If someone came up to you and said they had a catastrophic health insurance plan, you’d probably think they were complaining about their health insurance coverage. Despite having a name rooted in hyperbole, catastrophic health insurance plans are named after what they cover, not the quality of their service.
Catastrophic plans are the highest deductible plans available for people under the age of 30 and applicants who qualify for a hardship exemption. A deductible, if you don’t already know, is the amount of money you have to pay before your health insurance covers anything. In the case of catastrophic plans, the deductible typically matches the federally-mandated maximum limit for how much you’re allowed to spend out-of-pocket on healthcare services in a given year – $7,150 for individual plans in 2017. After reaching that cap, your health insurance covers 100% of expenses.
To put it simply: catastrophic plans won’t cover typical doctor’s visits. Instead, they will only protect you from going into serious medical debt if you suffer from a true catastrophe – an accident, for example, or a very serious diagnosis.
In exchange for not covering smaller aches and pains, catastrophic plans are typically much cheaper than other types of plans. For example, at Oscar in New York, an individual may pay around $100 per month for a catastrophic plan, while Bronze, Silver, and Platinum plans can easily cost between $300 and $1000 per month. (Monthly costs specific to you may be different depending on your location and other factors.)
But are these plans actually a good deal for consumers? Should young people, tempted by the low monthly cost, buy a catastrophic plan? Or is purchasing one of these plans a setup for disaster down the road?
What does a catastrophic health insurance plan cover?
Catastrophic health insurance plans are private health insurance plans with very high deductibles. While catastrophic plans are subject to the same rules as other Qualified Health Plans, and therefore protect you against the Obamacare tax penalty, they do not cover your everyday healthcare services. Instead, you’ll have to pay thousands of dollars out of pocket before catastrophic plans start paying.
However, catastrophic plans do cover three primary care visits per year before you hit this deductible. Like other health insurance plans, they also offer free preventative care.
Who can buy a catastrophic health insurance plan?
Catastrophic health insurance plans are only available to people under the age of 30 and to people who qualify for a hardship exemption.
The logic behind this is relatively simple. People under the age of 30 are typically healthier than older people, and utilize healthcare services less frequently. They are the age group most likely to skip out on health insurance because they believe they don't need it. Health insurers, however, need healthy people to subsidize the cost of insuring older and less-healthy people who do need to utilize more healthcare services. Catastrophic plans are one way for health insurers to convince young, healthy people to sign up for health insurance.
As for people with a hardship exemption, catastrophic plans can be a way for them to protect themselves from devastating medical debt in the event of a serious medical emergency. However, one could argue that even a few hundred dollars in medical expenses is too much for many with financial hardships.
Should I buy a catastrophic health plan?
For many young health insurance shoppers, catastrophic plans may not be that much cheaper than the cheapest bronze plan available on the marketplace. Make sure to weigh your options carefully: The final cost of health insurance isn’t just about the monthly premium. You should also include how much you’d expect to pay out-of-pocket on healthcare services on a monthly or annual basis.
For some young people who rarely get sick and are not managing chronic conditions, a catastrophic plan may make the most sense for you. It’s a cheap way to avoid the tax penalty while also providing a safety net in case of an expensive medical emergency.
For others below the age of 30, a catastrophic plan is not the right choice. If you’re managing a chronic condition or planning on starting a family, a catastrophic plan will not cover many of your healthcare costs over the course of a year (until you hit the deductible).
For those above the age of 30 who qualify for catastrophic plans due to a hardship exemption, take a look at some of the options we’ve listed below before choosing a catastrophic plan.
Are there other ways to get cheaper health insurance?
If your primary reason for choosing a catastrophic plan is because of the low price, you should check to see if you qualify for a premium subsidy. A premium subsidy can help reduce your monthly premiums, i.e. how much you pay for your health insurance every month. If you make between 100% and 400% of the Federal Poverty Level, you probably qualify for a subsidy.
Premium subsidies cannot be used on catastrophic plans; instead, they may help you afford a plan with better coverage that would otherwise be prohibitively expensive.
You may also qualify for Medicaid, which provides healthcare coverage at low or no cost. Many states have what’s known as "expanded Medicaid," a provision of the Affordable Care Act that expanded Medicaid eligibility to individuals and families who make below 138% of the Federal Poverty Level.
Nineteen states have yet to expand Medicaid, limiting eligibility to individuals and families who make between 0% and 44% of the Federal Poverty Level, according to the Kaiser Family Foundation.
You can check if you qualify for Medicaid using Healthcare.gov or your state marketplace.
At the end of the day, it’s better to have some level of health insurance than no health insurance at all. Shop around, and carefully weigh your options – don’t just pick the cheapest plan you see. However, if you believe a catastrophic plan is right for your situation, you shouldn’t have any major qualms about picking it.