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Catastrophic Health Insurance Offers Safety Net, With a Catch

Man in emergency room

Nobody likes paying high monthly premiums for health insurance, which is why a product called catastrophic health insurance was designed. But, before you jump in and purchase catastrophe insurance, there are a few things you need to understand first.

Catastrophic health insurance is also commonly known as a high-deductible health plan. The rules governing catastrophic coverage have been laid out by the Affordable Care Act.

What are catastrophic insurance plans?

Catastrophic health insurance plans have lower premiums but very high deductibles. That means you don’t pay as much for catastrophic health insurance from a month-to-month basis, but if you do end up using a health care service, chances are you will be paying much more per visit up until you hit the high deductible.

For plans on HealthCare.gov, deductibles for catastrophic health insurance plans begin at $7,900 and go up from there.

Catastrophic health insurance isn’t designed to be used by people with a regular health care need, such as with someone with diabetes, but instead catastrophic insurance is there to guard against worst-case scenarios like sudden severe illnesses or accidents.

The details of catastrophic insurance vary according to where you get your policy. So, for example, if you purchase your policy through you employer, it may be a bit different than if you bought it from an insurance exchange.

How do catastrophic health insurance plans work?

If you are using HealthCare.gov,  you are only eligible for a catastrophic health insurance plan if you are under 30, or if you have a hardship exemption or affordability exemption.

Those exemptions are typically reserved for people who were recently homeless, who declared bankruptcy, who are victims of domestic violence, or who qualify under some other category that makes it so you are struggling to pay for health care.

After you cover your deductible, your catastrophic insurance plans typically pay for all covered costs with little or no copayment or coinsurance.

Catastrophic health insurance plans cover essential health benefits, meaning things like doctors’ services, inpatient and outpatient hospital care, prescription drug coverage, pregnancy and childbirth, mental health services, and more will be covered as part of the plan. But again, only after the high deductible has been met.

Catastrophic insurance plans do also cover preventive services at no cost, such as immunizations, certain screenings and contraceptive services. Catastrophic insurance also generally covers a number of routine doctor’s office visits even before your deductible is met — typically three per year.

What makes catastrophic coverage unique?

Catastrophe insurance is different than other types of limited plans, such as accident, short-term plans or critical illness plans, which are designed to protect you in highly defined ways, while catastrophic health insurance plans are required to carry the same minimum health benefits as any other plan governed by the Affordable Care Act.

Catastrophic coverage might make sense for you in certain situations, such as if you are younger, want lower premiums, generally healthy, or have a bit of savings available to pay for health expenses, but you still want to be protected in case the worst happens.

When they were designed, it was not thought that catastrophic health insurance over 50 would make much sense. These policies are designed for younger people who tend to have much more predictable and generally lower health care needs.

If you are shopping for health insurance for 55 and older, some organizations, such as AARP have tools that help make those choices, but in general, most try to dissuade you from opting for catastrophic health insurance over 50.

Wrapping up catastrophic insurance plans

So, remember, catastrophic health insurance is designed for younger, healthier people or people with specific hardships that make affording health care difficult.

Catastrophic insurance has low monthly premiums but very high deductibles. In general, you will pay much more out of pocket up front with a catastrophic plan than you would with a gold, silver or bronze plan, but one up side to a catastrophic insurance plan is that after you meet your deductible, the catastrophe plan steps in and covers almost everything else.

One big catch to catastrophic health insurance plans is that they don’t qualify for a federal Affordable Care Act subsidy. So, if you are shopping on one of the health care exchanges and qualify for one of those subsidies, catastrophic insurance may not be your best bet — a gold, silver or bronze plan may make more sense for you. 

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