6 Things You Need to Know About Catastrophic Health Insurance

A catastrophic health plan will help you pay for expensive health catastrophies.. Image © Chris Ryan/OJO Images/Getty Images

1) Not Everyone Is Allowed to Buy a Catastrophic Health Plan

The Affordable Care Act limits the sale of catastrophic health insurance plans to two groups of people:

  1. Those 29 years old or younger.
  2. Those with a hardship exemption.

If you’re not in one of those groups, health insurers in the United States aren’t allowed to sell you a catastrophic health insurance plan. Learn more about eligibility criteria for catastrophic health plans in “Do You Qualify for Catastrophic Health Insurance?

The good news is, for those who qualify to buy it, a catastrophic health plan satisfies the requirement to have health insurance coverage. People under 30 or holding a hardship exemption that buy catastrophic health insurance won’t have to pay the penalty for being uninsured.

2) The Deductible Is Huge

The annual deductible for catastrophic health insurance plans is higher than for any other type of plan. In fact, the deductible is usually the same as the out-of-pocket maximum. For 2015, the maximum individual deductible for catastrophic health plans is $6,600.

Since it’s an annual deductible, it resets every year. If you get pregnant in June and don’t deliver until February, you’ll pay that big deductible twice: once for the care you receive up to December 31st, and once for the care you receive after the plan-year resets on January 1st.

3) It Pays for Preventive Care Even If You Haven’t Paid the Deductible

Thanks to the Affordable Care Act, catastrophic plans must pay for in-network preventive health services even if you haven’t paid your yearly deductible yet.

Even better, they’re not allowed to charge you copays or coinsurance for these preventive services.

In addition, catastrophic plans must pay for three visits to your in-network primary care physician each year even if you haven’t paid your deductible.

4) After You Meet the Deductible, It Pays 100% of Your Expenses…Almost

Since the deductible and the out-of-pocket maximum are the same, once you’ve met your deductible for the year, your catastrophic health plan will pay 100% of your covered health care expenses for the rest of the year.

The caveat here is the word “covered.”

Catastrophic health plans have to cover all of the essential health benefits that non-catastrophic plans must cover. However, they may also cover additional, non-essential benefits. Some health insurers will add these extra benefits as a way to attract members. If a plan includes coverage for something its competitors don’t include, maybe you’ll choose it rather than a competing plan.

The plan has to pay 100% of your covered expenses after you’ve met the deductible and out-of-pocket maximum only if the health care service is:

  • For one of the essential health benefits.
  • Provided by an in-network provider if the plan has a provider network.

If you choose to go out-of-network, the plan isn’t obligated to pay 100% of the cost of your care. If the care you get isn’t for a covered benefit, the plan isn’t obligated to pay anything at all. If the care you get is for a covered benefit that isn’t an essential health benefit (it’s an extra benefit), the plan doesn’t have to pay 100% of the cost of that care unless your particular policy spells that out.

As with all plans, even though you’ve met the out-of-pocket maximum, you’ll still have to pay your monthly premiums. If you don’t, your policy will be cancelled and you won’t be eligible to buy another health plan until the next open enrollment period.

5) Catastrophic Health Insurance Isn’t the Same as a Qualified High Deductible Health Plan

Although the terms catastrophic health insurance and high deductible health plan used to be used synonymously, they’re not the same anymore. Catastrophic health insurance used to be an informal, descriptive term used for any health plan that didn’t kick in until you’d paid a big deductible.

Now, the term catastrophic health insurance describes a specific type of health insurance plan created by the Affordable Care Act. Not all plans that seem like they have a high deductible are actually catastrophic health plans anymore.

Likewise, not all plans that seem like they have a high deductible are actually qualified high deductible health plans, or HDHPs. A qualified HDHP is a specific type of health plan that follows all of the IRS’s rules to allow the use of a linked, tax-advantaged health savings account. Many catastrophic health plans aren’t qualified HDHPs and can’t be linked to an HSA.

As if the difference between catastrophic plans and HDHPs wasn't confusing enough, another mystery of health insurance lingo is that catastrophic plans and major-medical plans aren't the same thing, either.

6) Catastrophic Health Plans Aren't Always Cheaper Than Regular Plans

If you're considering a catastrophic plan, don't just assume it will cost less than a regular health insurance plan. Check out your options. In 2014, some state health insurance exchanges offered bronze plans for about the same price as catastrophic plans.

If you're eligible for a health insurance subsidy to help lower your monthly premiums, you won't be able to use that subsidy to buy a catastrophic plan. You can only use the subsidy for a bronze, silver, gold, or platinum plan bought through your state's health insurance exchange. If you get a subsidy, you're likely to find a bronze or silver plan to be less expensive than a catastrophic plan even though the bronze or silver plan has a significantly lower deductible.

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