Major-Medical Vs Catastrophic Health Insurance–What’s the Difference?

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A few days ago my neighbor told me, “All I want is major-medical. I don’t need health insurance that pays for minor stuff. I’d rather have cheaper health insurance that only pays for the major stuff.”

He didn’t understand the difference between major-medical health insurance and catastrophic health insurance. That's understandable. After all, it's hard to get more major than a catastrophe, right? And if something major goes wrong with your health, it can be a financial catastrophe.

However, if he had told his insurance agent, an Affordable Care Act navigator, or a health insurance company that he wanted major-medical health insurance, he would get exactly the opposite of what he was looking for. What he wanted was a catastrophic health plan, not a major medical plan.

So what, exactly, is the difference between major-medical and catastrophic insurance? First, you need a basic understanding of what each type is.

What Is Major-Medical Health Insurance?

Major-medical insurance is a type of comprehensive health insurance that pays for a wide range of health care services related to a near infinite number of illnesses and injuries. It may come with low or high deductibles, copayments and coinsurance.

The most common types of health insurance plans in the United States are major-medical plans. All of the bronze, silver, gold, and platinum plans sold on Obamacare exchanges are major-medical plans.

What Is Catastrophic Health Insurance?

Catastrophic health insurance is a specific type of health plan with a very high deductible. In fact, the deductible is so high that it’s the same as the out-of-pocket maximum. For 2015, the deductible for individual catastrophic health plans is $6,600.

Catastrophic health insurance is designed so you pay for most of your moderately-priced health care expenses, but it kicks in if something really expensive happens.

If you need an X-ray to make sure your ankle is just sprained and not broken, you’ll be the one paying the bills for the urgent care center, the X-ray, the ace wrap, the crutches, and the pain killer prescription.

But, if your ankle really is broken and you need a $12,000 surgical procedure to fix it, a $2,000 surgical procedure to remove all of the hardware weeks later, and weeks of physical therapy, your catastrophic insurance will help. You’ll pay your deductible; your insurance picks up the entire rest of the tab. And, since you’ve met your deductible for the year, your insurance will pick up 100% of your in-network medical bills for medically necessary care for the rest of the year.

What Do Major-Medical Insurance & Catastrophic Insurance Have in Common?

If you’re comparing plans offered on your Affordable Care Act health insurance exchange, you’ll find that both the major-medical plans and the catastrophic plans offer coverage of all of the 10 essential health benefits including preventive care.

In fact, preventive care is provided without cost-sharing in both catastrophic and major-medical plans.

Both major-medical and catastrophic plans can be offered in a variety of managed care plan types. For example, you might have an HMO, PPO, or EPO silver plan, or an HMO, PPO, or EPO catastrophic plan.

Whether your PPO is a major-medical plan or a catastrophic plan, you can use its provider network to get discounts on health care services. For example, if you choose an in-network imaging facility to get an X-ray with a sticker price of $200, your PPO will have negotiated a discounted rate of perhaps $60 for that X-ray. When you’re paying for the X-ray out of your own pocket because you haven’t met your deductible yet, you’ll only pay $60 for your X-ray whether you have a major-medical plan or a catastrophic plan.

How Do Major-Medical Insurance & Catastrophic Insurance Differ?

There are several differences between a major-medical health plan and a catastrophic health plan.

  • Deductibles and out-of-pocket maximums: The deductible in a catastrophic health plan equals its out-of-pocket maximum. The deductible in major-medical insurance is lower than the out-of-pocket maximum. Both the out-of-pocket maximum and the deductible for major-medical plans are lower than for catastrophic plans.
  • Who can enroll: All legal residents of the U.S. not covered by Medicare can enroll in a major-medical plan on their state’s health insurance exchange. Only people less than 30 years old or with a hardship exemption from the requirement to have health insurance are allowed to enroll in a catastrophic plan. If you’re 45 years old and financially stable, you’re not eligible to buy a catastrophic health plan.
  • The care members get without cost-sharing: Those with major-medical insurance get preventive care services like a yearly physical, screening mammogram, and birth control. In addition to all of the preventive care that major-medical plan holders receive, catastrophic plan holders also get to see their primary care physician three times per year without cost-sharing. These three visits don’t have to be for preventive care. A visit for the flu, a sprained ankle, or a sinus infection would be paid entirely by the health insurer as long as the plan member stayed in-network, used his or her PCP, and had seen the PCP fewer than three times that year.
  • The cost. Premiums for catastrophic health insurance plans tend to be lower than premiums for major-medical plans. This is certainly true for cushier platinum and gold plans with low cost-sharing. However, as you move toward bronze plans with higher cost-sharing and lower actuarial values, there may not be that much of a difference in premiums.

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