What is Catastrophic Health Insurance?

So your employer in Dallas, Houston or any place in Texas doesn’t offer health insurance. Perhaps you can’t afford to pay for a health plan. Or maybe you just don’t want pay for health coverage because you’re healthy enough that you feel “you don’t need it.” If you fall into any of these categories, you may be a candidate for a “catastrophic” health insurance plan, or what is sometimes called a “high deductible” health plan (HDHP).

Catastrophic health insurance is usually characterized by its high deductibles and low monthly premiums. These plans typically cover major hospital and medical expenses only above a certain deductible. This means you are likely to pay out-of-pocket for most everything else, like routine doctor visits and many, if not all, prescription drugs.

The many catastrophic health insurance plans offered these days cover expenses for hospital stays, surgery, intensive care, diagnostic X-ray and lab tests.

When choosing this kind of plan, your deductible may start at $1,000 a month or higher. Along with the high deductibles, many catastrophic health plans have high lifetime maximum benefit payments, or caps, which can be between $1 million and $5 million. Once you reach your cap, the insurance company won’t pay for any additional medical expenses and your coverage is terminated.

By selecting a high-deductible plan, it’s expected you’ll pay for your medical needs until your expenses exceed your deductible. For example, with a $15,000 deductible and surgery that costs $5,000, you would pay for the surgery entirely. You should also be aware that the deductible limit for a high-deductible health plan, which is qualified as a Health Savings Account (HSA) is $5,000 in 2007 (unless you are age 55 or older).

If you decide to pursue a catastrophic health insurance plan, you should also know that most of them do not cover most of the costs of pregnancy care. So if pregnancy is a possibility, make sure to check if pregnancy coverage is available with your plan. Some catastrophic plans don’t cover maternity care for a full year after your effective date.

People who buy catastrophic health insurance tend to fall into two groups: young adults in their 20’s and older adults ages 50 to 65. Young adults who buy catastrophic coverage are usually self-employed or have no coverage through their employers.

Older adults who buy this kind of policy are concerned with financial losses associated with heart attacks, cancer or other serious illnesses. They’re generally healthy, have very few or no prescriptions, and would prefer to pay out of pocket for office visits to save on premiums.

Catastrophic health plans can be purchased as an individual health insurance plan, as well as through employer group plans. Companies with 1,000 or more employees typically offer higher deductible plan options. Retirees, who aren’t yet eligible for Medicare, also often choose catastrophic plans to reduce their premiums.

Certain pre-existing conditions will make you ineligible for a catastrophic health plan in the individual health plan market. Health conditions such as AIDS, diabetes, emphysema, heart disease, multiple sclerosis, and schizophrenia, as well as some other serious illness, are red flags to insurances companies and can prevent you from being underwritten for a catastrophic plan. While serious impairments like these will disqualify someone from a high- deductible plan, that it is much easier for someone with mild impairments to get a high deductible plan – particularly the very high deductible plans – than a low deductible plan.

Like many other health insurance plans, you can purchase different levels of catastrophic coverage depending on what type of high-deductible plan is chosen.

Before purchasing a catastrophic health plan, you need to consider:

How much is the premium, and do you pay monthly, quarterly, annually?

How much is the deductible?

How much of a deductible can you afford?

How extensive is the coverage?

Do you need prescription medications?

Are your own doctor’s office visits affordable?

Do you have any pre-existing conditions?

Do you get sick often?

What’s the annual and lifetime coverage limit?

Pat Carpenter