What Is Catastrophic Health Insurance?

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

Catastrophic health insurance is meant as a financial safety net in case you have a health catastrophe. It won’t pay for everyday health problems, but will pay when you have very expensive health care needs. Because of this, catastrophic health plans usually cost less than other health plans.

If you want health insurance that will pay for health care needs like sprained ankles and the flu, a catastrophic plan is not for you.

If you can pay for your routine health care needs and only want your health insurance to cover you in the event of a health catastrophe like needing emergency surgery, then catastrophic coverage might be just what you’re looking for.

The yearly deductible for catastrophic health insurance is so high that most healthy people won’t ever pay it; the year will be over before they’ve spent that much on health care. However, if you have really expensive health care needs, a catastrophic plan will kick in and start paying after you’ve paid the large deductible.

What Defines a Catastrophic Health Plan?

Catastrophic health insurance offered on the Affordable Care Act’s health insurance exchanges

  • Has a very high deductible.
  • Covers all of the essential health benefits.
  • Limits who can enroll. Not everyone is eligible to buy a catastrophic plan.
  • Can’t be used with a health insurance subsidy to help pay the monthly premiums.

    Catastrophic plans offered on state and federal health insurance exchanges have a very high deductible compared to other types of plans. For example, catastrophic plans offered in 2014 had a deductible of $6,350 for an individual. In fact, the deductible for catastrophic plans is the same as the out-of-pocket maximum.

    The deductible for your catastrophic health plan will increase each year as the government allows increases in the out-of-pocket maximum.

    Once you’ve paid enough out of your own pocket to meet the deductible, the catastrophic health plan will start paying for your covered health care expenses. In most cases, if you stay in-network, your catastrophic plan will pay 100% of your covered health care expenses once you’ve paid the deductible.

    What’s a covered health care expense? A catastrophic plan has to cover the same essential health benefits that all of the other Obamacare health plans have to cover. For example, it must pay for things like doctor visits, blood tests, maternity care, mental health care and substance abuse treatment. However, it won’t start paying for those benefits until you’ve paid your huge deductible.

    There are two exceptions to that rule:

    • Catastrophic health plans must pay for you to see your primary care provider three times per year without having to pay the deductible first.

    Only certain people qualify to buy catastrophic health insurance sold on the Affordable Care Act’s health insurance exchanges. Find out if you’re eligible in “Do You Qualify for Catastrophic Health Insurance?

    If you’re eligible for a health insurance subsidy to help you pay your monthly health insurance premiums, you can’t use that subsidy with a catastrophic health plan. You have to pick a bronze, silver, gold, or platinum plan to use the subsidy. Learn more about who’s eligible for a health insurance subsidy and what types of subsidies are available in “Can I Get Help Paying for Health Insurance?

    Hidden Benefit of Catastrophic Health Insurance

    Even if you don’t spend enough on health care to meet your catastrophic health plan’s deductible, you’ll still pay less on out-of-pocket medical expenses with a catastrophic plan than if you had no health insurance coverage at all. Most catastrophic plans are an HMO, PPO, EPO, or POS plan. These plans all negotiate discounted rates with the doctors, hospitals, labs, and pharmacies that are in their network of providers. As a subscriber to the catastrophic health plan, you get the benefit of these discounted rates even before you’ve paid your deductible.

    Here’s an example. Let’s say you haven’t met your catastrophic plan’s $6,350 deductible yet. You injure your ankle and need an ankle X-ray. The rack rate for your X-ray is $200. Without your catastrophic health insurance, you’d have to pay $200 out-of-pocket. The in-network discount rate for health plan members is $98. Since you’re a member of the health plan using an in-network X-ray facility, you’ll only have to pay the $98 discounted rate. You’ll pay $102 less than you’d pay if you were uninsured.

    Beware When Shopping for Catastrophic Health Insurance

    It’s easy to make the mistake of thinking that a catastrophic health insurance plan is the same thing as a high deductible health plan, or HDHP. After all, a catastrophic plan has a high deductible, so it must be a high deductible health plan, right?

    Wrong.

    A qualified HDHP is a very specific type of health insurance designed to be used with a health savings account. Learn the difference between an HDHP and a catastrophic plan, and what might happen if you buy a catastrophic plan when you thought you were buying an HDHP. Read “Catastrophic Health Insurance vs HDHP—Not the Same Thing Anymore.”

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