WCI #266: Employer Health Insurance Plans: PPO vs. HDHP

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.

Today's episode is co hosted. I'm here. I'm Jim Dali. I'm an emergency physician and the founder of the White Coat Investor and I'm here with WCI Ambassador. This is Smath. Hey, welcome back to the podcast.

Thanks so much for having me, Jim. I'm so excited to be here.

So this is number 266, Employer Health Insurance Plans PPO versus HDHP. If you are finding our podcast informative and helpful, check out our website. Since 2011, we've been working hard to provide valuable personal finance and investing information. Through thousands of blog posts written by an array of authors, you can find information on how to manage your student loans, fix and avoid common financial mistakes, understand your retirement accounts, optimize your investments, find professional help at a fair price, get started investing in real estate, and so much more, all at no cost to you. You can find out more about the courses we offer, the conferences we put on, the newsletters we provide, and interact with other WCI readers through our online forum. Head on over to whitecoatinvestor.com to start learning today. You can do this and the White Coat Investor can help. 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, et cetera for us on the Speak pipe. You can do that@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 and 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. 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 the next and you can apply for that at www.wcievents.com. next year we're going back to Phoenix. So it's going to be in Phoenix, 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's the time. Go apply. 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. Okay? 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. Right. 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. And the second thing is 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 8 other people applied for, it's going to be really hard for you to get selected for that. So now's the time. Go apply. Www.wcievents.com 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. Like, the food was amazing, the venue is amazing. Of course, the white coat investor team did an amazing job just getting it all together. It's so professional and I'm like super biased here. But I wasn't last year and it was awesome.

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. It's a pretty impressive conference now.

It's pretty legit.

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?

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 schoolteacher. She is 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. So here is what his offerings are or her offerings are per pay period, two per month. And they have some dependents. They have two dependents. So 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 accident, cancer, life critical illness, which included. Or he's not paying for. Excuse me. Currently spouse and children, life insurance, legal services insurance, short term disability and long term disability. The short term was $9 a month, $9 per pay period. Sorry. And the long term is $7 per pay period.

You know, the amazing thing about this email is these prices, right? Because I actually buy my health insurance, the whole thing, I pay for not only for myself, but my employees, right? I mean, it's like $1,400 a month.

Wow.

And these have prices of $13. Is it worth it? It's $13. Yes, it's worth it at $13. It's free, you know, I mean, come on, you're paying nothing. Your employer's picking up the whole thing. You might as well do it, you know. 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, et cetera, and try to give people some background 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, right?

And you know, being on the primary care side, I deal with this with patients a lot because they're always talking about their out of pocket, trying to explain to them like what's going on and why they're getting so many bills and such like, 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. So the biggest, 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 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 and if you are going out of network, then you're of course going to pay a higher fee. So this was kind of 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 lower, 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. And I say that because that's not always the case. But 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. So there's the minimum deductible and there is the annual out of pocket maximum that you have. So a lot of the high deductible health plans, the minimum deductible for the, for these, for a family is $2,800. And that's actually kind of, that's the minimum. So a lot of employers have a much higher deductible than that. I've had plans that were like 5,000 out of pocket deductible, sorry, the minimum deductible 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. So most health plans have out of pocket coinsurance that comes out. Even if you've met your deductible, then you're paying coinsurance until you reach your out of pocket maximum. That number, the out of pocket maximum for a high deductible health plans usually around 14,100. Okay. For a family. 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 really like, you know, it really grates on your psyche. But if you are prepared for it, then you know, you just, 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.

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

Right, exactly. And you know 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 we know 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 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 health care expenses. And all you, if you want, you can let that money grow. You can pay the 14,000 out of pocket for, you know, 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 health care costs or you have the option of dipping into it if you need the money now. So, you know, the health, the HSA access is really key. What do you think, Jim? Do you like HSAs?

I'm a big fan of an HSA. Do you have an HSA?

I do. I sure do have two actually.

Are you spending from it or are you just investing it?

I am just investing.

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 you just keep putting money into it and it's invested just like our 401k or anything else. So a lot of it's growth.

Yeah, that's awesome.

But eventually we expect to be taking some money out of it. So I've got a bunch of receipts I got 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.

Yeah, absolutely. The hard part with HSAs 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 costs and put it in there. So 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.

Yeah. What I've discovered is receipt ink fades over time. So I've got a bunch of blank pages in my folder. So I should have been doing what you were doing. But anyway, HSAs are cool, but the question I get a lot of 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 gotta decide what's the right plan for you. And then if the right plan is an hdhp, then sure, use the hsa. But if you're the type of person, let's say you've got rheumatoid arthritis, right. You're gonna hit your out of pocket max every year. The right plan for you is almost surely not a high deductible health plan. You know, the high deductible health plan is the right plan for my family. You know, 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, you know, So 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. And especially if you've got an employer paying most of the premiums, you know, if you're out of pocket is $13 a pay period, you ought to take the best insurance they're going to give you, you know, because that's really valuable. Health insurance is a, is a 10 or 15 or, or 20 or $25,000 a year benefit. It's really valuable. And until you bought it yourself, you don't realize how valuable it is. I mean, 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.

Yeah, absolutely. You know, I will caveat that, like, you really have to look at the Employer and you sit down at the, at the options and just make sure. Because like my, in our situation and 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, you know, 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 is company has is amazing. It's like our out of pocket was lower than the ppo, so, so we just ended up going with a high deductible and it has worked out really well for us. We finally, we've hit our out of pocket maximum and it's only may.

You know, it's interesting. You, 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.

Yes. Yeah, that's true.

Most common, their employer is actually charging them more for the high deductible plan, which is bizarre. Right. But that's the way it was. So you've got to look at what's offered to you and run the numbers.

Absolutely.

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

Yeah. So the Obamacare and the open, the open market has different levels, I guess, of insurance. So a bronze plan is where the insurance company pays about 60% of your costs and the insured pays 40%. Okay. So it's the lowest monthly premium, but you're 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. So this is the highest monthly premium and the lowest deductible. So it kind of portrays how much the insurance is going to be paying and how much you're going to be paying. And you know, you need to choose that knowing how much cash you have to pay out of pocket costs versus how many health care 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. So if you do have a lot of disposable income, a lot of, you know, 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.

Yeah. All right. We've talked about deductible, we've talked about coinsurance. What is a copay? How's that different from coinsurance?

So co insurance is when the doctor sees you, they send a bill out for the service they provided. The insurance then divvies 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. The copay is what you pay at the front desk when you walk in. So this is the cash you pay when you walk in to the appointment. And that copay 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.

Yeah. All right, well, let's run down through this list of insurances from the email. Medical. 13 bucks. Yep, get that. That's a great deal. Dental for you and two dependents, 37 bucks. That's a pretty 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's like the opposite, right? It covers this small stuff. It covers the cleanings and the exams and, you know, half of a cavity and that sort of stuff. But then it like 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. Vision. This is nine bucks. I mean, it's nine bucks. 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. Right, because your health insurance covers accidents, your health insurance covers cancer. So you don't actually need this additional coverage. So in the case of this emailer. It's $8 and $16, so it's not super expensive. But I probably still skip it. That's usually insurance. That's insurance designed to be sold, not bought. They're giving you some free life insurance. Take that. You know, obviously anything the employer is just going to pay for 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 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. So it may be worth getting some insurance on your spouse. Legal services insurance. That's super interesting. I don't know, I'd have to look into that. That might be interesting to get.

Yeah, I had that for a little while with my husband. He works in the tech industry so they get all kinds of good benefits. Yeah. 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's pretty cool.

Yeah, so that might be worth paying for short term disability. Nine bucks. I mean, at nine bucks I might take it. I mean, I have a feeling the employer is 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 a better long term disability policy than what you're getting from your employer. But it's $7 a pay period. I'm probably taking what they're offering too. You know, you just want to coordinate that. If you're also buying an individual policy.

And I'm going to caveat the short term disability piece with if it's a woman and you are, you know, 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.

Well, you got to make sure it covers maternity leave because some do and some don't.

True.

So look, the devil's in the details with these for sure.

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.

Yeah. All right, well, let's get off the health insurance topic for a little bit and let's take some questions off the speak Piper. First one comes from Matt. Let's take a listen to this one.

Hi, Dr. Valley, this is Matt. I'm a current resident who's going to be graduating this year, moving to a mid sized 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. From her side, we were wondering whether it made more sense for her to form an LLC. We're planning on doing a solo 401k rather than a SEP IRA or simple IRA with hopes of eventually doing a backdoor IRA in the future for ourselves.

Great question, Matt. You know, 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, you have no employees, Right. You essentially have no business risk. There's no business risk that you need to protect yourself from. Right. 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 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. So 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 and you'll need that if you're going to open the Solo 401K, 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.

Yeah, I agree.

Yeah, I'm not against LLCs. I love LLCs. White Coat Investors in LLC. My real estate investments are LLCs. But you don't need it in this case. All right, another question, this one coming from email. I have 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's 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?

Good problems.

What a great, great problem to have. What did they do the first year they started earning big dollars? What did they invest in? Save it. Pay off a mortgage. My son is fortunate. He doesn' 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. Let's talk about this, because this is hard. Everybody struggles with this, right? 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's all kinds of things. So what do you say? Somebody brand new, they've got the 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?

Okay, first of all, I want to say how blessed we are to have this awesome problem. This is definitely rich people problems and awesome. So tax advantage first is what I would say. So make sure you're filling up all of the tax advantages buckets before doing anything else, because that space doesn't come back every year. You are guaranteed just the 401k or whatever retirement account you have access to. And so make sure you fill those up. And then we generally say high interest debt should go. Anything that's above 10% should go. What do you think, Jim?

Yeah, I mean, you know, there's not actually a right answer to this, Right? It's all about what matters to you. Right? And then you go and you take care of 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. You know, maybe you don't have an emergency fund. So, okay, well now it's time to get a real emergency fund. You know, 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. You know, knock that stuff out. Another high priority, if your employer's giving you access to the 401k already and they offer you a match, obviously that's not getting, that's 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 you can't even contribute for the first few months.

Usually, yeah. I mean, 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 6 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 is to be saving up toward a down payment. So that might be a priority. And then of course all those great retirement accounts, you may have access to an HSA and a 401k and backdoor Roth IRAs for you and your spouse and, and who knows what else. You know, your spouse probably has some retirement accounts and Maybe there's a 457. Everybody's gonna be a little bit different in this regard. Maybe you wanna get started with building a real estate empire. It just comes down to your priorities, listing them out and knocking out as many of em as you can. And realize that you're gonna run out of money even with that extra 100,000 or extra $200,000. You're gonna run out of money before you get through everything you want to do. 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 each year. Because your mortgage is paid off and the student loans are gone and you've got an emergency fund, you're in your house and now you've only got two or three things to put your money into. But that's kind of a sign of success in the beginning. You've probably got eight 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.

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. But because you're going to get distracted, you're going to want to take that trip to Italy. And 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. 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 and get those done. And then you could indulge.

I mean, if you need like something prescribed to you, that this do this, then do this, then do this, then do this, we can give you that. Just recognize that it's not, you know, set in stone for sure. I mean, if you had to put a list together, you know, maybe the 401 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, you know, tax deferred accounts and then tax free accounts like your backdoor Roths. 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. 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. 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 charitable foundation or something like that. There's 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. It's a little bit of a. 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.

Can I share a goal that I just recently met?

Yeah. Let's hear it.

So today I just had my brand new Boston piano made by Steinway, a design by Steinway, made by Kauai, delivered to my door. And I went. 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.

Is this a grand, a mini grand or upright?

A baby grand? Yes, it's a baby grand. Yes. Takes over my entire room.

And what, what, what room's it in?

It's a. So when we bought this house, I bought it with. Because it has a piano. Like a perfect piano room. You know, you walk in, it's right there, and it's just. It's just beautiful. I can't even. I'm overwhelmed.

And you're the pianist or. Who's the pianist?

Well, I am the wannabe pianist.

All right.

I. When I was 10, I was just obsessed with learning how to play. I don't. It just. There was an emotional pull that I couldn't deny. You know, I had to do it. And we didn't have a piano, and 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. And so I taught myself how to play using my cousin's books, and she helped me a little bit as well whenever she could. She was in college. She was so kind. And I learned how to play. And then I, you know, eventually in medical school, I would go and play at the French restaurants and just play a little piano jazz and, you know, just putter around. And I did that in my year off in San Diego too, you know, and it was just so much fun. I just love it so much. And I. But I haven't been. I haven't let myself buy that piano for this. So for so long, because there were all these other goals we had to meet. I had to pay off my student loans, we had to buy the house. You know, we need to start building our real estate empire and all this stuff, right? And so finally, my husband finally was like, disha, get your piano. You've Been saving for this for so long. Just do it. Finally I let myself do it and it's just the most wonderful thing. So I'm just so happy that I finally got to meet this goal and I paid cash for it. And the good thing is that it actually appreciates in value for the next 20 years. Sign waves are actually an investment rather than something that depreciates, so I'm just over the moon. Speaking of goals.

Cool. That's exciting. So maybe we're going to have you doing some new music for the intro to our podcast.

That's special.

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.

Oh, man, cars are so tough right now.

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.

Hi, Dr. Dolly. I have a question about divine benefit plans. I'm interested in using one as a tax savings vehicle and saving for retirement. However, a lot of the ones I've investigated have high yearly maintenance fees 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 outweigh the cost because at the end of the period of the plan, you can always just roll it into your 401k. 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.

All right, so let's talk about defined benefit plans. When we're talking about this in 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. Right. That's what a defined benefit plan is, rather than the defined contribution plan, such as a 401. But in reality, what these defined benefit cash balance plans are an additional 401 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 five or 10 years and roll it into your 401. This is just an extra 401. And the contribution amounts might be really small. It might be like $5,000 a year, but it could be as high as 200 or $300,000 a year. Year. So the contribution amounts can be really big. Especially if you're a pretty high earner, you're in your late 50s, you don't have any other defined benefit plans. You know, you might be able to put a lot into this plan, but you don't have to. 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 401k though, because there's additional expenses. There's like 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 401k is going to cost you. But it doesn't have to be actively managed funds, it doesn't have to be AUM fees, et cetera. 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 Health. And listed there you'll find four or five firms that this is what they do. They put in 401ks and cash balance plans for your practice. They can help you to do it individually. You can go to, like I know Schwab does, one that's kind of a little bit cookie cutter esque. 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. But everything you put into it is basically like a 401k contribution. So if you can put in 40 or 50 or $100,000 into it, it's probably worth paying those additional fees and dealing with that complexity. So 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. All right, let's do our quote of the day today. This one's from Warren Buffett, 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. You know, 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, you know, you're essentially at that point, you've eliminated this speculative portion of the return and all that's left is what those businesses that you own have produced their 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.

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 the stock market going downhill? What's everyone doing different right now? And honestly, investing is about patience. It's not about short term speculating. 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.

Yeah, it's a little bit depressing though, when this year stocks are down 15% and bonds are down 15% and real estate's down 15% and cryptocurrency's down 50% or more. There's not a lot of places to hide 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. All right, here's a question from Dave about paying cash for a house. Let's take a listen to this one.

Hi, Dr. Dali, 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. Against better 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 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.

All right, Dave, again, our theme today is rich people 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? Generally I would be, you know, I'm generally of the mind that, you know, have less debt and try to keep a stip. Pay off your primary residence. But honestly, when you, in this situation where you could buy a house in cash or finance the house and actually invest it, I think I would go the other way because the problem when, 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 my. 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. But in your case, you're going to get a windfall. The money is going to be there in front of you. And 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, but in the long term, you will most likely come out ahead if you invest it now. What do you think?

I don't know. There's no right answer here. This is the classic question is debt versus invest. So I'm just going to take the opposite position to be devil's advocate. Okay, I paid off my mortgage. 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.

That sounds 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, which happened about the same time, cutting back on shifts, which I have done since, taking business risks with the white coat investors. So keep in mind that just because the numbers show if you can borrow at 3 or 4 or 5% and earn 8 or 9 or 10% doesn't necessarily encompass the entire story. There's more to it than that. So I would not feel bad one bit. I mean, 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 house, that's not a bad thing to do with your money. But it depends on what your other goals are, right? I mean, 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 and simplify your life. So I think we don't have enough information to really give good advice to this particular questioner.

I think you're right. I mean, so it depends, like if you're early on in your career, if you. I'm not sure if they said, I think med school, they bought the house, right? So they're probably still pretty early on in their careers if they're going to be earning good income and you know, at least for the next five to 10 years, you could probably take on some leverage risk and be okay. But if you're at the end and you already have a lot of assets, and like Jim said, you're already a multimillionaire, then you might as well buy it with cash. But yeah, you're right. I think it depends on what stage of life you're at. And of course, and then comes back to all the questions that we answer, right? 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 especially, I don't know, it just seems to me that the housing market is way overinflated right now. Again, this is a complete speculation. I have no idea what housing prices are gonna do two years from now. But it does seem to me that it might be a little overpriced at the moment.

Sure feels frothy around here. I tell you what, 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 I mean, here's the deal, right? 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. But I want people to do it consciously, to do it deliberately and say, well, I'm gonna 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, right? Cause 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, right? You're basically getting, you're earning at whatever mortgages be 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 is 5%. That's not a terrible return risk free. So that's not necessarily a bad thing to do. But there's a guy by the name of Thomas something. It slips my mind right now, but 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. 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, 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. And the truth is most doctors have already got more than that. So taking on more than that, you really gotta wonder if you're not overleveraged in your life. So 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.

Fair enough. All right, next question.

Looks like this one's from David, who I think has asked questions before on the podcast, but this one's going to be about disability insurance.

Jim, this is David from Monterey. I 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.

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. 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 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 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. But let's try to address some of David's questions, at least the ones that we can Today. You want to take a whack at a couple of them and we'll see if we can get them all answered?

Yeah, sure. So I can talk, I guess about the women's health issues. So two types of disability insurance. We've kind of already hinted at it during this episode. There's the short and the long term. So usually pregnancy is 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 term 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 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 see section they'll cover a little bit more than that. So 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? So Jim, I'll let you take over there.

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, you know, whatever, you have some sort of complication that's going to be covered. You know, you get a bunch of a 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. So you got to read the policy. You can look into special things like Aflac. Right. 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't 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.

Right. So long term is for disability that lasts past 90 days. So usually with pregnancies, with normal pregnancies, you shouldn't have any disabilities that last past 90 days. So yeah, they don't qualify for long term usually unless you do have something that will last past 90 days that like Jim mentioned, you know, if you have any complications that do make it difficult, difficult for you to work. But then again, anytime you file a Claim, you know, insurance companies are taking risk. They're taking risk that you're going to stay healthy and pay their premiums. Now when you do get sick and start, you know, holding them to their promise of helping you when you do get sick, a lot of the times, you know, their, 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. There's always variability, but as long as you have things in writing and you get your paperwork done, you know, it's, they're going to be, there's going to be hoops, they're going to make it difficult for you. But generally, you know, you will get some help.

Yeah. Keep in mind that women are more likely to get just 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 more if you're a man. That's just the way it is. And so they price it accordingly.

They used to have gender neutral policies, right? They just went out of insurance.

Yeah. They're getting harder and harder to find.

Yeah.

But if you can get one, 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. All right. What were some of his other questions? Well, he wanted to know, you 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, number one, I don't have any insurance companies as advertisers. You know, 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. 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, et cetera, et cetera. The one who got a 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. So you know, 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, you know, it's harder to get, you know, if you got some vague back pain and you got a totally normal MRI back, it's gonna be harder. You're gonna have to see more specialists, you're gonna have to get more physician opinions, you're gonna have to fill out more paperwork than if somebody poked your eye out. And the first doc that looks in your eye goes, yep, your eye's poked out. Where do I sign? Some disabilities just take a lot less paperwork, a lot less time. Do you have to get get 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, you know, 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 kind of part of the price of doing it. Think of it this way. Think of if the insurance companies were just, okay, you say you're disability, you say you're disabled, let's pay you out. You know, if it was really easy process, right. 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 gotta be able to prove the disability or else the premiums are just gonna be so expensive that nobody's gonna buy it. 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 gonna 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.

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 it's if you get disabled and you're not able to do your job, say you could be the receptionist and check patients in, 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?

Yeah, for sure. I mean, Social Security disability, for instance, basically says it's not going to pay you if you can do anything, any work, any occupation, Right. So yeah, you can't 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 right. You cut off your left hand, it's going to be really hard for you to innovate that aren't going to keep you from doing any work whatsoever. 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. If you are finding our podcasts informative and helpful, check out our website. Since 2011, we've been working hard to provide valuable personal finance and investing information. Through thousands of blog posts written by an array of authors, you can find information on how to manage your student loans, fix and avoid common financial mistakes, understand your retirement accounts, optimize your investments, find professional help at a fair price, get started investing in real estate and so much more, all at no cost to you. You can find out more about the courses we offer, the conferences we put on, the newsletters we provide, and interact with other WCI readers through our online forum. Head on over to whitecoatinvestor.com to start learning today. You can do this and White Coat Investor can help. 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, other high income professionals can apply and we're taking applications now. Just go to whitecoatinvestor.comscholarship 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 10 one page essays and choose the winner and then it goes on to the next round. You can do that. Email scholarshipwhitecoatinvestor.com and you can be one of our judges and help decide who wins these scholarships. All right. Reviews, we appreciate you getting reviews. You want to read our most recent one here?

We've got absolutely says outstanding advice, great advice. The podcast format is wonderful. Great addition to his website platform. This is a young old timer via Apple Podcasts.

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It's my pleasure. Thank you for having me.

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.

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