If you’re looking for health insurance with low premiums, you may think that either a catastrophic health insurance plan or a high deductible health plan will do.
But while they may seem like the same thing, these plans differ in many ways, particularly regarding eligibility, availability, and tax advantages. Be sure you understand how each one works and which one is the best way to protect yourself and your household.
What Is a High Deductible Health Plan?
A high deductible health plan (HDHP) is a tax-advantaged way to provide flexibility with your health care spending today and help you save for future medical expenses. An HDHP can protect you against extreme out-of-pocket medical expenses. It’s also called an “HSA-eligible” plan because it combines a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) with traditional medical coverage.
Anyone who meets an HDHP’s requirements can enroll. HDHPs are widely available in and out of the Marketplace. Many employers only offer this kind of plan. You must purchase an HDHP during open enrollment or a Special Enrollment Period.
With an HDHP, you must pay off your annual deductible before your plan kicks in with in-network providers. However, as with catastrophic plans, ACA mandates that HDHPs cover certain preventive care benefits regardless of whether you’ve met your minimum yearly deductible.
Preventive care benefits include but aren’t limited to:
- Prescription drugs
- Emergency services
- Lab work
- Pregnancy and maternity/neonatal care
- Mental health/substance abuse
- Rehabilitative services
- Vision or dental coverage, if your state requires it
Remember: though these preventative services are covered, you are responsible for the full cost of non-preventive services up to your deductible.
HDHPs usually come with lower monthly premiums than similar traditional health plans with a lower deductible. If you don’t expect to have many high medical expenses, an HDHP can help you save money throughout the year. This kind of plan also works well for people who can afford to self-insure up to the deductible amount.
As the name suggests, HDHPs carry a higher deductible and out-of-pocket maximum than a traditional health insurance plan. According to the IRS, an HDHP for 2021 is any plan carrying a deductible of at least $1,400 for an individual or $2,800 for a household. Its total annual out-of-pocket expenses, including deductibles, co-payments, and coinsurance, can’t exceed $6,900 for an individual or $13,800 for a household. Premiums aren’t included in these amounts.
HDHPs and HSAs
Most HDHPs let you contribute to an HSA, which lets you pay for out-of-pocket healthcare costs with pre-tax dollars. The account earns tax-free interest, and withdrawals for qualified medical expenses don’t get taxed, either. You must be enrolled in an HDHP for you and your employer to contribute to an HSA.
When you enroll in an HDHP, the plan determines if you’re eligible for an HSA based on your information. You will qualify for an HSA if you:
• Are enrolled in an HDHP and not covered by other health insurance, including Medicare
• Have not received VA or Indian Health Service medical benefits within the last three
• Aren’t claimed as a dependent on someone else’s tax return
• Aren’t covered by your own or your spouse’s flexible spending account (FSA)
HDHPs and HRAs
An HRA is an employer-funded account that allows tax-free withdrawals for qualified medical expenses. An HRA is not portable — you forfeit credits if you switch health plans or leave federal employment. You can’t contribute to an HRA, and the account does not earn interest as an HSA does.
You do not have to use up all your HSA or HRA contributions in a single year; unused amounts roll over to the following year.
What Is Catastrophic Health Insurance?
Catastrophic health insurance plans can also be an economical way to protect yourself from medical expenses that could arise from a serious illness or injury. They are also called major medical insurance plans. The cost and availability of these plans vary by state and insurance provider.
Catastrophic health insurance plans can make sense for people who can’t afford traditional health insurance but want protection for emergencies. Such a plan may meet your needs if you want a lower-cost health insurance plan and can handle paying out-of-pocket for minor medical expenses. Expect a higher deductible — similar to an HDHP — compared to what you’d pay with a traditional health insurance plan.
Only people under 30 or those with a hardship exemption can purchase a catastrophic health plan. This exemption is based on the inability to afford insurance through an employer or the Marketplace. Certain other hardships may apply, including the death of a family member. If you qualify to buy a catastrophic plan, you’ll see some listed when you compare Marketplace plans.
Catastrophic health plans cover the same essential health benefits you can get with other Marketplace plans. They will also pay for some preventive services in your plan’s network at no cost. Catastrophic plans also cover at least three annual primary care visits even if you haven’t met your yearly deductible.
Catastrophic health insurance plans typically feature low monthly premiums because they are in a separate risk pool from the Affordable Care Act’s metal-level plans. However, you can’t use an ACA premium or cost-sharing subsidy with a catastrophic plan. If you are eligible for a premium tax credit based on income, a Bronze or Silver traditional plan may offer you more coverage for less money than a catastrophic plan.
Deductibles are the amount you must pay on your own before your health plan starts to pay for anything. Once you have reached that threshold, your insurer pays for all covered services, with no coinsurance or co-payments. For 2020, the deductible for all catastrophic health plans was $8,150.
Obtaining a hardship exemption
The Trump administration expanded access to hardship exemptions in 2018, but many people are unaware that they may now qualify for one. However, obtaining a hardship exemption certificate from the exchange requires completing a lengthy application and several weeks of processing. This can be a challenge, considering that most states limit enrollment to the six-week open enrollment period.
Catastrophic Plans and HSAs
A health savings account (HSA) lets you contribute pre-tax dollars to an HSA-qualified, high-deductible health plan. Catastrophic plans can’t be HSA-qualified because they must cover at least three primary care visits before the deductible is met, and they have higher deductibles than high-deductible health plans. Catastrophic plan members can’t contribute to HSAs.
Catastrophic health insurance plans are available in and out of the Marketplace, but not everywhere. Sometimes, the lowest-cost insurer might not offer catastrophic plans. Even among those that do, the catastrophic plan is often more expensive than the Bronze plan.
Let TrueCoverage Find the Right Coverage for You
When you’re shopping for health insurance, expert guidance can empower you to choose the coverage that truly protects your health and your budget. TrueCoverage is the one-stop insurance shop for you and your family. We are a certified Marketplace provider, and we partner with over 600 trusted insurers to bring you more than 50,000 affordable health insurance options. Our knowledgeable customer service agents and cutting-edge technology are here to help you secure the best solution at the best price. Contact us at TrueCoverage today for a free quote.Photo by Olya Kobruseva from Pexels