Under the terms of the Affordable Care Act, catastrophic health insurance is a particular kind of individual (non-group) health coverage.
“Catastrophic coverage” was a catchall term used before the ACA to describe any type of health plan with large deductibles and scant coverage for necessary preventive care. However, the ACA added a new class of plan to the individual market—catastrophic health coverage. Catastrophic insurance is not offered as employer-sponsored coverage, as that term is defined by the ACA.
This article will define catastrophic health plans, describe the laws and guidelines that apply to them, list the people who are qualified to enroll in one and discuss the factors you should take into account when selecting a catastrophic plan.
Disaster Plans: What They Cover and How They Operate
If you experience exceptionally significant medical expenses during the year, catastrophic plans will act as a financial safety net. Additionally, they feature three non-preventive office visits per year that are copay-paid even if your deductible hasn’t been met, as well as the same completely covered preventive care benefits that are offered by all ACA-compliant plans.
Furthermore, all catastrophic plans cover necessary medical expenses, even though the majority of services are added to the deductible until you reach it. The term “covered” should be understood to mean that the costs apply to your deductible until you reach it, after which the health plan covers the remaining costs of your necessary medical expenses for the remainder of the calendar year.
Apart from specialized preventive treatments and up to three non-preventive office visits, you must first reach your deductible before your catastrophic health plan would begin to pay for your treatment. You won’t be required to pay the full amount that the medical practitioner invoices you during this period; instead, you can pay the health plan’s negotiated rates.
Because the deductible is so high, most people who join in a catastrophic health plan are unable to fulfill it in a given year. For 2023, it is $9,100.2 (for 2024, it will rise to $9,450) because that is the highest out-of-pocket amount permitted by federal regulations.
As a result, catastrophic plans do not have coinsurance requirements; rather, after you have met your deductible, the plan will begin to cover all of your eligible expenses for the remainder of the calendar year.
In this case, your catastrophic plan will take effect and begin to cover your expenses if you do experience a year with exceptionally high medical costs. And it’s a lot simpler than you may imagine to accrue medical bills totaling more than $9,100. Any type of hospital inpatient treatment and many outpatient procedures almost always lead to that destination.
Why a Catastrophic Health Plan Is Needed
Insurance coverage for catastrophic illness is available both inside and outside of the health insurance marketplaces established by the Affordable Care Act:
- Restricts who is eligible to enroll. Purchasing a catastrophic coverage is not available to everyone.
- It is not possible to employ premium tax credits or premium subsidies to offset monthly premium payments.
- Has a very high deductible, which is also the maximum amount that can be spent on medical expenses. (Under the ACA, the federal government must put a restriction on the maximum out-of-pocket expenses that health plans may have. Since it fluctuates annually, the deductibles for catastrophic health plans also do. From $6,350 in 2014 to $9,100 in 2023, it has increased significantly.
- Entails no out-of-pocket fees and covers all necessary medical expenses, including some preventive care.
- Provides copay coverage for three annual non-preventive office visits for primary care; until the deductible is reached, members are responsible for all other costs.
Although it’s usual to encounter bronze plans with comparable out-of-pocket maximums and deductibles that are close to as high, catastrophic health plans’ deductibles often tend to be significantly greater than those of other plans’ deductibles. A catastrophic plan’s deductible burns up the entire out-of-pocket maximum, although bronze plans frequently have significantly lower deductibles and a certain amount of coinsurance up until that point.
If you stay in-network and adhere to the plan’s guidelines for things like referrals and prior authorization, your catastrophic health insurance plan will begin paying for 100% of your covered medical expenses once you’ve spent enough out of your own pocket to reach the deductible.
What are covered medical costs under catastrophic plans?
All other Obamacare health plans, including catastrophic plans, are required to offer the same basic health coverage. It needs to pay for things like doctor visits, hospital stays, surgeries, blood tests, maternity care, mental health treatment, and drug rehab, as well as other medically essential services. The benefits won’t begin to be paid for, though, until your deductible has been met.
Two cases deviate from that generalization:
Even if your deductible is unmet, catastrophic health insurance, like other health plans, must cover a certain amount of preventive medical treatment. This covers items like your annual flu vaccination, screening mammogram, well-woman checkup, and contraception (but keep in mind that not all preventive healthcare is completely paid for—or even covered at all—by health insurance policies, including catastrophic plans).
Catastrophic health plans are required to cover three visits per year to your primary care physician without requiring you to first pay the deductible. For these visits, though, they might charge you a copay.
Catastrophic plans could—but weren’t obligated to—pay for telehealth services during the COVID public health emergency before the member had reached their deductible. After the public health emergency was declared over in May 2023, this flexibility was no longer available.
Who Can Purchase a Catastrophic Plan?
The individual insurance market only allows select people to get catastrophic health insurance. Either you must be under 30 or you must be exempt from the individual mandate penalty under the Affordable Care Act (ACA) due to hardship (which includes affordability exemptions).
More people than ever before are allowed to obtain catastrophic insurance because the federal government has broadened the list of situations that qualify people for hardship exemptions.
And if you’re 30 or older, you still need to get an exemption in order to purchase a catastrophic plan, even if the government penalty for not having insurance was repealed by the end of 2018. The HealthCare.gov page where you may find the exemption form is located here.
Exactly how much does a catastrophe plan cost?
If you qualify for a premium subsidy to lower your monthly health insurance rates, you cannot utilize that discount in conjunction with a catastrophic health plan. To take advantage of the subsidies, you must choose a bronze, silver, gold, or platinum plan.
The American Rescue Plan and Inflation Reduction Act has increased the size and accessibility of premium subsidies through the end of 2025, which is crucial to notice.
Some bronze plans have deductibles that are almost as high as catastrophic plans (and total out-of-pocket expenses that are comparable to those on catastrophic policies), but they do not cover primary care visits that are not preventative before the deductible. While premium subsidies cannot be used on catastrophic plans, a healthy young person who is not eligible for premium subsidies may discover that a catastrophic plan is more affordable than a bronze plan.
Despite the fact that catastrophic plans typically cost more money than bronze policies, the out-of-pocket maximums for both are often the identical. This is mostly a result of the fact that catastrophic plans are pooled separately for risk adjustment calculations (see the risk adjustment report for 2021 for evidence that catastrophic plans are in their own separate category and only share risk adjustment money with other catastrophic plans).
Insurers with significant bronze plan enrollment typically must transfer funds (via the risk adjustment program) to insurers that typically enroll less healthy individuals, who may choose silver, gold, or platinum health plans. Since bronze plans are typically chosen by applicants who are relatively healthy, silver, gold, and platinum health plans are available as alternatives.
However, catastrophic plans, which are also frequently chosen by young, healthy people, don’t need to pay risk adjustment money to offset the risk in metal-level insurance. Prices for catastrophic insurance are kept down as a result.
Catastrophic health insurance’s unrecognized benefit
Even if your healthcare spending fall short of your catastrophic health plan’s deductible, you’ll still pay less out-of-pocket for medical bills with a catastrophic plan than if you had no health insurance coverage at all.
HMO, PPO, EPO, or POS plans are all examples of catastrophic plans. The doctors, hospitals, labs, and pharmacies in these plans’ networks of providers all bargain reduced prices with them. You can take advantage of these lower prices as a member of the catastrophic health plan even before you’ve met your deductible.
This is an illustration. Say you haven’t reached the $9,100 deductible on your catastrophic plan yet. An ankle X-ray is necessary because of your injury. Your X-ray is $200 off the quoted price. You would be responsible for $200 out-of-pocket expenses if you didn’t have catastrophic health insurance.
Let’s now assume that health plan subscribers receive a $98 in-network discount. You will only be responsible for the $98 discounted cost because you are a health plan subscriber using an in-network X-ray facility. As opposed to not having insurance, you’ll pay $102 less.