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Health insurance can seem like a burdensome expense, but it can often save you a lot of money when you need to care for a serious (and often unexpected) injury or illness.
Catastrophic health insurance is a great alternative if you don’t want to pay expensive monthly premiums, but still want protection in the event of a major healthcare need.
What Is Catastrophic Health Insurance?
Catastrophic health insurance plans are less comprehensive than typical plans, but are designed to protect enrollees in the event of, well, catastrophic events. These types of plans are sold on the individual marketplace and are designed as a low-cost alternative to a more standard health insurance policy.
Lower Premiums, Higher Deductibles
Catastrophic health policies are also a type of high-deductible health plan (HDHPs). They feature lower monthly premiums but come with higher deductibles than most standard health insurance plans.
This means that you’ll pay less per year in premiums than you would with a regular plan, and if you finish the year without needing a high-cost treatment, you’ll likely end up saving a good amount of money on your health insurance.
Inevitably, this means that you’ll have to pay for most medical expenses out-of-pocket until you meet your deductible and your insurance company starts to cover your costs. But once you do, they’ll cover 100 percent for most services.
As Hyers & Associates insurance broker Adam Hyers explains:
“Catastrophic health plans sold today still have to meet the ‘essential benefits’ guidelines mandated by the Affordable Care Act. In other words, they still cover all items that more comprehensive plans do, it just takes longer for them to kick-in. Someone (or a family) might have to meet $10,000 to $15,000 in out-of-pocket expenses before the insurance starts paying for anything other than preventive care.”
One helpful exception to your initial out-of-pocket costs is preventive services. Even before you hit your deductible, catastrophic health insurance will cover preventive care and three primary care visits per year.
What Are the Pros and Cons of Catastrophic Health Insurance?
- Catastrophic plans still cover all of the ACA essential benefits, including preventive services;
- They offer much lower monthly premiums than most other plans; and
- There’s a maximum limit on individual spending, so you have protection for worst-case-scenario situations.
- Catastrophic health plans are HDHPs, hence they have very high deductibles (for 2019, the deductible for an individual catastrophic plan is $7,900), which must be paid in full before coverage kicks in;
- You won’t receive specialty care coverage until the deductible is met (only primary care is available before the deductible is met); and
- There’s somewhat strict limits on who can apply for this type of insurance.
Who’s Eligible for Catastrophic Health Insurance?
Eligibility for catastrophic health insurance depends on your age, health status, and financial situation. In order to qualify for catastrophic coverage, you must be:
Says Cory Friedman, a Chicago-based insurance broker who specializes in helping employees choose health coverage:
“These plans are recommended for those that are younger (must be under 30) – and often healthier – because of the higher deductibles that will increase the financial exposure to the insured in the event a large claim or number of claims are incurred. Someone that is young and healthy and wants to purchase coverage to put a cap on their financial exposure in a worse-case-scenario situation might be a good fit for a [catastrophic insurance plan].”
These types of plans certainly aren’t recommended for anyone with medical conditions that require regular, pricey treatments or require frequent visits to specialists. In that case, it’s better to have an insurance plan that covers some of those costs up front. Catastrophic plans are most beneficial for young, generally healthy people who most likely won’t need any extensive medical care.
Along with the under-30 crowd, Friedman suggests catastrophic insurance could be the right option for “someone that is lower income and wants to purchase coverage to protect themselves from a large claim” or for even just for those who are looking for some minimum level of coverage but don’t qualify for short-term insurance.
Are There Alternative or Similar Options to Catastrophic Insurance?
It’s important to note that you must purchase catastrophic insurance during the annual Open Enrollment Period. If you don’t qualify for catastrophic health insurance or if you don’t think it’s the right choice for you, there are other low-cost healthcare coverage options if you don’t qualify for catastrophic health insurance. Friedman explains:
“When [a person] fills out a Marketplace application, [they] will see catastrophic plans listed as an option if they qualify. If they don’t qualify for a catastrophic plan, they will not see it as an option. Other options include high-deductible health plans that have higher deductibles and allow the insured to start a health savings account. Others have looked at higher deductible PPOs that still offer copayments (unlike an HDHP option), or maybe a plan on a smaller provider network to reduce costs.”
Mr. Hyers suggests looking into short-term insurance for a low-cost, ACA-compliant alternative that you can enroll in for up to 364 days (with the possibility of extensions). He further elaborates, “Others have chosen health ministry-type plans to reduce premiums and still others are purchasing fixed indemnity, critical illness and supplemental indemnity plans in order to cover accidents or illnesses. While the latter are not comprehensive ACA compliant plans, they can provide coverage for some major events.”
Catastrophic insurance is an excellent option for qualifying individuals who want to save money on health insurance, but also want the security of knowing they do have coverage if needed. If you’re not interested in buying a comprehensive plan, a catastrophic policy is the way to go to make your life a lot less stressful than being uninsured – especially in the event that you do end up needing the coverage.
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