If you are new to the world of insurance, it can be overwhelming to try and decide which health care coverage is best for you. Should you pay a higher premium for a plan design with low deductibles and out of pocket limits, or you should you take a chance at high out of pocket expenses in return of lower monthly insurance premiums? When you are looking at your options, you may have run across catastrophic health insurance. But what does that mean, and is it right for a young person?
What is Catastrophic Health Insurance?
Catastrophic health insurance is an insurance policy which pays benefits only after the policyholder has paid a significant out of pocket expense. Many times, a catastrophic medical insurance plan does not cover smaller, less urgent claims such as doctors visits.
There is not a dollar definition of catastrophic, but many times, people think of deductibles of around $10,000 as a catastrophic health insurance plan. So basically, it would require a catastrophe for the plan to pay any benefits.
What is the Allure of a Catastrophic Health Insurance?
Every insurance plan, whether home, auto, medical, etc. is priced according to expected financial loss. The more an insurance company expects to pay out in claims, the larger the premium for the policy. Hence, a medical plan with a low deductible is going to cost more than a medical plan with a large deductible.
What that means is that, all else being equal, a health insurance plan with a very large deductible will cost much less than a plan with a low deductible. If someone is looking for an inexpensive medical insurance plan and is willing to take on the risk of significant out of pocket cost, then a catastrophic health insurance plan is something to think about.
Should a Young Adult Consider Catastrophic Health Insurance?
Whether to buy a catastrophic plan depends on the risk the individual is willing to take. With a lower deductible, you are guaranteed to pay higher monthly premiums for your plan, while the amount of out of pocket expense is unknown, but will not be extremely large. With a very high deductible, however, the premiums are guaranteed to be low, but the out of pocket exposure is very large.
You have to think about your own risk tolerance and what you would be able to afford in the event of a major illness or accident.
Is Catastrophic Health Insurance Available Through Work?
Beginning in 2014, the Patient Protection and Affordable Care Act (PPACA), or Obamacare as many people know it, requires that employer offer coverage with a maximum amount of out of pocket expense or else pay a fine. Therefore, while the limits are still high for many people, it would be hard to classify the plans as catastrophic.
Don’t Forget PPACA Requirements
PPACA requires that individuals have a suitable amount of medical insurance coverage or else pay a tax. If you are considering a catastrophic health insurance plan, make sure that your plan meets the minimum benefit coverage requirements.