The costs of health insurance have skyrocketed. Those who do not have coverage through their employer have the option to purchase their own health plan out of pocket. However, according to a report by The Commonwealth Fund in 2009, 73 percent of people who needed to purchase their own policy chose instead to go without insurance. Many cited costs and difficulty understanding plan options as reasons to forgo coverage all together. So, will more people now purchase catastrophic health insurance with the Affordable Care Act requirements?
Beginning on January 1, 2014, most people in the United States will be required to carry health insurance, or they will have to pay a tax penalty. For those with limited fund and limited options, catastrophic health insurance may be the best route to take. The following article details what this plan is, how much it costs, and its benefits.
What is it?
Think of catastrophic health insurance as a “safety net” for you or your family. If you have an unexpected medical emergency- heart attack, appendicitis, severe injuries due to an accident, etc. you will want to make sure that you are covered.
According to the website eHealth, catastrophic health insurance is defined as the following:
“Catastrophic plans are individual and family health insurance plans that emphasize coverage for hospitalization or serious illness. The word “catastrophic” is not always used in the name of the plan – they may also be referred to as hospital-only or short-term plans. Catastrophic plans may not provide coverage for other services such as prescription drugs, regular doctor’s visits, immunizations or checkups.”
This means that you’re not paying for coverage that you don’t need. You’re preparing for the worst, and that’s when this type of coverage is the most beneficial.
To be more specific, there are two types of coverage that you can choose between when selecting a catastrophic plan:
Comprehensive: this type of catastrophic coverage is similar to a more traditional medical insurance plan. The costs include a high deductible, low monthly fees, and a lower monthly premium than a traditional plan. One advantage of the comprehensive option is that you are covered in cases of emergency. If you need to be taken to the hospital by ambulance, or spend some time in the emergency room, you will be covered.
Supplemental: this type of catastrophic coverage is simply supplemental to your traditional health plan. If you need additional services, such as nursing care, psychiatric care, or need to buy medical devices, this may be the type of coverage for you.
This article will mainly focus on comprehensive catastrophic insurance, as it is the type most commonly discussed when referencing this type of coverage.
What does it include?
For catastrophic health insurance, it’s not so much about what it covers, but how much you want to pay out of pocket. Therefore, it’s important to take into consideration your current health status, how much risk you’re willing to take on, and how much you want to spend.
Who is it for?
Generally, there are two groups of people in the U.S. who purchase catastrophic health insurance:
Young adults (20-somethings): usually, this group includes those who need affordable insurance and are either self-employed or have a job where there is no health coverage option included in their benefits.
Older adults (50-64 year olds): this group generally purchases a type of supplemental catastrophic coverage so that they are protected in instances of a medical event like a heart attack or stroke.
In both instances, the adult is in good health and has no prior medical conditions which require regular doctor visits.
With the Affordable Care Act, you must be 30 or younger to purchase this insurance beginning in 2014. This is explained further under the “Affordable Care Act” section below.
If you are considering a catastrophic health plan, your costs will be affected by many aspects of your lifestyle and past medical issues. This insurance may be right for you (and cost less) if you:
Don’t have pre-existing medical conditions
Don’t take many prescription medications
Don’t need to see the doctor regularly
Can’t afford stronger coverage
Can expect to have other coverage (possibly through a new employer) within the next 6-12 months
Only want this plan in case of an emergency
The younger you are, and the healthier you are, the better this option may be. People with certain pre-existing conditions, like AIDS, diabetes, and heart disease, do not qualify for catastrophic insurance under any circumstances.
What does it cost?
Catastrophic health plans are also referred to as High Deductible Health Plans. This is because there is generally a higher deductible, but lower monthly premiums. Therefore, if you plan to visit the doctor, and other specialists, for regular visits, or have a lot of prescriptions to fill, this is not the plan for you. With this plan, you are paying for more out-of-pocket costs in exchange for lower premiums.
According to How Stuff Works, “Basically, you pay for what you need rather than what you might need. This means that once you meet the deductible, you pay the same percentage of the total visit fee, whether you are seeing a specialist for your diabetes or a general practitioner for a simple physical. Therefore, you are free to follow the best course of action to suit your health care needs.”
Once your deductible has been met, your insurance company decides how much it will cover of future medical expenses, like surgery and lab tests. If you want elective surgery, this will not be covered.
In order to figure out how much a catastrophic plan may cost you, let’s use some example numbers. As with most plans of this type, your premium is low and your deductible is high. You may have to pay a $500 premium each month, but your deductible is $2,500.
Now, you may contract an illness which requires you to make an appointment with your doctor. The visit costs $100, and he writes you a prescription which costs $50. Since you have a $2,500 deductible and the $150 cost of the visit and medication does not reach this limit, the insurance company won’t pay anything for you. So, now your total cost for this month is $650 ($500 monthly premium + $100 doctor visit + $50 prescription).
Once you’re feeling better, you decide to go skiing. However, you fall and break you leg in so many places that you require surgery which costs $6,000. You must pay your deductible of $2,500 first. For the remaining $3,500, you pay 20%.
The advantage is that you don’t have to pay the entire $6,000, however, your costs will still be significant.
If you think a catastrophic plan is right for you, but are still concerned about costs, you may want to consider coupling the coverage with a Health Savings Account. This is an account that can be funded with pre-tax dollars earned from your job. This will help you to cover the costs of the deductible.
Breaking it down into real numbers, here is an example of two catastrophic plans for a non-smoking male in his late 30s living in a mid-Atlantic state in the U.S.:
The article which accompanied this table, states, “A consumer who selects the catastrophic plan will pay $1,548 in annual premiums while the traditional plan will cost $4,596. However, in order to fund a HSA account to ensure that care below the deductible can be paid for, the individual should also deposit the maximum $3,050 in an HSA using pre-tax dollars. This can be accomplished through monthly payments of $254. The total cost for the individual for the catastrophic plan plus the HSA deposit would be $4,598 which is nearly identical to the cost of the traditional plan alone. On an after-tax basis, the catastrophic/HSA option is superior because the HSA deposit is tax deductible for most taxpayers.”
The popularity of an HSA to offset costs is rising. According to the council at America’s Health Insurance Plans (AHIP), in January 2008, the number of people covered by this option was 6.8 million. In 2010, that number had risen to over 10 million.
Affordable Care Act
There have been some recent changes to the rules surrounding catastrophic health insurance plans, although the government has not worked out all the “kinks” yet.
Right now, the rules for purchasing this plan are as follows:
Must be 30 years of age or younger, but also some low-income people who qualify
Will cover only minimal services
3 annual primary care visits and preventative services are included at no cost
Deductibles can only be up to $6,400
After the deductible is met, 10 essential health benefits will be covered. This does not include shots or prescription drugs.
The 10 essential health benefits outlined in the Affordable Care Act include items and services under the following categories:
Ambulatory patient services
Maternity and newborn care
Mental health and substance use disorder services, including behavioral health treatment
Rehabilitative and habilitative services and devices
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care.
In the new “Health Insurance Marketplace” created by the Affordable Care Act, insurance companies must include policies these benefits. These will also be covered under Medicaid in 2014.
IMPORTANT! If your current policy will not be renewed in 2014 because it does not follow the new healthcare regulations for insurance plans, you will become eligible for a hardship exemption and have the option to purchase catastrophic coverage. Additionally, if you consider the health insurance plans in your area to be too expensive, you may also purchase a catastrophic plan. The following is a link to the hardship exemption form that you must fill out if you fall into either of these two categories: Hardship Exemption Form. You will need to submit this completed form, along with documentation indicating that your previous plan was cancelled to your local insurer which provides a catastrophic option.
Before you Buy
Since enrollment began for new health care plans in 2013, relatively few have chosen a catastrophic health care plan. For example, in California during the first two months of enrollment, only one percent of those that signed up chose catastrophic coverage. In Connecticut and Kentucky, it was just two percent.
In an article on WebMD, they interviewed experts on this trend:
‘’We did not anticipate high demand for the catastrophic plans,’ said Gwenda Bond, a spokeswoman for Kynect, the Kentucky insurance marketplace. In addition to their limited audience and lack of subsidies she said: ‘We also think that consumers are being savvy and weighing deductible and cost-sharing amounts alongside monthly premiums.’”
“Joel Cantor, director of state health policy at Rutgers University, said people will find the catastrophic policies attractive if they were previously in high deductible plans or limited benefit plans that are no longer allowed. He said many people in the individual market in New Jersey were in bare-bones type plans that have been cancelled.”
Catastrophic coverage may be right for you, but before deciding, consider the following questions, provided by insurance.com:
How much can you afford to pay for health insurance?
What coverage do you need?
What does the plan cover, and what does the plan not cover?
How much is the deductible, and how much, if any, would you pay in coinsurance up to the out-of-pocket maximum?
How will you save for the HSA (if you plan to purchase this option)?
Does the plan offer a strong network of providers, and is the network national?
Other Enhanced Insurance articles related to Miscellaneous Health Insurance:
Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
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The following is a list of websites and contact information in case you’d like to learn more about catastrophic health insurance.