is about patience. It’s not about short-term speculation. If you want to be a speculator and bet on the stock market, that’s going to be a full-time job. And most doctors don’t have time for that. Most of us are long-term investors and this is a time to be patient, a time to stick to the plan. A time not to make any emotional decisions.

Dr. Jim Dahle:
Yeah, it’s a little bit depressing though. This year stocks are down 15% and bonds are down 15% and real estate’s down 15% and cryptocurrencies are down 50% or more. There’s not a lot of places to hide in the last few months. And that’s part of the game with investing. Sometimes the value of your investments goes down, but over the long term, they generally go up.

Dr. Jim Dahle:
All right, here’s a question from Dave about paying cash for a house. Let’s take a listen to this one.

Dave:
Hi Dr. Dahle. This is Dave calling you from California. Thank you for all that you do. I’m getting ready to finish residency here in a couple months, and we are planning on moving to the Midwest for a new position.

Dave:
We ask for your advice. We purchased a home early on in medical school and justified it by the fact that my wife’s home business really couldn’t be run out of a rented space. We’re now in that similar position where we are purchasing another home in our new location. However, it’s very generous, the arbitrage that we are gaining.

Dave:
And so, the question now with this market is what we should do with the equity from our previous home? Really, we have enough that we could buy our new place outright, but this is likely not going to be our forever home. Any advice that you could give us about this would be very appreciated. Again, thank you for all that you do.

Dr. Disha Spath:
All right, Dave. Again, our theme today is rich people’s problems. I love it. So, you are in a very wonderful position of having disposable cash. And you’re wondering whether you should be taking that cash now that you get as a profit from the sale of your first house to put into your second house and buy it outright, or should you invest it.

Dr. Disha Spath:
I’m generally of the mind to have less debt and try to pay off your primary residence. But honestly, in this situation where you could buy a house in cash or finance the house and actually invest it, I would think I would go the other way.

Dr. Disha Spath:
Because when people make the decision of invest versus pay off debt, they’re usually talking about everyday expenses. The extra money I have left over, should I put that towards my debt or invest it? And in that case, behavior doesn’t work out very well. Most of the time people actually end up spending the money instead of actually investing it.

Dr. Disha Spath:
But in your case, you’re going to get a windfall. The money’s going to be there in front of you. You sound like you’re going to make the right decision and not spend it all. If you can invest it, you’ll come out ahead in this game because right now the interest rates on housing, on mortgages are headed up, but they’re still kind of towards the bottom. It’s going to go probably a lot higher. And you could probably maybe not make money off this money in the short term. I would dollar cost average it into a stock market, into a brokerage account. But in the long term, you will most likely come out ahead if you invest it now. What do you think?

Dr. Jim Dahle:
I don’t know. There’s no right answer here. This is the classic question – Debt versus invest. I’m just going to take the opposite position to be devil’s advocate.

Dr. Disha Spath:
Okay.

Dr. Jim Dahle:
We paid off our mortgage in 2017. It’s been five years. I haven’t made a mortgage payment. I haven’t made a rent payment in five years. It’s pretty nice.

Dr. Disha Spath:
That sounds nice.

Dr. Jim Dahle:
That was our biggest monthly expense back when we had a mortgage. Not having that has given me the freedom, whether it’s psychological or not, but the freedom to make different decisions with both my career, such as dropping night shifts, which happened about the same time. Cutting back on shifts, which I have done since. Taking business risks with the White Coat Investor.

Dr. Jim Dahle:
So, keep in mind that just because the numbers show if you can borrow 3% or 4% or 5% and earn 8% or 9% or 10%, it doesn’t necessarily encompass the entire story. There’s more to it than that.

Dr. Jim Dahle:
So, I would not feel bad one bit. When I look at my financial goals, one of my goals was to pay off a house. And if your goal is to live in a paid off house, and you’ve got enough money to just buy the house, that’s not a bad thing to do with your money. But it depends on what your other goals are. How much leverage risk do you need to run in your life in order to reach your other goals?

Dr. Jim Dahle:
If 95% of your net worth is in this house, then you might need to take some additional leverage risk and have a leveraged house so that you have some money to invest and have something besides the house.

Dr. Jim Dahle:
But if you’ve got $8 million of investments, and you’re talking about buying an $800,000 house, well, maybe I’ll just pay cash for it and simplify your life. So, I think we don’t have enough information to really give good advice to this particular questioner.

Dr. Disha Spath:
I think you’re right. It depends. If you are early on in your career, I’m not sure if they said. I think med school, they bought the house. So, they’re probably still pretty early on in their careers. If they’re going to be earning good income at least for the next 5 to 10 years, you could probably take on some leverage risk and be okay. But if you are at the end and you already have a lot of assets like Jim said, you’re already a multimillionaire, then you might as well buy it with cash.

Dr. Disha Spath:
But yeah, you’re right. I think it depends on what stage of life you’re at. And of course, it comes back to all the questions that we answer. It depends on what you want. It depends on what your priorities are. But if you’re at the wealth building stage, and early in your career, it might work out for you to leverage this.

Dr. Disha Spath:
It just seems to me that the housing market is way over inflated right now. Again, this is a complete speculation. I have no idea what housing prices are going to do two years from now, but it does seem to me that it might be a little overpriced at the moment.

Dr. Jim Dahle:
Sure. It feels brothy around here, I’ll tell you what.

Dr. Disha Spath:
Yeah.

Dr. Jim Dahle:
The Salt Lake’s been I think the number two market the last year in the country. So, it’s pretty wild around here with housing. But here’s the deal. I don’t mind people taking leverage risk. Maybe it makes sense to take more leverage risk and less market risk. I don’t have a problem with that.

Dr. Jim Dahle:
But I want people to do it consciously, to do it deliberately and say, “Well, I’m going to take on this much leverage risk. I think that’s reasonably safe for me in order to invest. And I think I can beat that.” Because it’s not guaranteed. You want something that’s risk free, paying off a mortgage or not having a mortgage in the first place is a very risk-free investment. You’re earning at whatever mortgages are right now.

Dr. Jim Dahle:
For example, if you get a mortgage at 5% right now, or whatever they’re at, that’s essentially what that home equity is earning. It’s 5%. That’s not a terrible return risk free. So, that’s not necessarily a bad thing to do.

Dr. Jim Dahle:
There’s a guy by the name of Thomas Anderson. He’s written a series of books called “The Value of Debt.” And if you’re really seriously considering taking on significant leverage on purpose in your life, I highly recommend you read one or two of his books.

Dr. Jim Dahle:
But his recommendation is if you can get good long-term non-callable debt that you only take out about 15% to 35% of your assets in debt. So, if you’ve got a $500,000 home and a $500,000 in retirement accounts and $500,000 in a taxable account and $500,000 worth of real estate, he would say the amount of debt you ought to have is somewhere between $300,000 and $700,000.

Dr. Jim Dahle:
And the truth is most doctors have already got more than that. So, taking on more than that, you really got to wonder if you’re not over leveraged in your life. I just try to do it consciously and deliberately. And don’t take on more risk than you need to take on to reach your goals.

Dr. Disha Spath:
Fair enough. All right. Next question.

Dr. Jim Dahle:
It looks like this one’s from David, who I think’s asked questions before on the podcast, but this one’s going to be about disability insurance.

David:
Jim, this is David from Monterey who was just listening to your disability podcast. Very well done. Maybe you could have a disability agent on and after listening to the ladies, comment on the issues raised and explain the reasons and how better to navigate the process of disability insurance claims.

David:
Also, what was done wrong? Also, is there a gender difference in disability insurance claim usage among doctors? Is pregnancy considered a disability as far as insurance companies are concerned?

David:
Also, do you take into account the problems your listeners have in getting claims when you accept them as a company, as advertisers? And also ask the agent why their product is so user unfriendly that it takes a lawyer to navigate the system for obviously valid claims. Thank you very much.

Dr. Jim Dahle:
All right. Lots of disability questions in there. I don’t know if we’re going to have a disability agent on specifically to address all those questions. We’ll talk about some of them today.

Dr. Jim Dahle:
If you guys want to have disability insurance agents on the podcast, I’ve got 10 of them that would love to be on the podcast. They would love to come on and answer all your questions. Heck, they’ll be on here every week if you want talking about disability insurance, they’d love it.

Dr. Jim Dahle:
But if you really have questions for them, I would suggest you go to whitecoatinvestor.com. Again, our recommended tab, scroll down to insurance agents. These guys are really experienced disability insurance agents. They sell hundreds of policies a year. They know their ins and outs of all the various companies and their policies and can answer all your questions about them. So, I highly recommend that resource for specific questions and helping you run the numbers on disability policies.

Dr. Jim Dahle:
But let’s try to address some of David’s questions, at least the ones that we can today. Do you want to take a whack at a couple of them and we’ll see if we can get them all answered?

Dr. Disha Spath:
Yeah, sure. I can talk, I guess, about women’s health issues. Two types of disability insurance, we’ve kind of already hinted at during this episode. There’s the short and the long term. So usually, pregnancy is a short-term disability, which usually means it’s less than three months. So yes, pregnancy is considered short-term disability. Generally, women need to buy short- disability insurance in order to get that covered. And you need to be in the plan with your employer for a little bit in order to qualify for it. Make sure you read the fine print on that.

Dr. Disha Spath:
If you’re already pregnant, when you buy a short-term disability policy, they’re not going to cover your pregnancy, because it’s a preexisting condition. Most of the time, that’s the case. So, those are the things to watch out for. Usually, vaginal deliveries, they’ll cover about six weeks I believe. And C-section, they’ll cover a little bit more than that.

Dr. Disha Spath:
Short-term is a very important disability for women to have if they’re planning on childbearing. As far as long-term disability insurance goes, I think that’s what most doctors are concerned with when we’re thinking about what happens if I have a stroke, if I can’t do my job all of a sudden, and I have my whole family depending on me? Who am I going to count on to, or how am I going to pay my bills and make sure that we don’t get put out of our house? So, Jim, I’ll let you take over there.

Dr. Jim Dahle:
Yeah, just read the policy, make sure it actually covers it. Don’t assume that because it’s short term, it’s going to cover pregnancy. For the most part, at least long-term disability, pregnancy is not covered. A complication of pregnancy is covered. If you get preeclampsia, if you end up whatever, you have some sort of complication, that’s going to be covered. You get a bunch of pulmonary emboli or something, whatever. That’s going to be covered. But just a routine, uncomplicated NSVD, you may not get any coverage whatsoever out of that.

Dr. Jim Dahle:
And so, you got to read the policy. You can look into special things like Aflac. Aflac’s got some pregnancy related payouts. And in fact, a lot of times you can get a really good deal on that. So, I would look at it and look at the specifics if you’re thinking about getting pregnant or if you already are and see if you can do really well with something like that. But as far as long-term disability, there’s got to be a complication or it’s not going to cover it almost every time.

Dr. Disha Spath:
Right. So, long-term is for disability that lasts past 90 days. Usually with normal pregnancies, you shouldn’t have any disabilities that last past 90 days. So, yet they don’t qualify for long term usually, unless you do have something that will last past 90 days, that like Jim mentioned, if you have any complications that do make it difficult for you to work. But then again, anytime you file a claim, insurance companies are taking risk. They’re taking risks that you are going to stay healthy and pay their premiums.

Dr. Disha Spath:
Now, when you do get sick and start holding them to their promise of helping you when you do get sick, a lot of the time their business model is made to pay out the least possible. So, you really unfortunately need to advocate for yourself, have everything in writing, make sure your t’s are crossed and your I’s are dotted. And you’re going to have to spend some time trying to get your fair compensation.

Dr. Disha Spath:
There’s always variability, but as long as you have things in writing and you get your paperwork done, there’s going to be hoops, they’re going to make it difficult for you, but generally you will get some help.

Dr. Jim Dahle:
Yeah. Keep in mind that women are more likely to get disabled. That’s why it costs more. If you’re buying a gender specific policy, it costs more if you’re a woman to buy disability insurance. Just like you’re more likely to die if you’re a man. And so, your life insurance costs more if you’re a man. Disability insurance is more if you’re a woman, life insurance is more if you’re a man. That’s just the way it is. And so, they priced it accordingly.

Dr. Disha Spath:
They used to have gender neutral policies. They just went out of…

Dr. Jim Dahle:
Yeah, they’re getting harder and harder to find.

Dr. Disha Spath:
Yeah.

Dr. Jim Dahle:
But if you can get one, if you are a woman, try to get a gender-neutral policy. If you were a man, try to get a gender specific policy and you’ll save a few bucks there.

Dr. Jim Dahle:
All right. What were some of his other questions? Well, he wanted to know, do I take in consideration how hard it is to get a claim done when I accept an insurance company as an advertiser?

Dr. Jim Dahle:
Well, number one, I don’t have any insurance companies as advertisers. I have agents and they’re independent agents that can sell you a policy from any insurance company. But the truth is this process is pretty similar for all of the big five or big six companies selling specialty specific, true own occupation disability insurance.

Dr. Jim Dahle:
When we had those two women on a few weeks ago, I didn’t tell you what one of the companies was because there were some legal implications, etc, etc. The one who got her claim paid pretty quickly, I told you who the company was.

Dr. Jim Dahle:
But what you may not realize is it was the same company with both of them. So, you can have problems. It’s certainly if you have a disability that’s harder to prove for which there’s not great radiologic evidence. You may find that it’s harder to get paid on it.

Dr. Jim Dahle:
If you got some vague back pain and you got a totally normal MRI back, it’s going to be harder. You’re going to have to see more specialists. You’re going to have to get more physician opinions. You’re going to have to fill out more paperwork than if somebody poked your eye out. And the first doc that looks in your eye goes, “Yes, your eye is poked out. Where do I sign?” Some disabilities just take a lot less paperwork, a lot less time.

Dr. Jim Dahle:
Do you have to get an attorney involved right away? Not necessarily, but a lot of people are glad they did because it gives them an advocate and they can at least understand what their options are. But there’s lots of things you use an attorney for in life and you wouldn’t necessarily say I shouldn’t buy disability insurance because I needed an attorney to help me get my claim. That’s just part of the price of doing it.

Dr. Jim Dahle:
Think of it this way. Think if the insurance companies were just, “Okay, you say you’re disabled. Let’s pay out.” If it was a really easy process, how much more would your premiums be? Probably substantially more because you’d have more people sneaking in that weren’t really disabled. And so, you got to be able to prove the disability or else the premiums are just going to be so expensive that nobody’s going to buy it.

Dr. Jim Dahle:
So, it’s not all bad to have them actually looking carefully, but there’s no doubt they have a business reason to pay as few claims as possible. So, it’s going to be a little bit of an uphill battle getting a claim. Great reason to become financially independent earlier in your life and not need disability insurance. So, I’ve canceled my disability insurance. I don’t have to deal with that if I ever get disabled for better and for worse.

Dr. Disha Spath:
And I should mention just in case we have any new listeners that have never heard us talk about own occupation disability insurance. The reason we harp on true own occupation disability insurance is because if you get disabled and you’re not able to do your job, say you could be the receptionist and check patients in, but you’re not going to be able to be a doctor anymore. You have a better chance of getting disability coverage, if you have true own occupation disability insurance. So, those are the words we’re looking for in our policies.

Dr. Jim Dahle:
Yeah, for sure. Social security disability, for instance, basically says, it’s not going to pay you if you can do any work, any occupation. So yeah, you can’t be a doctor anymore, but you know what? You can still take out the trash. They’re not going to pay you. You have to be totally and completely disabled. And obviously, there’s a lot of disabilities you can get. They’re going to keep you from doing your job. You can cut off your left hand. It’s going to be really hard for you to intubate, but that isn’t going to keep you from doing any work whatsoever.

Dr. Jim Dahle:
And so, it’s generally worthwhile. The vast majority of doctors buy a true own occupation specialty specific policy for those years between when they are interns and when they become financially independent. And I’d recommend you do the same. Sometimes the policy you can get from your own job might be adequate. It’s usually not quite as good as what you can get from an individual disability insurance policy that you’d buy through one of these agents that we recommend. It’s just going to be a stronger policy. It’s going to be more likely to pay, but yeah, it’s going to cost more. They’re more expensive to get a true individual policy.

Dr. Jim Dahle:
All right. I think we’re coming to the end of our time here. As a reminder, our sponsor today is Alexis Galati, founder of Cerebral Tax Advisor, who has nearly two decades of experience in high level tax planning strategies and multi-state tax preparation.

Dr. Jim Dahle:
She’s also the author of the book “Advanced Tax Planning for Medical Professionals.” She grew up in a family of physicians and is married to one. Cerebral services are flat rate and they are focused on their client’s return on investment. If you’d like to find out more or schedule a free consultation, visit their website at www.cerebraltaxadvisors.com.

Dr. Jim Dahle:
All right, this is going to drop I think on June 9th. So, we’re into the summer. And you know what we do in the summer? We have a scholarship program. We’re going to give away tens of thousands of dollars to professional students. They have to be full time. They have to be in good standing. Generally, the winners tend to be medical students, but dental students can apply, and other high-income professionals can apply. We’re taking applications now. Just go to whitecoatinvestor.com/scholarship.

Dr. Jim Dahle:
If you would like to be the judge for this contest, we don’t judge the winners here. We don’t pick them at White Coat Investor. Our audience picks them. So, if you would like to be a volunteer judge, it’s not that bad. You only got to read like ten one-page essays and choose the winner. And then it goes on to the next round. Email [email protected], and you can be one of our judges and help decide who wins these scholarships.

Dr. Jim Dahle:
All right, reviews. We appreciate you getting reviews. Do you want to read our most recent one here we’ve got, Disha?

Dr. Disha Spath:
Absolutely. It says “Outstanding advice. Great advice. The podcast format is wonderful. Great addition to his website platform. This is a young, old timer.” Via Apple podcast.

Dr. Jim Dahle:
Yeah. Well, we appreciate those five-star reviews. They help us to spread the word about the podcast and help other podcast listeners find it. So, thanks for leaving that. Thanks for being with us here today, Disha. I know it adds a lot to have another voice on the podcast.

Dr. Disha Spath:
It’s my pleasure. Thank you for having me.

Dr. Jim Dahle:
Until next time, keep your head up, shoulders back. You’ve got this and we can help. See you next time on the White Coat Investor podcast.

Disclaimer:
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.



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