Catastrophic health insuranceis low-premium coverage with hefty out-of-pocket costs.

Catastrophic health plans provide the same level of medical coverage as any other health insurance plan. That means you get the same prescription drug and mental health coverage as a PPO or an HMO.

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However, you’ll pay less in premiums, but more when you need to use healthcare services.

Catastrophic insurance is a term sometimes used specifically for low-cost, low-benefit coverage only for young people and Americans who can’t afford any other type of coverage. That coverage is limited to a small population in the Affordable Care Act (ACA) exchanges. Less than 1 percent of exchange plan enrollees have that kind of catastrophic plan.

Catastrophic health plans are also a term used for high-deductible health plans. That is how we will use the term in this article.

These plans are available in all states. So, whether you live in Florida, Texas or Colorado and regardless of how you get your insurance (whether from an employer or the individual market), there are high-deductible options for you. 

So now that we’ve cleared up any confusion, let’s dive in and explore catastrophic health insurance. 

Catastrophic insurance plan costs

High-deductible plans are known for their high out-of-pocket costs and low premiums. You pay a higher portion for your care until you reach your deductible. Premiums don’t count toward your deductible. Age doesn't play a part in these plans. You pay the same premiums and out-of-pocket costs whether you're in your 20s or over 30 or 50 years old. 

Kaiser Family Foundation said in its 2018 Employer Health Benefits Survey that nearly one-third of people covered under employer-sponsored health plans have high-deductible plans. That’s second only to preferred provider organization (PPO) plans.

Costs associated with catastrophic plans

Minimum annual deductible for individual coverage$1,350
Minimum annual deductibles for family coverage$2,700
Maximum out-of-pocket costs for individual coverage$6,750
Maximum out-of-pocket costs for family coverage$13,500
Maximum annual HSA contribution for individual coverage$3,500
Maximum annual HSA contribution for family coverage$7,000

The definition of catastrophic plans is they have annual deductibles of at least $1,350 for single coverage and $2,700 for family coverage. But you can face much higher deductibles.

The average annual deductible for single coverage for any plan is $1,573 in employer-sponsored plans.

The plan type plays a big role in deductibles. KFF estimates that one-quarter of all health plans have deductibles of at least $2,000 for single coverage, including 42 percent of small businesses.

The average deductible for single coverage is:

  • HMOs -- $870
  • PPOs -- $1,204
  • POS -- $1,598
  • Catastrophic/high-deductible plans -- $2,349

If you’re buying a health plan from the ACA exchanges, a Bronze plan is considered a high-deductible plan. Those plans pay 60 percent, while the member pays 40 percent.

These plans have the lowest premiums of the four types of metal plans in ACA exchanges, but they also have the highest out-of-pocket costs.

Though these plans cost less in premiums than an HMO or PPO, they must cover all the essential health benefits, including:

  • Outpatient
  • Emergency
  • Hospitalization
  • Maternity and newborn care
  • Mental health and substance use disorder services
  • Prescription drugs
  • Rehabilitative services
  • Lab services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care 

Out-of-pocket costs in catastrophic plans can add up. These plans have out-of-pocket maximums of $6,750 for individual coverage and $13,500 for family coverage.

Here’s what that means. Let’s say you have family coverage and you have a high-deductible plan with a $10,000 deductible. You would pay the bulk of costs until you reach $10,000. That can add up quickly if you’re hospitalized.

Once you reach your deductible, however, your health plan will pick up a larger portion of healthcare costs. You may still have to pay co-insurance, co-pays and other costs.

Characteristics of Catastrophic Health Insurance

Catastrophic insurance plan options

PPOs and HMOs have clear definitions when it comes to provider networks. PPOs let you see just about anyone without a doctor referral. You pay more to go out of network, but PPOs offer you that flexibility.

HMOs are more restrictive. You have to get a primary care doctor referral to see a specialist and you usually can’t get care out of network. That limits your options, but HMOs are often much cheaper than PPOs.

Catastrophic/high-deductible health plans, on the other hand, have various network rules. You might find one that acts more like a PPO and gives you flexibility. You might see another that works more like an HMO.

Dig into the plan information to see how your employer and the health plan set up the specific catastrophic plan.

Health savings accounts (HSAs) help pay costs

A benefit of a high-deductible plan is that they’re usually connected to a savings account. These plans, such as a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA), let you save for healthcare tax-free.

The difference between the two is that you own the HSA, while the employer owns the HRA. So, if you leave jobs, you can take the HSA with you. That’s not true for the HRA.

Both of these savings accounts let you set aside money from each paycheck toward healthcare costs. So, let’s say you put $100 a month aside in an HSA, it will add up to $1,200 over a year. Remember, that money is tax-free.

When you then use healthcare services, you can tap into that fund to help pay for costs.

You can put a maximum of $3,500 into a savings account for individual coverage annually and $7,000 for family coverage.

Many employers also contribute money to HSAs to help employees with their healthcare costs. The average annual employer contribution to an HSA-qualified plan is $603 for single coverage and $1,073 for family coverage, according to KFF.

However, 40 percent of companies offering single coverage and 39 percent of businesses with family coverage don’t contribute to employee HSAs. So, check with your company about the contribution before signing up.

Is a catastrophic plan right for you?

Health insurance is deeply personal. What works for one person would be a disaster for another.

A healthy person who only gets an annual physical may enjoy a catastrophic plan. A family of four with young children and a parent with a health condition would likely rather pay more in premiums and less out of pocket.

Here are some questions to ask yourself before buying a high-deductible health plan:

  • How much coverage do you need?
  • Would you prefer paying more in premiums and less out-of-pocket costs or vice-versa?
  • How often did you and your dependents see a doctor this year?
  • How often do you expect to see a doctor next year? What about your dependents?
  • Do you plan to start a family in the next year, which could mean more healthcare services?
  • What deductible are you willing to have? What about out-of-pocket costs?
  • Does an HSA interest you? Does your employer contribute money to it?

Once you ask yourself those questions, dig into each plan you’re comparing to see what they cover. If you have prescriptions, check to make sure the plan covers it. Also, check that your doctor and hospital are on the plan’s networks.

Whether you’re getting a catastrophic health plan, a PPO or an HMO, knowing which providers and hospitals are in-network are critical in picking the right health plan for you.

No matter what plan you choose make sure you run the numbers and think about your healthcare needs. If you don’t expect to use many healthcare services and want lower premiums, a high-deductible or catastrophic health insurance plan could be right for you.