A Catastrophic Health Insurance is a policy that protects you from an unexpected serious health condition or illness and will offer you protection from unexpected medical costs. Such a plan requires you to cover your medical expenses up to a certain amount, known as a deductible. After you reach your deductible, costs incurred are paid for by the insurance company. An example is that you cover the medical costs of say the initial $2,000 of yearly expenses before the insurance coverage kicks in and starts to pay you for other expenses.
Otherwise known as a hospital-only or short-term plan or high deductible health plan, it is a kind of fee-for-service health policy. In most cases, it offers lower monthly premiums compared to other health insurance plans but the annual deductible amounts are significantly higher. Generally, the cost of visiting your normal doctor or the cost of prescriptions is not covered. If you are healthy, and don’t expect any major health issues in the near future, this is the ideal cover as you will save money; however, if something does happen and medical intervention is required, you are covered.
Comparison between a traditional and a catastrophic plan
(Image source: rationalwalk)
How Does A Catastrophic Health Insurance Work?
The basic concept of catastrophic health insurance is that you pay for what you actually need and not for what you might need. After you have met the annual deductible amount, the fee to visit a specialist after a diabetes diagnosis is the same as a visit to a pathologist for a simple physical test. This means that you are free to select whatever course of action is suitable to cater for your health care needs.
As long as major medical expenses like hospital stays, laboratory tests, surgeries and intensive care are deemed necessary, the insurance company will cover them all. Therefore, you don’t have to worry. Just like in any other health insurance policy, any procedure that is not deemed necessary but you select it for your convenience, you are not covered.
Catastrophic Health Insurance Plans
There are two options available for a catastrophic health insurance plan:
1. Comprehensive plan
The comprehensive catastrophic health insurance plan works more or less, in the same way, as a traditional catastrophic health insurance plan, i.e. the deductibles are high while the premiums are low. The advantage of this over a supplemental plan is that it covers emergency services like admission to the emergency room or costs associated with transportation of a patient in an ambulance.
2. Supplemental plan
For a supplemental plan, the premiums are lower than a comprehensive catastrophic health insurance plan, but as the word says, it is only a “supplemental plan” to any other policies you might have. It can cover costs like medical equipment, psychiatric and nursing care.
What are the Advantages and Disadvantages of a Catastrophic Health Insurance?
Due to the fact that there are some definite benefits and also some drawbacks of having a catastrophic health insurance coverage in place, I have highlighted the pros and cons below:
1. Cover for large medical expenses
If you try to live your life without any kind of health coverage, it could be a massive mistake. A car accident, a serious surgery or an unexpected health issue can set you back by over $100,000 in medical costs alone. This is a sure recipe for bankruptcy. By taking out a catastrophic health policy, you actually buy yourself peace of mind and some assurance of your financial situation.
2. It’s affordable
A catastrophic policy offers one of the lowest premiums available compared to any type of other health insurance plan. If you have a steady monthly income, you are up for some serious savings and yet covered for any unexpected medical emergencies.
3. Qualification for a health savings account
A health savings account is a tax free account which will allow you to have funds to cover for medical expenses up to the deductible amount. That is, if and only if you ever need it.
1. A high to very high deductible
The average deductible for a catastrophic health insurance is $2,000 per year, if not more. There are cases where the deductible is set at an amount of $5,000. If this does not impose on you financially and you can afford it, then all good, but for the average person, this definitely needs careful consideration. It can be mitigated by having a health savings account.
However, you should not be put off by the high deductible amount so as to postpone your health insurance coverage altogether. This will only lead to even more serious problems later on. If you can afford the low premiums by stretching your income, it is advisable to do so, rather than stay uninsured. If you can’t, you may be eligible for a hardship exemption.
2. Small medical expenses not covered
The policy will cover the large medical amounts, but will not cover the small medical expenditure for things like visiting a doctor for consultation or an immunization or prescription medicine. This too can be mitigated by having a health savings account in place.
Who Needs a Catastrophic Health Insurance?
There are two groups of people that should definitely consider such a policy:
Young people in their twenties / mid-twenties
Usually, people at that age are either self-employed or work in jobs without health coverage. Their income is relatively low so they need some kind of health insurance plan without having to pay too much. That will ensure some peace of mind in case of any unexpected medical condition or emergency.
People between 50 and 64 years of age
Generally, people in this age group are prone to heart attacks, strokes and other kinds of sudden serious medical conditions. However, assuming that the majority of people will have some type of health plan, a supplementary policy coverage is an ideal option to cover for the extras that you may be faced with in case you need it.
The graph below shows the results of the health insurance costs survey conducted in 2013.
(Image source: huffingtonpost.com)
Who Should Buy a Catastrophic Health Insurance?
This insurance is the best option for those:
- With no medical record or pre-existing medical conditions
- Do not use, or use very little prescription medications
- Do not visit a doctor on a regular basis
- Do not have a regular income for a standard health plan
- May acquire health coverage through other means, e.g. perhaps through a new job in the near future (6-12 months).
- Require a coverage plan only in case of an emergency
Who Qualifies for a Catastrophic Health Insurance?
Under no circumstances do people suffering from conditions like heart disease, diabetes or AIDS qualify for a catastrophic health insurance. Insurance companies offer catastrophic health insurance to people without any pre-existing conditions. By pre-existing conditions, I am referring to any medical conditions that are of a chronic and possibly fatal nature if not treated, It also meant that the person in question is not health-affected at the time that the policy becomes effective.
People suffering from pre-existing conditions that are chronic but not of a fatal nature like myopia and/or any other eye impairment condition, may still be eligible for a catastrophic insurance coverage but only in case of an emergency that is not a result of their particular condition. For example, if you are myopic and you had a car accident where your eye was hurt, you can be covered for the expenses incurred in reference to the treatment of the eye that resulted from that accident.
How Much Does Catastrophic Health Insurance Cost?
Similar to other types of insurances, the premiums for a catastrophic health insurance are determined by various factors including your age, gender, zip code, and other features of the insurance plan. These features include:
– The level of the deductible
Usually, this is between $2,000 and $5,000.
– The level of co-insurance
This is the level of the cost sharing between you and the insurance company. An 80/20 co-insurance means that the company covers 80% of the annual medical expenses while you pay the remaining 20%. This is for up to the out-of-pocket limit. If the expenses exceed this limit then, the company covers all the remaining costs.
– The out-of-pocket limit
This is the maximum amount of money that you will pay out of your pocket during a calendar year for medical expenses. It is usually between $1,000 and $4,000.
To give you an example, a healthy young individual can pay a premium as low as $70 per month with a $2,500 deductible, 70/30 co-insurance, and $3,000 maximum out-of-pocket expenses.
People that are 30 years of age and above may be eligible for a “hardship exemption”. This means that they can purchase a catastrophic health insurance without paying the premiums if they can qualify under one of the following rules:
- They are, or they can be considered as homeless.
- They have been evicted from their residence within the past 6 months or they are under notice of eviction or foreclosure.
- They have received a notice of interruption of service from a utility company.
- They have been recent victims of domestic violence.
- There has been a recent death of a close family member.
- Their property suffered complete destruction or substantial damage due to either a natural disaster like a flood, a tornado or a human-made disaster like arson.
- They filed for bankruptcy within the last 6 months.
- They were indebted for a substantial amount of money due to unaffordable medical expenses within the last 24 months.
- They incurred unexpected monthly expenses resulting from caring for a family member who has fallen ill or became disabled.
- They laid or expect to lay claim of a child that has been denied insurance coverage and by court order has been declared as:
- A tax dependent
- In need of medical support from another person
- Their individual insurance plan was cancelled and they cannot afford another type of health care plan.
- They received an eligibility decision from an appeals court that orders the enrollment into any health plan. The order may include lower monthly premiums or reductions that will cover the period that any health plan was denied.
Hardship exemption does not last forever. The exempted premiums usually cover a period of time before the hardship, during the hardship and after the hardship and up to a full year, based on the following:
- Exemptions on affordability are granted for the remainder of the coverage year.
- Exemptions on illegibility are granted for a full calendar year.
- Exemptions on special health services are granted on a continuing basis. This holds true as long as the need for special health services exists.
The graph below shows the results of Commonwealth Fund International Health Policy Survey of Sicker Adults in Eleven Countries, including United Kingdom, Sweden, France, German, Norway, Australia, Canada, Switzerland, New Zealand, Netherlands and America.
(Image source: boston)
So now, you have probably figured out that a catastrophic health insurance plan is not for everyone. You are also aware that by choosing the correct health plan, you will definitely benefit from it in the long term. For example, this could protect your financial assets in case of a medical emergency and huge medical bills. If you can’t afford to cover these huge costs, you definitely need to look into a catastrophic health insurance plan. The first step is to find out if you are eligible and if so, compare plans and coverage options from various insurance providers before buying a catastrophic health insurance plan.
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