Catastrophic health insurance

Catastrophic health insurance is a type of medical coverage under the Affordable Care Act. This is a type of high-deductible health plan for people under 30 or those who qualify for a «hardship exemption.»

Catastrophic plans are designed to protect you in a worst-case scenario; for example, if you get into a medical emergency and your medical costs total thousands of dollars. Monthly plan premiums tend to be lower, but you’ll generally need to pay for all health-care costs out of pocket until you reach the plan’s annual deductible, which is usually at least a couple thousand dollars.

Here is an overview of catastrophic coverage works, including benefits, costs, and whether this type of plan may work for your situation.

Catastrophic insurance benefits
Catastrophic health plans cover the same minimum health benefits as other health plans under the Affordable Care Act, including preventive services, emergency services, prescription drugs, and more. The difference with a catastrophic plan is that you must pay for all health-care costs until you meet a high annual deductible. Only after your out-of-pocket spending reaches the deductible does your plan begins to pay for most covered health-care services.

The deductible doesn’t apply to all benefits. Catastrophic health plans cover the following benefits, even if you haven’t met your yearly deductible yet:

Three primary care visits every year
Free preventive services required under the Affordable Care Act, including certain screenings and immunizations.
You’ll pay the full cost for all other health-care services until you meet your yearly deductible. Other cost-sharing expenses, such as copayments and coinsurance, are usually higher with this type of plan. However, monthly premiums tend to be lower compared with major medical plans.

Catastrophic health coverage is different from accident, critical illness, or short-term plans; these types of coverage tend to protect the policyholder in specific, limited situations. For example, critical illness plans insure the policyholder against specific health illnesses. Short-term plans provide limited, temporary coverage when an individual isn’t eligible to enroll in a major medical health plan or is waiting for coverage to start. For example, you might enroll in a short-term plan to fill a coverage gap before you’re eligible for Medicare.

In contrast, catastrophic plans cover the same essential health benefits as major medical plans once you’ve met the yearly deductible.

Enrolling in a catastrophic insurance plan
To enroll in a catastrophic health plan, you must meet one of the following eligibility requirements:

Be under 30 years old, or
Qualify for a «hardship exemption» (a situation that prevents you from being able to afford health coverage).
If you and all other individuals covered by your health plan are under 30, you may be eligible to purchase a catastrophic health plan.

If you are over 30 and interested in catastrophic health coverage, you must qualify for a hardship exemption. Some examples of hardship exemptions include if you were homeless in the last three years or if you were found ineligible for Medicaid because your state didn’t expand its Medicaid program. Other situations may apply; for more information, see this article on hardship exemptions.

If you think you may qualify for an exemption because of financial hardship, you’ll need to apply for a hardship exemption through the Marketplace. If you receive a notice stating that you qualify for a hardship exemption, you have the option to purchase a catastrophic insurance plan, and an eHealth licensed insurance agent would be happy to help you find a plan that may work for you. Or you can choose to enroll in a major medical plan instead.

Keep in mind that if you qualify for lower health-care costs because of income (also known as a subsidy), you cannot apply these savings towards a catastrophic health plan. This includes premium tax credits and cost-sharing subsidies. So you’ll pay the standard premium amount for your catastrophic insurance plan, regardless of your income level.

Is a catastrophic insurance plan right for me?
A catastrophic plan may be right for you if:

You want lower premiums or can’t afford more expensive coverage.
You are generally healthy and rarely see the doctor.
You don’t mind having high out-of-pocket costs.
You want to be prepared against high medical bills in a «worst-case scenario.»
You don’t qualify for Medicaid.
You don’t qualify for a subsidy based on your income. Or, you do qualify, but don’t mind forgoing your right to those savings (remember, you can’t get premium tax credits or out-of-pocket subsidies with a catastrophic plan).
Every situation is different, and you’ll have to carefully consider your health needs, budget, and priorities to determine what’s best for you. If you have questions about catastrophic coverage or other plan options, feel free to contact eHealth to discuss your needs with a licensed insurance agent.
What is ‘Catastrophic Health Insurance’
Catastrophic health insurance is Affordable Care Act-compliant medical coverage open to people under 30 and adults of any age who have a government-approved general hardship exemption. Catastrophic health insurance has lower premiums than most metal-level marketplace plans, but the highest possible deductible and out-of-pocket maximum. It makes sense for some people who have little to spend on monthly premiums, but who don’t want to go without health insurance.

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BREAKING DOWN ‘Catastrophic Health Insurance’
Catastrophic health insurance was first introduced by Senator Abraham Ribicoff in October 1973 when he proposed a bipartisan bill for catastrophic health insurance coverage. The coverage was meant to be for workers who were financed by payroll taxes and for Medicare beneficiaries. Now, catastrophic health insurance availability varies by state, with some states having no plans, some having few plans and some having several options to choose from. Catastrophic plans can be PPO or HMOs, and premiums vary by insurance company and location. If you buy this type of plan, you won’t be able to take advantage of any health insurance premium tax credits you might be eligible for based on your income, which means that some consumers can get better coverage at lower cost by choosing a bronze plan and using the subsidies. Is Catastrophic Health Insurance Right for You? will walk you through the decision process.

If you’re younger than 30 and don’t have a hardship exemption, having a catastrophic plan will get you out of paying the individual mandate penalty since it counts as minimum essential coverage (see Obamacare Penalty Enforcement: How It Works). Qualifying for catastrophic health insurance because you have a general hardship exemption doesn’t mean you have to buy a catastrophic policy to avoid the penalty. You aren’t required to buy health insurance at all if you have the exemption; you can also buy a different type of policy, such as a bronze plan, if you prefer.

Having catastrophic coverage, or any other health insurance, can save you money because you’ll get your insurance company’s negotiated rate for services, which is typically discounted. Because of ACA rules, catastrophic plans also give you 100% coverage for in-network preventive care services before meeting your deductible and access to the 10 essential health benefits, subject to your deductible. The premiums can seem like a waste of money if you don’t need to use your insurance much, but you don’t want to go uninsured and risk serious financial and medical problems.
If you’re under 30, or make too much money to qualify for Medicaid but too little money to qualify for subsidies through the Affordable Care Act, you might be wondering whether to purchase a catastrophic health insurance plan. We’re here to help. Read on to learn more about catastrophic health insurance, what it does and does not cover, and whether it might make sense for you.

What is catastrophic health insurance?
Catastrophic health insurance plans provide bare-bones insurance coverage in exchange for low monthly premiums.

The plans can be offered by private or nonprofit health insurance providers, and they only pay for healthcare expenses once a patient has met his or her annual deductible — which can run into the thousands of dollars per year. This setup is why they are referred to as catastrophic or «emergency» health insurance plans.

What does catastrophic health insurance cover?
The benefits provided by a catastrophic health insurance plan vary from plan to plan; however, once the annual deductible is met, these plans typically cover all — or at least the vast majority — of healthcare costs, including doctor visits, prescriptions, and procedures.

Additionally, due to requirements put in place when the Affordable Care Act was implemented, catastrophic health insurance plans pay for three free primary care doctor visits annually. They also cover some preventive care such as immunizations.

What isn’t covered by catastrophic health insurance plans?
Catastrophic health insurance plans are a major financial help when an emergency strikes and health bills begin to pile up, but they’re otherwise insufficient for most individuals and families. That’s because members of such plans pay 100% of their healthcare expenses until their deductible is met, and those deductibles can be $6,000 per person per year, or more.

With deductibles as high as that, it’s little wonder most people won’t see any benefit from these plans in any given year.

Why does catastrophic health insurance exist?
There are two big reasons why people might want to buy a catastrophic health insurance plan. First, someone might want health insurance, but they may have insufficient income to buy a more comprehensive plan. Second, some people don’t expect to use healthcare services but still want a low-cost safety net in case of an emergency.

The Affordable Care Act initially sought to do away with catastrophic health insurance plans by expanding Medicaid income limits to 138% of the federal poverty level and by offering significant subsidies to those earning between 100% and 400% of the federal poverty level.

However, a Supreme Court ruling eliminated the provision that required states to participate in Medicaid expansion, and that resulted in many states choosing not to expand the program. In many of those states, opting out of expansion created a coverage gap for those earning too much to qualify for Medicaid but too little to qualify for subsidies on the federal and state-sponsored health insurance exchanges.

In an attempt to close that gap, catastrophic health insurance plans were kept as an option for people under 30 and for people who qualify to buy them based on various hardship exemptions, including falling into the coverage gap.

Should I get catastrophic health insurance?
The Affordable Care Act requires everyone to have qualified insurance, or pay a penalty. Purchasing catastrophic health insurance enables individuals to avoid that penalty, and it does provide some free primary care every year and protection to your finances in case of an illness or accident.

If your income level allows you to qualify for subsidies, it might be better to consider a bronze or silver-level plan instead of a catastrophic health insurance plan. The ACA provides subsidies for metallic-level plans, but not for catastrophic health insurance plans, and those subsidies could mean metallic plans are cheaper than a catastrophic plan. Since metallic plans also offer better coverage, they’re likely going to be a better option.

Regardless, deciding whether a catastrophic health insurance plan makes sense is a personal decision that will depend significantly on your health, your family history, your financial situation, and many other variables — all of which should be carefully considered.