Catastrophic health insurance is a special kind of coverage open to people under 30 and those who qualify by income under the Affordable Care Act (ACA). Let’s take a look at how it works, who qualifies, what it covers and how much it costs.
First, you must live in a state where catastrophic plans are available. Of the states that do offer catastrophic plans, some have many options and some have few.
Second, you must qualify. The ACA limits who is allowed to buy catastrophic health insurance to people younger than 30 and people of any age who have a hardship exemption. A hardship exemption means you can go without health insurance and not pay the individual mandate penalty because you are homeless, you have been evicted or you filed for bankruptcy in the last six months, you’re facing foreclosure or you find yourself in one of the other government-approved circumstances that represents a serious financial and/or personal difficulty. Being unemployed, for example, isn’t enough to get a hardship exemption. (For more, see Affordable Health Insurance for College Students.)
You have to apply and be approved for a hardship exemption, and the exemption usually lasts for just a few months. (You aren’t required to buy catastrophic insurance if you have a hardship exemption, but you’ll be taking a huge risk with your health and your finances if you go without any coverage at all. If you’re younger than 30 and don’t have a hardship exemption, having a catastrophic plan will get you out of paying the penalty, as it counts as minimum essential coverage.
Catastrophic health insurance plans have lower premiums than most marketplace plans and the highest deductibles around. Plans can be PPOs or HMOs, and premiums vary by insurance company and location. In Missouri, for example, a 24-year-old would pay close to $200 a month, while in Florida the cost could range from $170 to $256, and in Arizona catastrophic premiums range from $151 to $180. The deductible in 2016 is typically $6,850 for an individual and $13,700 for a family. 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.The out-of-pocket maximum is often the same as the deductible. If it is, you won’t ever pay coinsurance. You’ll pay for your expenses out of pocket until you reach the $6,850 deductible, then your expenses will be covered at 100%. (For more, see Tips for Finding Affordable Health Insurance.)
Another benefit of having catastrophic coverage is that it will get you your insurance company’s negotiated rate (also called an allowed charge) on medical services, which is often lower than the provider’s actual rate. For example, if you didn’t have insurance, a doctor might charge you $125 for an office visit. If you do have insurance, and your insurer has negotiated a rate of $100 for office visits with that provider, you’ll only pay $100. Don’t take the risk of going uninsured. (For more, see Do You Need Short-Term Health Insurance?)
Before you meet your deductible, you will have 100% coverage for in-network preventive care services. These services include three visits per year to your primary care doctor and various screenings, immunizations and other services, depending on your age, gender, health history and current health status. For example, pregnant women get 100% coverage for anemia screenings, folic acid supplements, gestational diabetes screenings and more.
Catastrophic plans also cover the 10 essential health benefits required under Obamacare, including emergency services, hospitalization, lab services and prescription drugs, though these are subject to your deductible, meaning you’ll pay for them out of pocket until you meet your deductible. As with other ACA-compliant health insurance plans, you’ll be approved for a catastrophic plan regardless of your health status, and you won’t be charged extra if you’re sick.
If you’re eligible for a catastrophic plan because you’re under 30, you can buy a plan through the exchange or outside of it. (For more, see Buying Private Health Insurance.) If you’re eligible because of a hardship exemption, you must buy your plan through the marketplace.
The Bottom Line
If it turns out to be a bad year for your health, you’ll be glad you have catastrophic health insurance; it will limit your damage to $6,850 for an individual plan or $13,700 for a family plan. Otherwise, you’re unlikely to come out ahead with a catastrophic plan, even if you end up owing a no-insurance penalty on your taxes (see Obamacare Penalty Enforcement: How It Works). But on the other hand, you'll only be paying around $200 a month for health insurance instead of a much higher monthly premium. And you'll have peace of mind – as will any other family members who might end up having to pick up the pieces if you became seriously ill or were injured in a bad accident. (For more, see Cutting Your Cost for Marketplace Health Insurance.)
Before you sign on the dotted line, though, be sure you see how you'd fare with a high-deductible regular plan through the Health Insurance Marketplace (see Choose Among Bronze, Silver, Gold and Platinum Health Plans). Then you'll know which is the better deal for you this year.