Health insurance in the United States can be a very confusing topic, mainly because the rules have had some big changes in the past couple of decades.
Today, the Obamacare individual mandate that required individuals to have health insurance or pay a tax penalty is no longer a federal law. While the mandate is gone in many places, one thing that came out of required health care is a marketplace of affordable coverage that is available to everyone, regardless of occupation or employer.
The Health Insurance Marketplace is designed to help people shop for health insurance and enroll in plans that best suit their situation. One of those options is catastrophic health insurance.
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What is Catastrophic Health Insurance?
Catastrophic health insurance is designed to offer coverage only in the most severe situations, making it one of the least expensive health coverage options. Most of these plans have a very high deductible, leaving the policyholder with a lot of out-of-pocket expenses, but once that deductible is fulfilled, coverage kicks in.
This is very useful if you’re someone who is healthy and/or young and typically doesn’t have much in the way of medical expenses. You can save money with a low monthly premium and only pay if you need health care. The best part is that if you have a serious illness or are in an accident (a catastrophic event), which can be very costly, your insurance will cover the expenses after your deductible is met.
How Does Catastrophic Health Insurance Work?
Catastrophic health insurance is designed to cover unexpected emergency medical costs that would otherwise be impossible for the individual to cover. It also includes some essential health benefits that include preventative health care services, screenings, vaccinations, and annual check-ups.
However, there are a lot of limits and restrictions on catastrophic health insurance making it a poor option for many people. It’s not designed to be for everyone. This plan’s main benefit is that if there is an emergency situation, once the deductible is reached, all or most of the expenses will be covered.
In exchange for this limited coverage and high deductible, the monthly premiums for catastrophic health insurance are very low. If this sounds great to you, it’s important to note that not everybody qualifies for catastrophic health insurance.
Who Is Eligible for Catastrophic Health Insurance?
Catastrophic plans are not available to everyone. You can buy catastrophic health insurance if you are under 30 years of age, or you qualify for a hardship exemption or affordability exemption.
The affordability exemption is tied to your income and the insurance options available to you, excluding catastrophic. Getting this exemption is determined by looking at the cost of other options through the Marketplace or any qualifying job-based insurance coverage and then comparing that to your income. If those available insurance options would cost more than 8.09% of your household income, then you qualify for the affordability exemption.
A hardship exemption is a bit more involved and there are several criteria that can apply. Some of the circumstances that qualify for a hardship include:
- Being evicted
- Suffering domestic violence
- The death of a family member
- Disasters that cause substantial damage to your property
- Filing for bankruptcy
- Extreme medical expenses
- Other hardships, which are considered on a case-by-case basis
These situations are not a guarantee of catastrophic insurance coverage, but they are situations that can lead to you being approved for the hardship exemption.
Advantages of Catastrophic Health Insurance
The biggest advantage of catastrophic health insurance is that it is affordable and steps in if you suffer a health-related emergency. This can protect you from a financially devastating illness or injury by paying bills after the deductible is paid.
In addition to that, there are some routine and preventative expenses that are covered so you don’t have to skip annual check-ups and vaccines because of the costs. You’re still able to maintain your basic health care needs without added expense.
Disadvantages of Catastrophic Health Insurance
There are a few disadvantages to catastrophic health insurance, the first is that there is a large deductible, which can mean most, or all of your health care expenses will be paid by you. This coverage only steps in after you reach that amount and odds are good that you’ll never hit it.
Another drawback of this type of health care is that they don’t cover many routine healthcare situations, which can prompt people to avoid medical intervention when it’s necessary. You might find that your prescriptions, dental, and optometrist expenses aren’t covered.
How To Get Catastrophic Health Insurance
If you qualify for catastrophic health insurance or you want to try to get an exemption, your first step is to shop around and look at the available options for purchase. The Health Insurance Marketplace will have some options for you, and you’ll also find that some of the major health insurance carriers also have catastrophic plans.
Once you have found a plan you like with a price you can afford, it’s time to check what the next step requirements are for that company. If there is an insurance agent you can speak with directly, that’s often the best approach, especially if you’re looking for an exemption. Otherwise, there will be paperwork to complete on the insurance carrier’s website that will get you started.
Can Catastrophic Health Insurance Be Combined with Health Savings Accounts (HSAs)?
If you’re employed by a company that offers a Health Savings Account (HSA), or you have an HSA through the Health Insurance Marketplace, you can combine your HSA with catastrophic health insurance.
An HSA puts aside a certain amount of money from each of your paychecks to be applied toward health and medical expenses. The benefit is that this amount is put aside tax-free, so you are using the full amount, not the net amount after taxes are taken out.
Additionally, the amount you deduct for your HSA comes out of your gross pay before taxes, so you’re only paying taxes on the amount you receive after that, which lowers the amount you have to pay in taxes for the year.