What are the pros and cons of catastrophic insurance?
What do catastrophic plans cover?
Who is eligible for catastrophic health insurance?
Can I save money by having a catastrophic plan?
What is catastrophic health insurance?
Catastrophic is probably not the best word to describe this type of health insurance plan. These plans are, after all, part of the ACA (aka Obamacare) metal tiers, which define how healthcare costs are to be divided between the insurer and the insured.
The term catastrophe suggests ruinous or tragic. The purpose of insurance is to prevent both.
Since 2014 Obamacare was enacted, so-called catastrophic plans have provided some fully covered primary preventative healthcare benefits free of all additional charges and a ‘safety net’ (limit to your financial exposure) in the event of a ‘catastrophic’ event during the plan year.
What are the pros and cons of catastrophic insurance?
The headline ‘takeaway’ is that for a low premium, you can obtain coverage for all the essential health benefits of an ACA-compliant plan, specific preventative care costs with no out-of-pocket expenses, and up to three (non-preventative) office visits with a copay. Your safety net is the ACA limit on OOP expenses ($9,200 in 2025) or less, according to your plan; beyond this point, your insurer pays 100% of your covered costs.
Typically, the monthly premium for a ‘catastrophic’ plan is less than that of a bronze plan, but you will not receive premium tax credits or the benefits of co-pays and insurance. However, your costs will count toward your deductible, and you will benefit from the preferential fees negotiated by your insurers with providers in your network. This in itself may justify the monthly premiums.
Different plans will have different rules for referrals and prior authorizations.
One thing that all ‘catastrophic ‘plans have in common is that they have no co-insurance element. When you reach the deductible ceiling, your insurer picks up 100% of your costs.
Suppose you experience a traumatic event such as a broken limb or develop a condition that necessitates hospitalization. On average, the daily cost of an inpatient hospital stay is just over $3000 ($4000 in DC), and the average stay is 4.5 days (AHA Annual Survey). Even a short hospital stay would exceed the OOP limit imposed by the ACA, and your insurer would be responsible for any additional covered medical expenses.
What do catastrophic plans cover?
Catastrophic (tier 5) plans must cover the same essential health benefits as ACA plans in the other four tiers but will only contribute to the costs once you have met the deductible.
Catastrophic plans must pay for your visits to your primary care provider (PCP) up to three times per year without charge, even before meeting your deductible (OOP). Some plans require to make a copay for these visits.
Only when you have met your deductible or OOP limit (whichever is lower) will your catastrophic plan take over and pay for all your covered medical and care expenses. However, until that point, you benefit from the prices negotiated by your insurer with your (in-network) provider for any necessary services or medication covered by your plan. In some circumstances, these price reductions alone can offset the high deductible level.
Who is eligible for catastrophic health insurance?
When the Affordable Care Act came into force in 2014, there was a federal penalty for not having ACA-compliant health insurance. ‘Catastrophic’ plans were seen as a low-cost way of avoiding these penalties, taking advantage of the ‘free’ preventative services and discounts on medical services/medications.
In 2018, the penalties for not being insured were removed. Still, the plans remain open to persons under the age of thirty or eligible for ‘hardship exemption’ under the terms of the ACA individual mandate. In addition to possible financial hardship exemptions, suitable alternative plans may not be available in your area. The regulations are complex. A qualified, independent health insurance specialist or broker with local knowledge can provide unbiased advice on your plan options.
Can I save money by having a catastrophic plan?
If you are young (under 30), healthy, and not eligible for premium tax relief, and do not need to make significant claims, you could save money compared to your outgoings if you have no insurance.
If you are eligible for a ‘hardship exemption,’ you may find a ‘catastrophic’ plan more affordable than an equivalent ‘metal’ plan.
If you experience an event such as a change of location, job, or marital status, you are entitled to a special enrollment period. You may cease to be a student During your special enrollment period you can change your plan to one that is more appropriate to your new circumstances.
For your own peace of mind talk to a qualified independent health insurance. Their advice will cost you nothing but give you peace of mind and possibly save you thousands of dollars.
