Catastrophic Health Plans

If you are under 30 or obtained a “hardship exemption” you qualify for a high deductible, low premium, catastrophic plan. Catastrophic health plans are the cheapest plan you can get that counts as minimum essential coverage.

Catastrophic plans can be good for those who want cheap, barebones care. Catastrophic plans tend to trade a low premium for very high out-of-pocket costs and limited benefits.

The Basics of ObamaCare and Catastrophic Health Plans

• Health plans that meet all of the requirements applicable to other Qualified Health Plans (QHPs) but that don’t cover any benefits other than 3 primary care visits per year before the plan’s deductible is met.
• To qualify for a catastrophic plan, you must be under 30 years old OR get a “hardship exemption” because the Marketplace determined that you’re unable to afford health coverage.
• Short-term health plans are sometimes described as “catastrophic coverage,” and so are some “bare bones” bronze plans, but neither is the subject of this page. Short-term health plans don’t avoid the fee under any circumstances (although one can get short term and have an exemption from the fee), bronze health plans count as minimum essential coverage and protect customers from the fee for not having coverage.
• TIP: Catastrophic plans aren’t major medical insurance and don’t count as minimum essential coverage. Given this, under ObamaCare, unless you are under 30 or obtain an exemption from the fee, obtaining and maintaining catastrophic coverage won’t help you avoid the fee. However, if you obtain an exemption that allows you to purchase catastrophic coverage, you can still get catastrophic coverage AND avoid the fee. For example, if you live in a state the didn’t expand Medicaid, and you make between 100%-138 of the poverty level and so would qualify for Medicaid in a state other than yours (but don’t in your state and thus are set to owe the fee), you can get both the exemption from the fee and catastrophic coverage. You could both have coverage and avoid the fee this way. Catastrophic coverage is a great idea for some people, but only if they understand their responsibilities regarding the fee and minimum essential coverage. Since this can get confusing, and since healthcare.gov will need to approve you for catastrophic coverage in most cases, it makes sense to contact healthcare.gov directly.

Catastrophic Health Plans Only Cover Emergencies

Catastrophic health plans have low premiums, high deductibles, and high cost-sharing amounts. Catastrophic plans typically won’t pay any out-of-pocket costs like copays and coinsurance. Deductibles on catastrophic plans will tend to be equal to out-of-pocket maximums; this essentially means coinsurance and deductibles will never factor into what you pay.  Often this means you pay a premium simply to get the same prices for care that your insurer gets and to know you’ll never pay more than your out-of-pocket maximum in an emergency.

Tip: Uninsured people can be charged more than insured people for the same service in the same place because insurance companies have contracts with healthcare providers to set the cost of supplies and services.

Luckily all plans, including catastrophic coverage, have a maximum out-of-pocket cost no more than $6,600 for an individual and $13,200 for a family for 2015 (see current maximums) and must provide at least ten essential benefits as part of their covered benefits.  Although they are not comprehensive coverage, they still count as minimum essential coverage and must cover essential health benefits.  They will also cover a few services like an annual wellness visit, some screenings, and vaccinations at no cost before your deductible. They must also follow all of ObamaCare’s new rules like not being able to deny your coverage or charge you more based on health status.

With a catastrophic plan, you’ll get the bare essentials and will be protected in an emergency, just know you’ll be paying for most of your expenses out-of-pocket.

Can I Get Cost Assistance on a Catastrophic Plan?

Catastrophic plans aren’t sold on the marketplace, and therefore they aren’t eligible for subsidies.

Who Should Get a Catastrophic Plan?

We only suggest catastrophic coverage if it is your only affordable option or you are young and healthy. Specifically:

• You are under 30 and healthy and it is cheaper than the least expensive marketplace plan.
• You don’t qualify for Medicaid because your state didn’t expand coverage.
• You’re employer-based coverage as a dependent will cost more than 8% of your household income.

Alternatives to a Catastrophic Plan

In most cases, you’ll get a better value on a marketplace plan for only a fraction more a month. This is especially true for people who make close to 100% of the Federal Poverty Level. That being said, some people won’t qualify for the marketplace but will qualify for a hardship exemption allowing them to get a catastrophic plan.

Sign up for the marketplace so you know what your options are. If you can afford a Silver Plan, we suggest you buy one; if you can’t, try comparing your catastrophic options to a Bronze plan. If you find a catastrophic plan to be your best option, then look at your options for catastrophic plans. Some higher priced catastrophic plans offer better cost sharing-options like lower deductibles.

How to Get a Catastrophic Plan

To get a catastrophic plan, you must be under 30 or obtain a “hardship exemption.”  To Obtain a hardship exemption, you must meet certain requirements and fill out a form and submit it to the marketplace.

After you submit your exemption application, the Marketplace will review it and determine if you qualify for an exemption from the fee for not having coverage.

The Marketplace will send you a notice of the exemption eligibility result by mail. If you’re granted an exemption, the Marketplace notice will include your unique exemption certificate number (ECN). You’ll need your ECN when you file your federal taxes for the year you don’t have coverage.

ADVICE: the process of getting a hardship exemption and shopping for a catastrophic plan can take time.  Don’t leave it until the last minute.

Catastrophic Health insurance and HSAs

HSAs (Health Savings Accounts) are tax-preferred savings accounts available to those enrolled in health plans (typically high deductible plans).

Employers & employees are allowed to contribute to them. HSAs allow you to set aside tax-free dollars to pay for routine, out-of-pocket health expenses. You also pay no federal taxes on interest earned by your HSA as long as you use the money to pay for eligible medical expenses, as defined by the IRS. Dental & vision are included. Unlike an FSA, HSA funds roll over annually and accumulate, even if an employee changes jobs. The accumulated funds can be removed for non-eligible expenses, but then will be subject Federal Income Tax and 20% penalty. Once an individual qualifies for Medicare, these accumulated funds can still be used tax-free for medical expenses Medicare doesn’t cover or can be used like an IRA or 401k. However, you’ll still have to pay taxes on this, but will not pay a penalty. In addition, should a person decide they no longer want to use a high-deductible health plan, these funds can usually be rolled into an IRA retirement account without being subject to immediate taxation.

FACT: Only someone who chooses a high-deductible or catastrophic health insurance plan can take advantage of an HSA. So if you go with catastrophic health coverage consider pairing it with an HSA.