What Is a Catastrophic Health Insurance & How Does It Work?

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Qualifying for an insurance policy can sometimes be tricky for many reasons, such as starting a new job, having your previous plan terminated, or moving from state to state.

Fortunately, catastrophic health insurance could be a valuable and practical solution, allowing you to financially and medically secure yourself and your loved ones when something catastrophic happens.

RELATED: What Is Private Health Insurance And How To Choose The Right Policy


What Is Catastrophic Health Insurance?

Catastrophic health insurance, or major medical insurance, is an inexpensive insurance product that protects the insured from the financial hardships of having to pay medical costs associated with worst-case scenarios or significant health events.

Most importantly, the policies only cover basic medical needs and limited preventive and emergency healthcare services.

Specifically, when a catastrophe happens (a bad car accident, natural disaster, or newly-diagnosed cancer), treatment plan costs and healthcare services can accelerate, leaving an individual with thousands, if not millions, of dollars in medical bills.

That’s why you need catastrophic health insurance in such situations. As the name implies, catastrophic health insurance plays a vital role in helping the insured stay out of debt.


How Does Catastrophic Health Insurance Work?

This type of insurance is required to meet the minimum benefits under the Affordable Care Act (ACA). The insured is guaranteed coverage with essential healthcare benefits and significant medical events, such as heart attack, cancer, trauma, surgery, and hospitalization. Other features of catastrophic health insurance include free screening services and three annual primary care visits.

In exchange for a low monthly premium, your deductible will be much higher than usual, up to $8,000. Additionally, the insured will be responsible for paying every medical expense out of pocket until it reaches the deductible.

After that point, the plan will kick in by covering a predetermined percentage of the incurred expenses. For example, suppose your deductible is $3,000, and your medical bill is $4,000. In that case, you will pay $3,000 while the plan will cover the remaining amount. The ten essential health benefits that the plan offers are:

  • Ambulance patient services
  • Emergency services
  • Hospitalization
  • Pregnancy, maternity, and newborn care
  • Mental health care (psychotherapy and counseling)
  • Prescription medicines
  • Rehabilitation services
  • Laboratory services
  • Preventive services and chronic disease management
  • Pediatric services


Although you must spend a lot of money before meeting deductibles since it only covers a limited number of healthcare services, buying a catastrophic plan is an excellent way to cut back on the skyrocketing costs when a major accident occurs.

You are entitled to free preventive services, such as immunizations, basic shots, mammograms, annual check-ups, some forms of birth control, and preventative care, even if you have not met the plan’s deductible.


Who Is Eligible for Catastrophic Health Insurance?


Despite affordable premiums, not everyone can get the plan they wish. Generally, you must be either under age 30 or qualify for a hardship exemption to buy catastrophic health insurance.

According to healthcare.gov, hardship exemption is granted to underprivileged or unfortunate individuals who are unable to access and afford regular healthcare coverage due to the following reasons:

  • You were homeless.
  • You faced foreclosure.
  • You experience substantial damage to your property due to natural or man-made disasters.
  • You experienced the death of a close family member on whom you were financially dependent.
  • You were the victim of domestic abuse.
  • You filed for bankruptcy within the last six months.
  • You were unable to pay medical bills over the previous 24 months.
  • You had unexpected increases in daily expenses for being a caregiver for an elderly family member.
  • Your state doesn’t expand eligibility for Medicaid.


Also, this insurance product is an option for young and healthy adults who don’t expect to need much medical attention when it comes to healthcare, except when emergency events take place.

Overall, these plans are deemed the best option for those with limited incomes or as the “last resort” for those underqualified for traditional, more comprehensive plans due to pre-existing health conditions or who can’t get coverage from Medicaid or subsidies from the ACA.

RELATED: 6 Things To Understand When Picking The Best Health Insurance Plan


The Costs of Catastrophic Health Insurance


Like other types of health insurance plans, the costs of catastrophic plans may vary from state to state and whether or not insurance companies carry them largely depends on where you live.

For the most part, catastrophic health insurance plans are less expensive than standard ones. Compared to $400 in premium coverage of standard policies, the average premium costs of catastrophic policies are around $170.

Other determining factors include your age, location, medical record, substance use, income, and more, accompanied by copay and coinsurance amounts. Therefore, looking around and collecting quotes from multiple insurance carriers is essential before buying the plan.

So what is the average cost of catastrophic care plans? The deductible cost was $8,150 in 2020 (Marketplace) and is likely to surge yearly. However, private insurance carriers may offer lower deductibles, around $6,000.


Pros & Cons of Catastrophic Health Insurance

Pros of Catastrophic Health Insurance

  • Ultimate Financial Protection: Catastrophic health insurance lifts the burden of paying large medical bills and removes substantial sources of worry for financially strained individuals. Moreover, it can help you avoid facing financial ruin in the event of unexpected health issues, such as cancer or diabetes.
  • Affordability: Instead of paying approximately $400-500 per month, you will get the most economical premiums with this healthcare plan option, at as low as $100.
  • Health Saving Account Eligibility: It gives you an opportunity to qualify for a health saving account, allowing you to use pre-tax money to cover medical expenses.


Cons of Catastrophic Health Insurance

  • High Deductible: One of the most significant drawbacks of catastrophic health insurance policies is the high deductible. Thus, it is subject to annual increases, rising from $7,900 in 2019, $8,150 in 2020 to $8,850 in 2021, and currently hovering around $8,700 in 2022.
  • Out-of-pocket Expense Responsibility: Since catastrophic care plans cover minimum medical services, you could pay a hefty amount out-of-pocket until getting a portion of coverage, given the high deductibles. Moreover, the plan doesn’t cover prescriptions.


Who Should Not Get Catastrophic Health Insurance?

While this form of insurance is ideal for healthy people, the high-deductible health plan might not be suitable for those who:

  • have chronic health conditions and need thorough follow-ups and specialty care
  • have family members who frequently need medical supervision and costly subscriptions (children, elderly)
  • would face financial ruin until meeting their deductible
  • are qualified for other QHPs with subsidies


With attractive premiums, catastrophic health insurance can be an ideal option if you are someone who doesn’t need much supervision when it comes to healthcare. However, it’s not a good idea to purchase the plan if you usually get sick and visit the doctor frequently. As a result, make sure to do your research and collect quotes to find what’s the best match for you.


If you have any questions about catastrophic health insurance, please get in touch with us to receive a free consultation. 


Quotetopia matches you with what you’re looking for! We make your search a single step based on coverage and cost information from hundreds of top insurers, connecting you with the best match at the best value. From auto to health to life insurance, Quotetopia has you covered. 


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