Catastrophic Health Insurance: The Ultimate Guide & Best Options

Catastrophic Health Insurance: The Ultimate Guide & Best Options

Catastrophic health insurance protects you financially in case of an unexpected major injury or illness. It is a basic, inexpensive health insurance plan option with a low monthly premium and a high deductible. To purchase these plans you must be under 30 years old or qualify for a hardship exemption, proving you can’t afford regular health insurance.

In addition to catastrophic health insurance, it is a good idea to have coverage for preventative care, reduced prescription drug prices, and routine doctor’s visits to maintain your health. With Mira, this is made possible for a small monthly flat fee of $45 per month. Consider pairing Mira with catastrophic health insurance today so that you don’t have to go without basic healthcare

What is Catastrophic Health Insurance

In case of an unanticipated event, catastrophic health insurance is an affordable way to protect yourself from extreme medical expense debt. A “catastrophic injury or illness” often requires prolonged hospitalization or treatment for a severe medical issue that can amount to tens of thousands of dollars in care. 

Catastrophic health insurance can be seen as an in-case-of-emergency insurance plan. While you’ll be covered for extreme events, you will pay basic healthcare needs out of your own pocket. The high deductible makes it difficult to reach without a catastrophic event, so these plans are not for people who anticipate needing to go to the doctor very often.

How a Catastrophic Health Insurance Works

With a catastrophic health insurance plan, you pay 100% of your medical expenses out-of-pocket (OOP) until you reach a very high deductible, around $8,000. Once you hit the limit, then your insurance company pays for all covered services with no copays or coinsurance. The problem with this is it can be deterring for enrollees to attend doctor’s appointments or go to urgent care since you will have to pay upfront.

One of the main reasons people choose to pair catastrophic health insurance with non-insurance products, like Mira, is so they can be protected in an emergency and also have affordable access to other healthcare services to stay healthy. Preventative services are important to your overall health, making Mira an attractive combination with these plans. 

Who Can Purchase Catastrophic Health Insurance

Only certain people are eligible to enroll in a catastrophic health insurance plan. When purchasing a plan through the Marketplace, you will see them displayed if you qualify. Individuals who are eligible include:

1. People under 30
2. People who are unable to afford health insurance, and qualify for a “hardship exemption”

Hardship Exemption

If you are 30 or older and want a catastrophic health insurance plan, you must apply for a hardship exemption. If the lowest cost Marketplace plan is more than 8.16% of your annual income, healthcare coverage is considered unaffordable, and you may qualify for an exemption. Some common hardship exemptions include:

• If you were homeless
• If you were evicted
• If you experienced the death of a family member
• If you filed for bankruptcy
• If you experienced domestic violence
• If you had medical expenses that left you in substantial debt
• If you are ineligible for Medicaid because your state did not expand Medicaid eligibility
• If you experienced a natural disaster that caused damage to your property

How to Apply for a Hardship Exemption

In order to obtain an official hardship exemption, there are specific steps you need to take:

• Step 1: On healthcare.gov you can find the forms to apply for a hardship exemption.
• Step 2: Based on your specific circumstances, you will be approved or denied and notified by mail.
• Step 3: If approved, you can then purchase a catastrophic health insurance plan.

What Catastrophic Health Insurance Covers

The main purpose of catastrophic health insurance is to prevent you from having to pay unaffordable medical bills in extreme cases. If you get in an unanticipated car accident, the surgery and rehabilitation bills may put you in debt without health insurance, and many young people go without coverage if they don’t think they will require it for their basic health needs.

An overnight hospital stay costs $9,300 per night on average while a visit to the ER can run you up to $3,000 without health insurance. Illnesses and injuries covered by a catastrophic health insurance plan could include:

• Cancer
• Leukemia
• Heart attack
• Stroke
• Accidents
• Sudden injuries

Medical expenses can easily add up and surpass even a high deductible. Below is a graphic showing the cost of medical treatment for various conditions. 

10 Essential Health Benefits

In addition, catastrophic health insurance plans cover the 10 essential health benefits as required by the Affordable Care Act (ACA), but only once you have met the high annual deductible. Before you meet your deductible, free preventive care, such as vaccinations, and at least 3 primary care visits are covered per year. If you need regular checkups then these plans are not a good fit for you. 

Who Should Buy a Catastrophic Health Insurance Plan

This type of plan might be right for you if you are under 30 or qualify for a hardship exemption. Catastrophic health insurance plans are ideal for people who are looking for a low monthly premium with minimal coverage. If you are generally healthy and rarely see a doctor, a catastrophic health insurance plan can cover you in emergency medical situations while you pay for the rest of your minor health expenses out of pocket. These plans are also a good option for those who do not qualify for Medicaid or an ACA subsidy.

Michael Ell with Wise Dollar Insurance states, “Think of catastrophic health insurance as healthcare emergency bankruptcy protection. This is the minimum amount of coverage everyone should have. Even if you are extremely fit and young, you cannot control the driving of a distracted motorist.”

Other Health Insurance Options

There are many types of health insurance other than catastrophic health insurance plans. Read below to discover different options that may work for you.

Subsidized Health Insurance Coverage

For individuals with low income, health insurance subsidies are a way to get coverage at a reduced, or no, cost. In states that have expanded Medicaid coverage, you qualify for a subsidy if your household income is below 138% of the FPL. The FPL for an individual in 2021 is $12,880, and for a family of four, it is $26,500. 

As of June 7th, 2021, 39 states (including DC) have expanded Medicaid.

 In all states, you qualify for premium tax credits if your income is between 100% and 400% of the federal poverty level (FPL). The credit amount is determined based on your income and is applied to your health insurance premium through the Marketplace.

ACA Health Insurance Plans

The ACA, also known as Obamacare, assigned a metallic level to major health insurance plans based on actuarial value (AV). The AV is the percentage of total average costs a plan will pay for covered benefits with a minimum of 60%. The AVs by metallic level are:

• Bronze: 60% total average cost covered
• Silver: 70% total average cost covered
• Gold: 80% total average cost covered
• Platinum: 90% total average cost covered

 For example, with a bronze plan, your insurer would have an average of 60% of your total medical expenses while you would pay the other 40% until you meet your out-of-pocket maximum. This is also known as cost-sharing between you and your insurer.

The premium of a catastrophic health insurance plan is lower than most other options with a metallic rating but has a higher deductible. Essentially there is a tradeoff between premium and deductible amounts. As the premium increases, the deductible decreases. A platinum plan has the highest premium, $575 in 2020, and the lowest deductible, $37.

High Deductible Health Plan (HDHP) vs. Catastrophic Health Insurance

While catastrophic health insurance plans do have high deductibles, they are not the same as HDHPs. Any plan with a deductible over $1,400 for an individual is considered an HDHP, and anyone can purchase an HDHP, not just those under 30 or with an exemption. 

HDHPs are meant to be paired with a Health Saving Account (HSA) which is a tax-advantaged savings account for medical expenses. You and your employer can put money away in these accounts for future use without paying taxes on the contributions.

Catastrophic Health Insurance Frequently Asked Questions (FAQs)

The multitude of health insurance options can get confusing. Below are some commonly asked questions about catastrophic health insurance.

What are the downsides of catastrophic health insurance?

One disadvantage of catastrophic health insurance plans is they have high deductibles. This makes routine medical care expensive because you have to pay for all services out of pocket until you reach it.

Additionally, you cannot use a premium tax credit, if you qualify for one through the marketplace, toward your monthly fee. If you do qualify for one based on your annual income, you might be better off with a different type of plan. Catastrophic health insurance plans are made for people who do not qualify for government assistance.

How much does catastrophic health insurance cost?

In 2020, the average monthly premium was $173 with a deductible of $7,148 for a catastrophic health insurance plan.

Where can I buy catastrophic health insurance?

You can purchase catastrophic plans directly on the Marketplace at Healthcare.gov if you are eligible, or directly from a private health insurance provider. Note, you cannot pair catastrophic health insurance plans with a Health Savings Account (HSA).

What does catastrophic health insurance not cover?

Catastrophic health insurance plans do not pay for any health care costs until you have met your deductible. Although once you meet your deductible, your insurer pays 100% of the essential health benefits determined by the ACA.

Bottom Line

The best way to obtain comprehensive health insurance coverage without paying the amount of most major health insurance plans is to enroll in a catastrophic health insurance plan and add an alternative, non-insurance product, like Mira. This ensures you are protected in the worst-case scenario, and also have access to affordable copays and prescription drugs for all of the care you need.

With month-to-month, 6 month, or year-long plans, Mira is a flexible and affordable option to pair with your catastrophic health insurance plan. Sign up today and we can help you find the right combination of healthcare products so you can live your healthiest life.