RISCARIO INSIDER: INSURANCE LESSONS FROM BREAKING BAD

Diagnosed with cancer and given only two years to live, high school chemistry teacher Walter White attempts to secure his family's financial future by teaming with his former student, Jesse Pinkman, to produce and distribute crystal meth. — Netflix summary for Season 1

Would Walter have turned to crime if he had the right insurance in place?

Bad Breaks

Good people get bad breaks. Walter never smoked but he got lung cancer anyway. By the time of detection, the cancer was considered untreatable. Were there no signs earlier?

Usually symptoms of lung cancer do not appear until the disease is already in an advanced, non-curable stage. — cancer.org

Most lung cancers are first diagnosed based on symptoms. Symptoms of lung cancer are not very specific and generally reflect damage to the lungs’ ability to function normally. The most common symptoms are a worsening cough that will not go away, and chest discomfort. Other symptoms include shortness of breath, spitting up small amounts of blood, unexplained weight loss, back pain, loss of appetite, and a general fatigue. — lungcancer.org

Walter shows many of the symptoms. There are precautions to offset the financial costs of disease.

Health Insurance

"All the incentives are toward less medical care, because the less care they give them, the more money they make." — John Ehrlichman on HMOs

Walter was covered by an HMO (Health Maintenance Organization). That's a US-style of cost containment with unfortunate side effects. The premise is good: treating conditions early is simpler, faster and cheaper than waiting until later. The HMO get fixed revenue per subscriber, which provides an incentive to tame costs. Members have financial incentives to stay healthy too. Their out-of-pocket expenses (if any) are lower for basic preventative care than for specialized care.

The HMO (which could be run for-profit) makes more by providing less. That's not the same as keeping people healthy. For instance, having too few doctors means a greater workload and an incentive to spend less time with each patient.

Walter experiences the drawbacks. His pricey chemotherapy isn't covered. In Season 2, a $13,000 hospital stay isn’t either. There’s a difference between an MRI which is diagnostic vs exploratory --- even when ordered by a doctor. Walter got the one that was excluded. Does that seem fair?

Another cost is waiting time. Perhaps the best doctors don’t want to work in an HMO where they’re often on salary.
Doesn't the Canadian healthcare system feel similar? We also have waiting times, limited choice and limited coverage.

A friend who is currently undergoing cancer treatment is getting injections which cost $3,000 each. Private health insurance covers 75%, which means an out-of-pocket expense of $750 each time.

Disability Insurance

Income replacement insurance helps replace your income if you're unable to work after a waiting period. The definitions and benefits vary. You might not be able to work during treatment or be able to return to work afterwards. The bills keep coming in even if the income doesn’t.

Employers might provide income during short absences. Perhaps full pay for X days and then a reduction until the long term disability benefits start. The self-employed may not even have that cushion.

Critical Illness Insurance

This coverage typically pays a lump sum a month after the diagnosis of a covered life threatening condition like cancer, heart attack or a stroke. The money can be used any way you want.

Walter could have used the benefits to replace income until the disability insurance benefits start, pay off debt and/or get the hot water heater fixed. A hot bath can be therapeutic.

Life Insurance

"… good state college … adjusting for inflation, say $45,000 a year, two kids, four years of college...$360,000. Remaining mortgage on the home, $107,000. Home equity line, $30,000, that's $137,000. Cost of living, food, clothing, utilities, say two grand a month? I mean, that should put a dent in it, anyway. 24K a year provides for, say, ten years. That's $240,000, plus 360 plus 137...737. $737,000, that's what I need." — Walter (Episode 201)

Walter wanted to leave his family enough to

payoff debt: mortgage and line of credit
fund university: for two children (one age 15 with cerebral palsy and a baby to be born)
cover living expenses: for 10 years

Do you see the flaws in the planning?

There's no provision for unexpected expenses. There’s a bigger problem. What happens after 10 years? Walter’s wife Skyler is then 50. Is she to go to work then? She isn’t trained in Walt’s lucrative side business. Maybe Walter expects Skyler to find other sources of income such as from her writing or selling items on eBay.

What To Do?

Walter has been seriously underemployed. While teaching, he worked part time at a car wash. Also, teachers get two months of summer vacation. Given his intelligence and resourcefulness, what was holding him back? More money would have provided a better standard of living and covered the insurance premiums. His impending death brought him to life but that was too late.

Insurance looks like an expense but provides peace of mind. Insurance could be the best investment ever when purchased through the right advisor and insurers. The underwriting process may have detected the cancer early enough for treatment. That would have been a good break (though boring TV).

Podcast 245

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PS If you rent your hot water heater, you avoid a capital outlay and have your repairs covered. That’s insurance too.

RISCARIO INSIDER

November 9, 2013

INSURANCE LESSONS FROM BREAKING BAD