What Is Catastrophic Health Insurance?

Catastrophic health insurance is a type of medical coverage open to people under 30 years of age 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. Since those individuals in their 20s are least likely to experience medical issues, it is most widely available to that age group.

Key Takeaways

  • Catastrophic health insurance is a type of low-cost, high-deductible health insurance that mainly protects against severe or critical medical emergencies.
  • The availability of catastrophic health insurance in the U.S. varies by state, and may not be available in some states.
  • This type of coverage is typically only available to individuals under age 30, or other adults who are granted a hardship exemption.

Understanding 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. Today, 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 a lower cost by choosing a bronze plan and using the subsidies.

Qualifying for catastrophic health insurance because you have a general hardship exemption doesn’t mean you have to buy a catastrophic policy. 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.

Health insurance 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.

Special Considerations

Having catastrophic coverage can save you money if you stay relatively healthy because the premiums tend to be far lower than traditional plans. As with any other major type of health insurance, 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 potential risk of catastrophic insurance, however, is that it only starts to kick in once medical bills get very high. This is because they often limit what is covered and have high deductibles. This means that routine medical exams or minor injuries will end up being paid out of pocket.