catastrophic health insurance plans

What is a Catastrophic Health Plan?

Despite all the recent efforts to make health insurance more affordable, conventional plans are still priced beyond the budget of many people. At the same time, younger people who have no health conditions may not need the level of coverage provided by traditional health plans.

Both types of insurance buyers are candidates for Catastrophic Health Plans.

Catastrophic Health Plans are the most affordable plans in that they require the least amount of premium. But in return, they require a high level of deductibles and out-of-pocket costs. These plans are not designed for people who have regular needs, but are instead made for those who just want minimum coverage in the event of an unexpected health care need like an accident or serious illness.

Individuals can only qualify for a catastrophic plan if they are under the age of 30 and they apply for and are granted a hardship exemption. This exemption allows individuals to not acquire minimal essential coverage, including a catastrophic plan. You can qualify for this exemption if:

The lowest priced plan in the Health Insurance Marketplace would cost you 8 percent or more of your household income.
You employer insurance costs more than 9.5 percent of your income after deducting what the employer pays.
Your income falls below the minimum required to file a federal tax return.
You are certified by the Health Insurance Marketplace has having suffered a hardship that makes you unable to obtain coverage for valid reasons, financial or otherwise.

Catastrophic plans are not available in the Health Insurance Marketplace and can only be purchased through a private insurer.

What you can expect from a catastrophic plan
This type of plan is designed to only cover emergency expenses and the bare essentials. As such, the plan:

Typically will require the insured to pay 100 percent of basic costs.
Will usually charge a deductible equal to out-of-pocket maximums, currently $6,850 a year for individuals and $13,700 for families.
Will also cover a few services like an annual wellness visit, some screenings, and vaccinations at no cost before your deductible.
Will typically cover the full costs of most health care procedures and expenses, including doctor visits and prescription drugs once the annual deductible is met.

Catastrophic plans and HSAs
Because it’s a high deductible plan, being insured by a Catastrophic Health Plan allows individuals to contribute to a health savings account (HSA).

An HSA is a tax-preferred savings account that enables users to set aside tax-free dollars to pay for health expenses, including regular medical care, dental and vision expenses. Because the catastrophic plan will require insureds to pay for most expenses out-of-pocket, it may be a good idea to set up an HSA to have funds available for those costs. Even if you don’t use regularly use the HSA funds, the account balance can roll over from year-to-year. Plus HSA balances earn tax-free interest as long as the money is used for eligible medical expenses.

Catastrophic plans were almost eliminated under the Affordable Care Act by expanding Medicaid income limits and offering subsidies to those earning between 100 percent and 400 percent of the federal poverty line. However, the U.S. Supreme Court eliminated a provision in the law that required states to participate in the expanded Medicaid. That led to several states choosing not to expand the program, which created a coverage gap: Some people earned too much to qualify for Medicaid but too little to qualify for subsidies in the Health Insurance Marketplace. Therefore, the catastrophic plans remained available to fill this gap.

Even so, many people who qualify for Catastrophic Health Plans may find better deals in the marketplace that provide a little more coverage for only a little more in premium. This is especially true if you qualify for a premium tax credit based on your income, since you cannot use these credits to buy catastrophic plans.