Catastrophic health insurance is a specific type of individual (non-group) health coverage defined under theAffordable Care Act.
This article will explain what catastrophic health plans are, the rules and regulations that apply to them, who is eligible to enroll in one, and what you should consider before choosing a catastrophic plan.
Prior to the ACA, “catastrophic coverage” was a generic term that referred to any sort of health plan with high out-of-pocket costs and limited coverage for routine health needs.
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Catastrophic plans: What They Cover and How They Work
Catastrophic plans will serve as a financial safety net in case you have very high medical costs during the year. They also includethe same fully covered preventive care benefitsthat all ACA-compliant plans provide, as well as three non-preventive office visits per year that are covered withcopays, even if you haven’t met your deductible yet.
And although most services are counted towards thedeductibleuntil you meet it,essential health benefitsare covered on all catastrophic plans. Note that “covered” means that the costs count towards the deductible until you meet it, and then the health plan pays for the rest of your essential health benefits needs for the remainder of the year.
But other than specific preventive care and up to three non-preventive office visits, you have to meet your deductible before your catastrophic health plan will start to pay for your care. However, you will be able to pay the health plan’s negotiated rates during this time, instead of having to pay the full amount that the medical provider bills.
The deductible on a catastrophic health plan is so high that most enrollees don’t meet it in a given year. It’s equal to themaximum out-of-pocket amountthat’s allowed under federal rules, so for 2023, it’s $9,100.(For 2024, this will increase to $9,450,but it will then decrease to $9,200 in 2025.)
That means there’s nocoinsuranceon catastrophic plans—once you hit the deductible, the plan will start to pay for 100% of your covered services for the rest of the year.
So if you do end up with a year where you have very high medical costs, your catastrophic plan will kick in and start to pay your expenses. And racking up more than $9,100 in medical costs (or whatever the limit is in a given year) is much easier than you might think it would be. Any sort of inpatient hospital care is almost guaranteed to get you there, and so are a lot of outpatient procedures.
What Defines a Catastrophic Health Plan
Catastrophic health insurance offered on the Affordable Care Act’shealth insurance exchanges(andoutside the exchanges):
The deductibles on catastrophic health plans tend to be much higher than the deductibles on other plans, although it’s common to seebronze planswith similar out-of-pocket maximums and deductible that are nearly as high.
(Theactuarial valueof a catastrophic plan has be less than 60%, which can overlap with the actuarial value of a bronze plan. But bronze plans and catastrophic plans are not in the same pool for risk adjustment, which allows catastrophic plans to have lower premiums even with fairly comparable benefits.)
But it’s common to see bronze plans with slightly lower deductibles and then some level of coinsurance until the out-of-pocket maximum is reached, whereas the deductible on a catastrophic plan uses up the full out-of-pocket maximum.
Once you’ve paid enough out of your own pocket to meet the deductible, your catastrophic health insurance plan will start paying for 100% of your covered health care expenses, as long as you stayin-networkand follow the plan’s rules for things likereferralsandprior authorization.
Catastrophic Plans: What’s a covered health care expense?
A catastrophic plan has to cover the sameessential health benefitsthat all of the otherObamacarehealth plans have to cover. For example, it must cover medically necessary care like doctor visits, inpatient care, surgeries, blood tests, maternity care, mental health care, and substance abuse treatment. However, it won’t start paying for those benefits until you’ve paid your deductible.
There are two exceptions to that rule:
During the COVID public health emergency, catastrophic plans were allowed (but not required) to pay fortelehealth servicesbefore the member had met their deductible. That flexibility ended with the end of the public health emergency, in May 2023.
Who Can Buy a Catastrophic Plan?
Only certain people qualify to buy catastrophic health insurance in the individual insurance market. You have to either be under the age of 30 or have a hardship exemption (which includes affordability exemptions) from theACA’s individual mandate penalty.
The federal government hasexpanded the list of circumstancesthat make people eligible for hardship exemptions, so more people than ever before are able to purchase catastrophic plans.
And even though the federal penalty for being uninsured was eliminated after the end of 2018, an exemption is still necessary in order to buy a catastrophic plan if you’re 30 or older.Here’s the page on HealthCare.gov where you can find the exemption form.
Very few people enroll in catastrophic plans, due to the limited eligibility rules and the fact that premium subsidies cannot be used with catastrophic plans. In addition, there are some areas of the country where no insurers offer catastrophic plans.
During the open enrollment period for 2023 coverage, only 0.4% of all Marketplace enrollees nationwide opted for catastrophic plans: Just over 64,000 people, out of more than 16 million enrollees.
How Much Does a Catastrophic Plan Cost?
If you’re eligible for apremium subsidytohelp you payyour monthly health insurance premiums, youcan’t use that subsidy with a catastrophic health plan. You have to pick abronze, silver, gold, or platinumplan to use the subsidy.
It’s important to note here that premium subsidies are larger and more widely available through the end of 2025, as a result of the American Rescue Plan andInflation Reduction Act.
Some bronze plans have deductibles nearly as high as catastrophic plans (and total out-of-pocket costs that are equal to those on catastrophic plans), but no coverage for non-preventive primary care visits before the deductible.
Although premium subsidies can’t be used on catastrophic plans, a healthy young person who doesn’t qualify for premium subsidies might find a catastrophic plan to be a better deal than a bronze plan.
Although bronze plans tend to have out-of-pocket maximums that are the same as catastrophic plans, the catastrophic plans are generally less expensive. This is due in large part to the fact that catastrophic plans are pooled separately for risk adjustment calculations(here’s the risk adjustment report for the 2022 plan year; you can see that catastrophic plans are in a separate category, and only share risk adjustment dollars with other catastrophic plans).
Hidden Benefit of Catastrophic Health Insurance
Even if you don’t spend enough on health care to meet your catastrophic health plan’s deductible, you’ll still pay less on out-of-pocket medical expenses with a catastrophic plan than if you had no health insurance coverage at all.
A catastrophic plan can be anHMO, PPO, EPO, or POSplan. These plans all negotiate discounted rates with the doctors, hospitals, labs, and pharmacies that are in their network of providers. As a subscriber to the catastrophic health plan, you get the benefit of these discounted rates even before you’ve paid your deductible.
Here’s an example. Let’s say you haven’t met your catastrophic plan’s deductible yet. You injure your ankle and need an ankle X-ray. The billed charge for your X-ray is $200. Without your catastrophic health insurance, you’d have to pay $200 out-of-pocket.
Now let’s say that the in-network discount rate for health plan members is $98. Since you’re a member of the health plan using an in-network X-ray facility, you’ll only have to pay the $98 discounted rate. You’ll pay $102 less than you’d pay if you were uninsured.
Catastrophic Health Insurance and High-Deductible Health Plans Are Not the Same Things
It’s easy to make the mistake of thinking that a catastrophic health insurance plan is the same thing as ahigh deductible health plan (HDHP). After all, a catastrophic plan has a high deductible, so it must be a high-deductible health plan, right?
Wrong. And in fact, there is zero overlap between the two: Catastrophic plans can never be HDHPs. A qualified HDHP is a very specific type of health insurance designed to be used with ahealth savings account(HSA).
If you enroll in a catastrophic plan, you will not be able to contribute to an HSA, since the plan is not an HDHP. And if you enroll in an HDHP, you will not get three primary care visits covered with copays, since HDHPs cannot provide those.
Summary
Although “catastrophic coverage” used to be a generic term that could refer to any plan with fairly high out-of-pocket costs and limited benefits for day-to-day medical expenses, that is no longer the case.
A Word From Verywell
If you’re enrolled in a catastrophic plan because you weren’t previously subsidy-eligible, you may find that it’s in your best interest to switch to a metal-level plan if you’re now subsidy-eligible. Open enrollment for 2024 coverage continues until mid-2024 in most states. After that, if youexperience a qualifying event in 2024 that allows you to change plans, you’ll want to double-check your subsidy eligibility and consider switching to a metal-level plan if you’re eligible for subsidies.
On the other hand, if you’re not eligible for subsidies and have the option to purchase a catastrophic plan, you might find that it’s less expensive than a bronze plan, and will likely provide fairly similar coverage.
7 SourcesVerywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Norris L. healthinsurance.org.What is the ACA’s catastrophic plan and who is eligible?Centers for Medicare and Medicaid Services; Center for Consumer Information and Insurance Oversight.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2023 Benefit Year. December 28, 2021.Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2024 Benefit Year. December 12, 2022.Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2025 Benefit Year. November 2023.U.S. Department of Health and Human Services.Risk Adjustment (RA) FAQ Guidance for FAQ regarding Risk Adjustment Operations and Policy.Congressional Research Service.Federal Telehealth Flexibilities in Private Health Insurance During the COVID-19 Public Health Emergency: In Brief. February 14, 2023.Centers for Medicare and Medicaid Services.2023 Marketplace Open Enrollment Period Public Use Files.Additional ReadingHouse.gov.Text of the Affordable Care Act. Section 1303(e).
7 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Norris L. healthinsurance.org.What is the ACA’s catastrophic plan and who is eligible?Centers for Medicare and Medicaid Services; Center for Consumer Information and Insurance Oversight.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2023 Benefit Year. December 28, 2021.Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2024 Benefit Year. December 12, 2022.Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2025 Benefit Year. November 2023.U.S. Department of Health and Human Services.Risk Adjustment (RA) FAQ Guidance for FAQ regarding Risk Adjustment Operations and Policy.Congressional Research Service.Federal Telehealth Flexibilities in Private Health Insurance During the COVID-19 Public Health Emergency: In Brief. February 14, 2023.Centers for Medicare and Medicaid Services.2023 Marketplace Open Enrollment Period Public Use Files.Additional ReadingHouse.gov.Text of the Affordable Care Act. Section 1303(e).
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Norris L. healthinsurance.org.What is the ACA’s catastrophic plan and who is eligible?Centers for Medicare and Medicaid Services; Center for Consumer Information and Insurance Oversight.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2023 Benefit Year. December 28, 2021.Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2024 Benefit Year. December 12, 2022.Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2025 Benefit Year. November 2023.U.S. Department of Health and Human Services.Risk Adjustment (RA) FAQ Guidance for FAQ regarding Risk Adjustment Operations and Policy.Congressional Research Service.Federal Telehealth Flexibilities in Private Health Insurance During the COVID-19 Public Health Emergency: In Brief. February 14, 2023.Centers for Medicare and Medicaid Services.2023 Marketplace Open Enrollment Period Public Use Files.
Norris L. healthinsurance.org.What is the ACA’s catastrophic plan and who is eligible?
Centers for Medicare and Medicaid Services; Center for Consumer Information and Insurance Oversight.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2023 Benefit Year. December 28, 2021.
Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2024 Benefit Year. December 12, 2022.
Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2025 Benefit Year. November 2023.
U.S. Department of Health and Human Services.Risk Adjustment (RA) FAQ Guidance for FAQ regarding Risk Adjustment Operations and Policy.
Congressional Research Service.Federal Telehealth Flexibilities in Private Health Insurance During the COVID-19 Public Health Emergency: In Brief. February 14, 2023.
Centers for Medicare and Medicaid Services.2023 Marketplace Open Enrollment Period Public Use Files.
House.gov.Text of the Affordable Care Act. Section 1303(e).
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