Catastrophic Health Insurance: What Does It Cover?

Under the Affordable Care Act (ACA), catastrophic health insurance was developed to provide health insurance coverage at a lower cost than many other plan options but with a significantly higher deductible, the amount that must be paid out of pocket before insurance covers most healthcare costs. This helps ensure that qualifying individuals have healthcare coverage for a major illness or accident that causes significant healthcare expenses.

What is catastrophic insurance?

Catastrophic health insurance is designed to serve as a safety net for specific qualifying individuals in case they experience excessive medical costs. These plans are only for individual coverage and are unavailable through group work plans. They are also only available to individuals who meet the plan’s criteria.

Catastrophic insurance has a much higher deductible than most plans. The federal government must set the annual limit for out-of-pocket expenses, so the maximum deductible changes each year. For 2023, the maximum is $9,100; in 2024, it will be $9,450. Once the insured hits that high deductible, the insurance plan pays for additional healthcare expenses.

The plan covers all essential services listed under the ACA — including preventive, emergency, maternity, and newborn care services. In this case, "coverage" means most healthcare service costs must be paid out-of-pocket, but the expenses apply toward the annual deductible. Once that year’s deductible is met, the insurance plan pays for any additional essential healthcare benefits as long as they are provided through in-network healthcare providers. Additionally, those services that apply toward the deductible qualify for a negotiated rate, usually less than they would be without insurance.

What does catastrophic insurance cover?

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While high deductible health plans have been around for decades, how insurance companies define catastrophic plans changed with the ACA’s guidelines. Catastrophic health plans cover the essential health benefits outlined under the Affordable Care Act, meaning these services qualify for the deductible. These include:

• Preventive services, wellness care, and chronic disease management services. Some preventive care services, like flu shots, mammograms, contraception, and others listed under the ACA, may be covered without requiring out-of-pocket payments.
• Ambulatory services. "Ambulatory" means any type of outpatient services, including doctor visits and outpatient hospital care.
• Emergency services. Ambulance and emergency-room services are included in this category.
• Hospitalization. Covered services include inpatient care, surgeries, treatment, lab work, and pharmacy services.
• Maternity and newborn services. This includes maternity care, newborn care, delivery, screenings, and lab work. Prenatal care usually falls under preventive services.
• Lab work. Some laboratory services may be covered under preventive care, while others will require payment toward the deductible.
• Mental health and substance abuse treatment. This includes both inpatient and outpatient care for mental health and substance abuse services.
• Prescription drugs. Vaccines and contraception are included at no cost as preventive care. Other prescription medications fall under this category.
• Habilitative and rehabilitative services. This includes therapy and devices for either regaining abilities (rehabilitation) or gaining skills (habilitation).
• Pediatric health services. This includes healthcare, vision, and dental. Some pediatric services fall under preventive and wellness care.

Most of these services will still have to be paid for out of pocket until the deductible has been completely met. At that point, the insurance provider will cover 100% of additional expenses as long as you use in-network providers and comply with the plan’s guidelines for getting referrals and prior authorizations.

Who qualifies for a catastrophic plan?

The purpose of a catastrophic health insurance plan is to keep the costs low and the deductible high. Insurance companies must provide catastrophic coverage to individuals who likely won’t incur huge healthcare bills. Generally speaking, the younger a person, the less risk they have of having major healthcare issues. That’s why, in most situations, catastrophic insurance is offered to individuals under 30.

There is an exception to this age requirement. Individuals aged 30 and older can still get a catastrophic policy but must qualify for a hardship exemption. A hardship exemption is available to qualified individuals who faced a “hardship” such as homelessness, domestic abuse, a death in the family, and other events that prevented them from being able to get insurance.

In 2018, the federal penalty for being uninsured was removed. However, catastrophic insurance still requires an exemption to purchase a policy for those 30 and older.

How much does a catastrophic plan cost?

The actual cost of a catastrophic plan is based on the applicant's age, location, and the insurance provider. When comparing catastrophic plans to other high-deductible plans, it's important to realize they do not compare apples to apples.

Through the American Rescue Plan and the Inflation Reduction Act, some individuals are eligible for a premium subsidy to help pay monthly health insurance premiums through 2025. These subsidies cannot be used toward catastrophic health insurance plans but may be used toward other high-deductible ACA (bronze) plans. However, bronze plans do not cover non-preventative primary care visits, while catastrophic plans cover up to three primary care visits per year. Additionally, while catastrophic plans do not qualify for subsidies, they are usually less expensive than similar ACA (bronze) plans with subsidies.

Another benefit of a catastrophic plan is that the insurance company negotiates discounted rates for all services, including doctor visits, hospitalizations, lab work, and prescriptions. While you have to pay out of pocket until your deductible is reached, the amount you’ll be billed for each of these services is less than it would be if you did not have insurance. So, even if you don’t meet your deductible, you may save money with a catastrophic plan.

Is catastrophic insurance right for me?

Catastrophic health insurance is designed to be an affordable option for individuals who don’t have other health insurance and want to protect themselves from the costs of serious illnesses or injuries. They also provide some preventative services for free, allow for three visits to your primary care physician, and provide you with negotiated healthcare prices that are generally less than if you did not have insurance. While these plans are not for everyone if you are under age 30 or qualify for a hardship exemption, a catastrophic plan may be an excellent option to provide protection in case of major health issues.