What is Catastrophic Health Insurance?

January 22, 2013

Cat·a·stroph·ic: A momentous tragic event ranging from extreme misfortune to utter overthrow or ruin

Just like self-employed health insurance, there is no such thing as an official catastrophic health insurance plan. Instead, it's just a way to describe a specific group of health insurance plans that are specifically designed to focus on the big picture, rather than nickel and diming minor health claims.

What Does a Catastrophic Health Plan Look Like?

High Deductible: The first and most obvious characteristic of a catastrophic health plan is a high deductible. Usually no less than $5,000 for an individual or $10,000 for a family. The higher the deductible the more catastrophic your health insurance becomes. However, be careful not to choose a "catastrophic" health insurance plan strictly on this requirement.

No Copays: A catastrophic insurance policy will almost never include a copay for your doctors office visit or prescription medications. These benefits are the epitome of the anti-catastrophic coverage.

Limited/No Coverage: It's possible that a catastrophic plan may also limit or provide no coverage for certain services, like prescription medications and other benefits. This will slowly become a thing of the past as 2014 approaches and all plans are required to offer a certain level of benefits.

Should You Want One?

That depends. I would recommend a catastrophic health insurance plan over no health insurance any day of the week. Even a $10,000 deductible will provide a great deal of protection if you were to ever run into a serious medical emergency. Bills for a badly broken leg can exceed $100,000, while you might be on the hook for $10,000 of that, it's much better than having to pay an additional $90,000.

If you think I'm setting the bar too low, chances are you have never been faced with the reality of buying your own health insurance on a very limited budget. It's the harsh reality of the times we live in. Insurance is expensive and money is tight. You need to buy as much protection as you can afford while still paying the mortgage and keeping food on the table.

What Else Should You Know?

Before you go all in on bargain shopping your health insurance, you should know there is one plan that will provide you low monthly premiums and a manageable out-of-pocket maximum. In some circles it's considered catastrophic health insurance, however I like to think of it as one of your smartest options.

These plans are called Health Savings Accounts (HSA) and they should be your first stop if you have ever uttered the words "catastrophic health insurance." You will find they'll almost always offer the best bang for your buck. In addition, you will be able to put your health care dollars to work more efficiently than ever before.

The whole point of catastrophic health insurance is to pay for the the coverage you need instead of what you might need. A HSA, specifically with zero percent coinsurance, will allow you to keep your out-of-pocket costs under control, at the same time paying a reasonable monthly premium.

Once you start comparing prices for HSA's vs. the bargain basement prices of other catastrophic health plans, you will see what I'm talking about.

The Bottom Line

As we move through 2013 and prepare for a whole new health insurance world in 2014 the definition of catastrophic health insurance could change or be eliminated altogether. If you are looking for protection for "just the big stuff" than a plan, like a HSA, focused on the big picture will get you by.

You don't like paying for things you don't use. You don't buy a new sports car to never drive it, or a plasma TV to never watch it. The question you have to ask yourself is, why do you buy health insurance benefits you never intend to use?

Have you consider a catastrophic health insurance plan before? Do you think HSA's sound like a good option for you? Let's hear what you have to say about buying coverage for the big stuff?