Catastrophic Insurance Vs Critical Illness Insurance

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Catastrophic health insurance and critical illness insurance may sound like they’re the same thing. They’re not. Confusing them could cause big financial problems and might even impact your health care.

What’s the Difference Between Catastrophic Health Insurance & Critical Illness Insurance?

Critical illness insurance is a type of fixed-benefit indemnity insurance. Rather than paying for your medical care, it pays you a lump sum of cash if you’re diagnosed with one of the four or five conditions the policy covers.

You may use that money for whatever you wish.

The amount of cash you’re paid by a critical illness insurance policy depends totally on the policy rather than on the cost of treating the medical problem you have. If you bought a policy that pays $50,000 if you’re diagnosed with a heart attack, stroke, or cancer, you’ll get $50,000 if you have a stroke whether it cost $5,000 to treat your stroke or $100,000.

In contrast, catastrophic health insurance doesn’t pay you anything at all. Instead, it pays your health care providers for the medical care they provide to you. It’s called catastrophic because, with the exception of preventive care, it doesn’t begin paying for your medical care until after you’ve paid a very large deductible. This means it may not kick in unless you have a major health care problem.

Here’s an example of how a catastrophic health insurance policy that has a $6,600 deductible would work.

Let’s say a blood vessel in your brain ruptures. You require emergency brain surgery. You’re in the ICU for 8 days and in the hospital for 16 days total. You then go to an inpatient rehabilitation facility to get intensive physical therapy to help you regain the ability to walk independently. After a month in rehab, you’re able to go home with home health care for another month.

  The total bill for all of this care comes to $250,000. You pay your $6,600 deductible; your catastrophic health insurance policy pays the rest of the bills.

 

Catastrophic Health Insurance

Critical Illness Insurance

Has a deductible?

Yes

No

Pays money to…

Your health care providers

You

What types of medical problems are covered?

Medical and surgical problems not specifically excluded from coverage.

Only a few problems stated in the policy. Those problems aren’t exactly covered. Instead, having them will trigger the cash payout.

Limits how much it will pay?

No lifetime, annual, or per episode cap on benefits, but may use managed care techniques to keep costs down.

Caps benefits to the amount of the policy only. How much the care costs is irrelevant.

Protects you with an out-of-pocket maximum?

Yes

No

Do you have to pay attention to provider networks?

Yes

No

Satisfies the Affordable Care Act’s requirement to have health insurance?

Only if you’re less than 30 years old.

No

Can be sold to anyone?

No. Can only be sold to people younger than 30 years old or those with a hardship exemption from the requirement to have health insurance.

Yes

Pays for preventive care?

Yes, without having to pay the deductible or copays.

No

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