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Last night, the United States government made possibly the biggest step forward for the American people in my lifetime.  219 United States House representatives voted to bring long overdue reforms to the US health care system.  We are still behind what is being done in pretty much every other country on the planet, but at least everyone will have insurance.

I know that a huge part (about half) of the country disagrees with meon this.  While I think it is great, some people think that the system works (though I argue just for rich insurance executives) or needs a different type of change, it has been passed and will impact you.  Like it or not, 30 million people, about 10% of the population, that were not insured will be.  Within a couple of years, the term “pre-existing condition” will be extinct.  Everyone will be covered, not matter what, by a health plan.

The bill, once signed, will be rolled out over about ten years.  The first changes will go into effect within the next six month.  After that, each year something new will kick in.  If you want to know how this impacts you, the best resource I have found is from the New York Times.  They have an interactive diagram that tells you exactly what to expect.

The Wall Street Journal gives a good breakdown of what is going to happen each year.  For example, the next two years have this in store:

2010

Coverage

• Subsidies begin for small businesses to provide coverage to employees.
• Insurance companies barred from denying coverage to children with pre-existing illness.
• Children permitted to stay on their parents’ insurance policies until their 26th birthday.

2011

Coverage

• Set up long-term care program under which people pay premiums into system for at least five years and become eligible for support payments if they need assistance in daily living.

Taxes and fees

Drug makers face annual fee of $2.5 billion (rises in subsequent years).

I also enjoyed Five Cent Nickel’s post on the new legislation.  And, in case you missed the news and want to see how the events unfolded, here is an article from my local paper, The Denver Post, on how everything happened.

I don’t talk about politics often on this blog, I stick to the money.  I don’t know how many of you are Democrats or Republicans, liberals or conservatives, libertarians or communists.  I am interested to see what you all think.  Please gives you opinions in the comments.  I hope to see a lively discussion of health care reform here at Narrow Bridge.

PS – Thanks to Amateur Asset Allocator for including Narrow Bridge in this weeks Carnival of Personal Finance.

Hi everyone.  If the title didn’t give it away, today is my birthday.  This twenty something is half way to thirty something.  On February 4, 1985 at 9:02am central time, I was born.  On February 4, 2010, I am excited to take advantage of the last birthday that comes with something new.

My car insurance, as a 24 year old guy, was about $125 per month.  That is a lot of money.  Even with good grade discounts and a good driving record, it is expensive to drive if you are a guy between 16 and 24.  At twenty five, I am magically less likely to cause an accident.  That means cheaper car insurance.

I ran through a quote program online last week and found that most insurance companies will lower my rate by over 30%.  I will probably find something around $80 per month.  That is a $45 per month, or $540 per year, in savings.  That is a weekend vacation to the mountains in savings.

The only other perk of turning 25 is also car related.  I can now easily find a rental car anywhere in the United States without paying extra fees for my age.  Pretty sweet, huh?

What do I have to look forward to from here?  Wrinkles?  At least I know that many women think men look better with age.  I am going for the Anderson Cooper or George Clooney look.  Girls think they are attractive, right?

(P.S. I didn’t pick the Progressive girl from the ads for any particular reason.  I just like her commercials better than the Gecko from Geico.  I have a different insurance company.)

Back in the good old days of classes like Financial Institutions Management, I learned quite a bit about how banks and insurance companies make money.  The way insurance companies drive their profits is not what you might expect.

Insurance companies have two sources of profits.  The first, and most widely known source of profits, is bringing in higher revenue from insurance payments than is expended in claims.  If you pay $150 per year for renters insurance and never make a claim, the company keeps all of that as profit.  If you pay $800 per year for car insurance and the company has to pay out $900 per year in claims, they are not making money.  This is how insurance companies get the reputation of being stingy.  They try to limit what they payout, even if it hurts their customers.  However, it is not quite that simple.

The second way insurance companies make money is through investments.  I met with a manager at Pinnacol, the Colorado guaranteed workers compensation insurance provider.  He was very up front in explaining that Pinnacol’s investments performed so well and the overhead was so low that even if Pinnacol paid out 100% of its income, it would still be profitable.

Insurance companies make most of their money through investments.  To earn a profit, the insurance company must maximize the time between receiving a payment and making a payment.  This spread is the investment period that the insurance company uses to make money.  If you pay the company $100 on January 1st and they pay it out on July 1st, it had a six month investment period.  If the company had an investment gain of an annualized 10% during that period, it made $5 in profit, before taxes and related expenses.

The scale comes with having many customers and extending the investment period and minimizing payouts.  If the company has 1 million customers in the same situation, it makes $5 million.  You can see how fast the scale can increase profitability, even if everything you pay in gets paid back out.

To extend the investment period, the company will delay claims processing.  Some companies expedite claims for customer service reasons to bring in new clients, but some have waiting periods and processing periods that delay check writing.

The best way to increase profits for an insurance company is to increase investment return.  As any educated investor knows, increased profits often come with increased risk.  Insurance companies hire educated professionals to balance risk and return to ensure a well diversified investment portfolio.

AIG’s investment professionals did not appropriately manage the company’s risk.  AIG invested into highly risky securities hoping for a very high return.  It worked, for a little while.  However, when the markets turned sour the company had record losses.

If any of the terms here were confusing, be sure to read this well written glossary of insurance terms.  If you think I missed something or have any questions, please say so in the comments.

I have some sort of stomach thing going on right now. I am waiting on blood test results to know more. Anyway, this is the first time I have been sick enough to go to the doctor in about two years.

Stomach Med (OTC): $4
Co-pay: $25
Prescription: $10
Groceries for Stomach Ache: $15

That is over fifty dollars for this stupid stomach ache! I guess that is why we have emergency funds.

When my appendix almost blew up a few years back the surgery and hospital bills and doctor co-pay was in the hundreds. When I broke my hand six years ago the resulting doctors expenses and surgeries were closer to $1000.

The moral of this story: even if you have insurance, have an emergency fund. You never know when you will need $50 or $1000 for a medical emergency, even with insurance.

I had a job for about two months that did not have an option for health insurance. It kind of sucked. What if I got sick? What if I was injured? There were many “what ifs” that could have cost me a lot of money in those two months. After a few weeks of being uninsured, I had to do something. If you do not have health insurance, you are just asking for trouble. Get a plan. Even a bad plan is better than no plan.

As much as I hate insurance companies, they are important for you. If you get cancer or break a bone or come down with appendicitis, you will probably need expensive operations or procedures. Insurance lowers the price dramatically.

Depending on where you live, you have different options. I ended up with Kaiser Permanente as I had been insured there in the past. If you need insurance, find out what the big companies are in your part of the country and apply. It is usually that easy. I had to fill out a form listing prior conditions, medical background, and a lot of details about my history. After about a week, I was accepted. On the first of the next month, I was insured.

Here is a list of big insurance companies. They might not be in your neck of the woods, but there are companies. In great places like Canada and the UK, you do not need insurance. Here you do. Sad huh?

In No Particular Order:
Kaiser Permanente (West Coast/Colorado)
United Healthcare
Blue Cross/Blue Shield
Aetna
American Family Insurance
Aflac
WellPoint
Humana
For a more comprehensive list, click here

If you are single, you are only screwing yourself over by being uninsured. If you have a family, you have a responsibility to other people to keep yourself and them healthy. I know it is expensive, but it can save you so much money in the long run. It is worth it. If you already have health insurance, you are doing the right thing. If not: Get Insurance.