When Does It Make Sense to Buy Catastrophic Health Insurance?

According to the Centers for Disease Control and Prevention (CDC), almost 33 million people below the age of 65 lack health insurance. The government has recently boosted subsidies for Affordable Care Act (ACA) insurance plans, and many states have expanded Medicaid, but even that financial assistance may not be enough to make insurance coverage affordable for you. 

Catastrophic insurance could be a workable solution. It provides the same essential coverage as standard ACA insurance to people who meet specific criteria. 

In this article, we’ll break down catastrophic insurance to help you figure out whether it’s the right health insurance choice for you. 

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What is catastrophic insurance?

In addition to the health insurance marketplace’s four main types of insurance plans (bronze, silver, gold, and platinum), there is catastrophic health insurance. Catastrophic plans are designed to protect people from worst-case scenarios like serious injury and prolonged illness. Only two groups of people can qualify: adults under 30, or adults 30 or older who have been granted a hardship exemption.

For those people, catastrophic insurance can guard against crushing medical bills for medical emergencies while also covering the essential benefits required of all ACA-qualified health plans (QHPs), such as checkups, vaccinations, and some forms of birth control. 

Premiums for catastrophic plans are low, but their deductibles are set at the highest allowable level. Once you meet its deductible, a catastrophic plan pays 100% of your eligible health costs until the end of the year. 

You can buy catastrophic plans through the marketplace or directly from an insurer. Bear in mind that purchasing through HealthCare.gov is likely to give you a wider selection of QHPs. The marketplace can also help identify other types of financial assistance you may be eligible for.

What does catastrophic insurance cover?

All QHPs, including catastrophic plans, must cover 3 free primary care visits per year, QHPs’ 10 essential health benefits, and treatment for pre-existing medical conditions. 

The 10 essential health benefits are:

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1) Outpatient care services

2) Emergency services

3) Hospitalization

4) Pregnancy, maternity, and newborn care

5) Mental health and substance-use disorder services

6) Prescription drugs

7) Rehabilitative and habilitative services and devices

8) Laboratory services

9) Preventive and wellness services

10)Pediatric services

Specific services within these categories will vary by state. 

In addition to the above, all QHPs must cover birth control and breastfeeding support and equipment. Note that you will need to pay out of pocket for deductibles, copays, and coinsurance until you reach the plan deductible ($8,550 in 2021). 

When it comes to preventive care, the services for all adults, women, and children are covered at no charge when you see healthcare providers within your plan’s network. These include:

• Vaccines

• Health screenings

• Well-woman, well-baby, and well-child visits

• Behavioral assessments for children

Beyond these required provisions, catastrophic plans’ additional services will vary. But because catastrophic insurance is designed for emergency care (as the name suggests), don't expect to find many plans providing more coverage than what's federally required.

How much does catastrophic health insurance cost?

Monthly premiums are usually low for catastrophic insurance and should be lower than most other QHPs available to you (Low-income people can get silver-level ACA plans with smaller deductibles for a monthly premium of $0.). As with most health insurance, the cost of a catastrophic plan depends on your age, location, tobacco use, and more. Additional costs to factor in are your plan’s copay and coinsurance amounts. Typically, the lower these costs are, the higher your monthly premium will be. 

With a catastrophic plan, your maximum out-of-pocket expenses — which include deductibles, copayments, and coinsurance — never exceed $8,550 per year for covered medical services (Under catastrophic insurance, a typical copay for a primary care visit might be around $35.).

Keep in mind that with catastrophic plans, you can’t reduce your premium with any tax credits you might qualify for. If you’re eligible for these credits, you’ll likely get better value from a bronze- or silver-level plan, so be sure to comparison shop. 

Who should consider catastrophic insurance?

As mentioned above, catastrophic insurance is available only to adults who are either under 30 or, if 30 or older, have been granted a hardship exemption. The government provides these exemptions for reasons like homelessness, bankruptcy, eviction, domestic violence, and death in the family (To download and submit an exemption application, visit HealthCare.gov.).

Catastrophic insurance may be a good fit for qualified people who:

• Can’t afford traditional health insurance and would otherwise go without any coverage

• Don’t mind paying minor health bills themselves, such as $150 to $350 for stitches at an urgent care center

• Want low premiums in exchange for a very high deductible 

• Want financial protection in case of severe injury or medical emergency

• Want to be sure they’re getting the essential benefits provided by all QHPs 

How long does catastrophic health insurance coverage last?

Your catastrophic health coverage lasts until you turn 30, at which point you’ll need a hardship exemption to maintain or purchase a plan. In general, hardship exemptions are in effect for the month before, the months during, and the month after the hardship occurs. But in some cases — such as in states that have not expanded Medicaid — the exemption can last up to a full calendar year. 

If you enroll during the annual open enrollment period, your coverage starts on January 1. If you register during a special enrollment period, your insurer will let you know when your coverage begins. It could start as soon as the month after you select your plan.

Who should not buy catastrophic health insurance?

Given the high deductibles, eligibility restrictions, and more basic coverage than most other marketplace plans, catastrophic health insurance might not be right for people who:

• Have children who require frequent doctor visits

• Have chronic health conditions and see doctors or specialists often

• Are eligible for other QHPs with subsidies

• Want to use a health savings account, since catastrophic insurance can’t be paired with an HSA

• Would face financial hardship in meeting their annual deductible

Alternatives to catastrophic health insurance

People over 30 without a hardship exemption aren’t qualified for catastrophic plans, so they’ll need to look elsewhere for coverage. Even if you do qualify, catastrophic plans may not have the coverage you need at the price you want. 

Here are some alternative options: 

• Bronze-level health insurance marketplace plans have similar coverage to catastrophic insurance but may be more affordable because they allow you to use premium tax credits. 

• Medicaid and Children’s Health Insurance Program (CHIP) help low-income families get free to low-cost medical care. 

• Short-term health insurance is less comprehensive than ACA-compliant QHPs, and so may not cover all essential health benefits, but it does have comparatively low premiums and high deductibles.

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Written by:

Lorraine Roberte

Lorraine has been writing in-depth insurance and personal finance content for 3 years. She has written hundreds of articles on these topics, with her work appearing on such sites as the Balance, the Simple Dollar, ConsumerAffairs, and I Will Teach You To Be Rich.

Edited by:

Caren Weiner, MSIS

Caren Weiner, MSIS, began her personal finance journalism career in 1986. She worked as a reporter for Money magazine and co-wrote its book-length “Guide to the 1986 Tax Reform Act.” From the beginning, she immersed herself in data on mutual fund total returns and marginal tax rates.

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