Just about everyone has something that makes them seethe when they review their monthly bank statement and see things they pay for but don’t benefit from. Membership fees to health clubs we never go to, parking tickets, and especially health insurance we never use, make most people’s list.
The last item mentioned, unused health insurance, vexes many people because they feel that they’re already “insurance poor.” Between life insurance, disability income insurance, auto insurance, homeowner’s insurance, and health insurance premiums they pay every month, they begrudge paying premiums to insurers who they feel handle claims much too rigidly and raise rates too quickly.
Younger, healthier people who rarely see a doctor or go to the hospital get particularly distressed when paying their health insurance premiums. Although they know they need health insurance and that it serves a purpose, they just get hung up on the fact that their premiums keep going up, and they aren’t filing claims.
This article will delve into something that many people are using to combat the high cost of health insurance — catastrophic health insurance.
What is catastrophic health insurance?
Catastrophic health insurance is coverage designed to protect you against enormous medical expenses. In exchange for carrying a high deductible, the insurance company will charge you a lower premium, meaning that you’re going to be paying most of your medical bills out of pocket until you satisfy that deductible.
How much is your auto insurance deductible? $250? $500? $1000? If you’ve ever asked your property and casualty agent to price out auto policies with different deductibles, you saw that as deductibles increase, premiums decrease. The reason — your sharing more of the risk with the insurance company and lowering the probability that they’re going to be paying out claims on your behalf. The same holds true with health insurance.
[ Related: Everything you need to know about out-of-pocket medical expenses ]
How much is catastrophic health insurance?
In 2022, a Catastrophic Health Plan offered through the Affordable Care Act (ACA) Marketplace carries an $8,700 deductible for an individual (twice that amount for a family policy). After you’ve satisfied that deductible, the plan pays 100% for covered essential health benefit services you receive from an in-network provider for the remainder of the year. Catastrophic policies may also be purchased from insurers outside the health insurance Marketplace.
Yes, that is a high deductible. But, if you’re in excellent health, rarely see a doctor, are not on any maintenance medications, and don’t mind paying for small charges like an occasional office visit, the low premiums associated with catastrophic health insurance may make sense for you.
According to eHealth’s 25-City Analysis, the average premium for a catastrophic plan was just under $175 per month. A comparable study they conducted for major medical plans with much lower deductibles found the monthly premium for individual coverage was $456 and $1,152 per month for family coverage.
Who can buy catastrophic health insurance? You can buy a catastrophic health plan if you’re under age 30, or you qualify for a hardship exemption (like bankruptcy, domestic violence, or debt from medical expenses).
What does catastrophic health insurance cover?
Every insurance plan offered under the ACA, including catastrophic plans, must cover certain preventive services at no cost to the policyholder, regardless of whether they’ve satisfied their deductible. These preventive services typically include basic shots, immunizations, and screenings. You can find a complete list at HealthCare.gov.
Catastrophic plans must also cover three visits per year to your primary care doctor before even if you haven’t met your deductible.
Once you meet your deductible, catastrophic health insurance must cover the same essential health benefits as any other marketplace plan, including:
- Ambulatory patient services
- Emergency services
- Hospitalization
- Pregnancy and maternity/newborn care
- Mental health/substance abuse
- Prescription drugs
- Rehabilitative services
- Laboratory services
- Preventive/wellness services
- Pediatric services
- Additional benefits, such as birth control or breastfeeding coverage
- Dental or vision coverage (based on your state’s requirements for minimum coverage)
You'll have no coinsurance or copay for any of these services once you've reached your deductible.
Downsides to catastrophic health insurance
Catastrophic plans can be a great option if you want basic health coverage for a low monthly premium. But, be aware that there are a few drawbacks to these plans.
First, you can’t use a subsidy to pay for a catastrophic health plan. The reason — this type of plan was designed for people who don’t qualify for government assistance.
Catastrophic plans also can’t be paired with a Health Savings Account (HSA). So, if you plan to use an HSA or want to use one you already have, you’ll need to shop for a different plan type.
Last, health care costs can add up quickly. Even though you’re carrying a very high deductible with your catastrophic plan, your out-of-pocket medical expenses can exceed your deductible fairly easily. According to Debt.org, the average overnight hospital stay for someone with insurance in 2020 was $12,600.
Alternatives to catastrophic health insurance
Are there any good affordable health insurance options other than a catastrophic health plan?
There are a couple of viable options you can purchase individually or in tandem to protect you financially against unexpected illnesses and injuries: critical illness insurance and accident insurance.
Critical illness insurance
Critical illness insurance pays out a one-time lump sum cash benefit if you’re diagnosed with a condition listed in your policy. This type of coverage is designed to help you with the cost of treating and recovering from serious conditions, such as:
- Cancer
- Heart attack
- Stroke
- Paralysis
- Coma
- Alzheimer’s disease
- Bypass surgery
- Kidney failure
- Organ transplant
Any benefit paid by the insurance company comes straight to you, not the healthcare provider; you’re free to use it any way you want. Some people use it to supplement disability insurance they may have, pay deductibles and copays, or pay for experimental treatments requiring travel.
Get a free critical illness insurance quote online in seconds.
Accident insurance
Accident insurance also pays a lump sum to help you cover costs associated with injuries sustained from an accident. Each insurance company that offers accident insurance has its own categories for qualifying injuries, but they typically include:
- Dislocation
- Laceration
- Concussion
- Fracture
- Eye injury
- Burn
- Dental
- Accidental death and dismemberment
Some policies also offer optional riders that cover hospital stays and ambulance rides.
Accident insurance is relatively inexpensive, but it also offers relatively small benefits. Paring it with a critical illness policy is a cost-effective way to insure yourself without having a deductible for critical illnesses or injuries.
The bottom line
Catastrophic health insurance is a low-cost health care option that covers very few medical expenses until you satisfy a high deductible. It’s not the best plan for you if you or your family members have frequent office visits and significant prescription drug costs. But, once you do reach your deductible, the plan will cover all of the essential benefits of a traditional health plan.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.
