In addition to the bronze, silver, gold and platinum plans you’re probably familiar with under the Affordable Care Act, there’s a fifth type of health insurance plan available if you’re younger than 30 or have a hardship exemption. Government officials decided to call this type of plan “catastrophic” because it allows you to “protect yourself from worst-case scenarios, like getting seriously sick or injured.” Let’s take a look at whether a catastrophic plan might be a good option for you. (For more, see How Catastrophic Health Insurance Works.)
Catastrophic Premiums Aren’t Always the Cheapest
Your main consideration for purchasing catastrophic health insurance is probably cost. If you’re purchasing catastrophic coverage because your income is low, see which tax credits you would qualify for if you bought a bronze or silver plan. You might be able to get better coverage and/or lower premiums by going that route. (For more, see Tips for Finding Affordable Health Insurance.)
Surprisingly, you might even be able to get better coverage and lower premiums from a bronze plan without subsidies. For example, a 24-year-old woman living in St. Louis who needs a health insurance plan with monthly premiums below $200 but doesn’t qualify for subsidies because she earns $40,000 a year has eight options through the exchange, including a catastrophic plan from Anthem for $198 a month and a bronze plan from Coventry at $177 per month. While the plans are identical in most respects, including their $6,850 deductible and out-of-pocket limit and 0% coinsurance, the bronze plan actually has a lower co-pay for doctor visits ($25 vs. $40) in addition to being $21 cheaper per month. One of the few things you get from the extra cost of the catastrophic plan is 20 additional physical or occupational therapy visits per year (40 versus the bronze plan’s 20). But the bronze plan doesn’t cap chiropractic visits like the catastrophic plan does. (For more, see Cutting Your Cost for Marketplace Health Insurance.)
Meeting a High Deductible
If you don’t have enough in savings to meet a catastrophic plan’s $6,850 deductible and out-of-network annual out-of-pocket limit of $13,700 per person and $27,400 per group, this type of plan might not be right for you. In fact, many bronze plans won’t be right for you either, as many have deductibles equally or nearly as high – the average individual deductible is $5,731 and the average individual out-of-pocket maximum is $6,639, according to HealthPocket.com, a technology company that compares and ranks the health plans. If you have to go to the emergency room, have surgery or get treated for a costly illness, how will you pay for your out-of-pocket expenses? Some healthcare providers will work with you on a payment plan, but others won’t treat you without payment up front.
Your health should definitely factor into your decision of whether a catastrophic plan is your best option. If your short-term plans include surgery, childbirth or ongoing treatment for an existing medical condition, you should probably skip the catastrophic plan. You should look at all the plans available and see what you’re likely to spend out of pocket given your circumstances. You might even find that a silver or gold plan, despite their higher premiums, offers the best value. (For more, see Buying Private Health Insurance.)
Contributing to an HSA
One upside to having a catastrophic health plan is that it’s considered a high-deductible health plan, and that means you’re eligible to contribute to a health savings account (HSA). (For more, see How HSAs Work.) You can contribute pre-tax dollars to an HSA regardless of whether you’re employed, unemployed or retired. If your income is high enough that you’re subject to income tax, using an HSA to pay your pre-deductible expenses will ease the sting, thanks to the tax savings. But if your income is so low that you’re exempt from paying any income tax, an HSA won’t help you in the short term. It will still help you in the long term, but only if you can afford to set aside money in it. (For more, see How to Use Your HSA for Retirement.)
Again, a better option might be to choose a regular, non-catastrophic, high-deductible health plan. An individual plan only needs to have a $1,300 deductible and a family plan only needs to have a $2,600 deductible to qualify as an HDHP and make you eligible to contribute to an HSA. These deductibles are a fraction of what you’ll pay through a catastrophic plan. While you can expect the premiums to be higher than those for a catastrophic plan, you can use your HSA contributions to effectively reduce any out-of-pocket medical expenses you incur.
Having a catastrophic plan when you’re required to carry insurance under the Affordable Care Act means avoiding the $695 or more in penalties you’d otherwise pay. No, we don’t expect you to get psyched about paying a couple of thousand dollars a year or more in premiums to avoid a penalty of a few hundred dollars. But it is one of the “benefits” of being insured. To put a positive spin on it, suppose you’d paid roughly $2,400 annually in catastrophic plans under the Missouri example given earlier. If you go uninsured and you don’t qualify for an exemption from the penalty, you have to pay $695 and get nothing in exchange. For an extra $1,705 you get protection against sky-high medical bills.
The Bottom Line
If you only need minimal medical services during the year, these plans’ lower premiums might save you money, but you’ll be out of pocket thousands of dollars if you experience a major health problem. Ironically, having a catastrophic plan can, in fact, be a catastrophe for your finances – just not as much of one as if you were uninsured. Still, it’s better to have a catastrophic plan than to have no insurance, which might mean you can’t get treatment at all (except for an acute emergency medical condition). Don’t take the risk of going uninsured. (For more, see Do You Need Short-Term Health Insurance?)