Trying to find the right health insurance policy for you and your family is tricky business. The whole point of having insurance is to protect yourself in case of an emergency, but when money is tight, you don't want to pay for coverage you don't need. If this situation sounds familiar, a catastrophic insurance policy might be right for you. In this article, we'll examine the pros and cons of catastrophic insurance plans.
Catastrophic insurance is a type of fee-for-service health insurance policy that is designed to give protection against, well, a catastrophe. It is sometimes referred to as a High Deductible Health Plan because low monthly premiums are traded for a significantly higher deductible. This means that with this plan, routine doctor's visits and prescription costs are more expensive, but monthly premiums are lower. So you take on more out-of-pocket expenses in exchange for lower premiums. If you're healthy, you save money. But if something catastrophic happens, you're covered.
Basically, you pay for what you need rather than what you might need. This means that once you meet the deductible, you pay the same percentage of the total visit fee, whether you are seeing a specialist for your diabetes or a general practitioner for a simple physical. Therefore, you are free to follow the best course of action to suit your health care needs.
There are two basic types of catastrophic plan: comprehensive and supplemental. A comprehensive plan offers coverage comparable to more traditional health care plans. There is still a high deductible and monthly fees are still relatively low -- but they're higher than those in supplemental catastrophic plans. The advantage of a comprehensive plan is that you can be covered for emergency services, like a trip to the ER or a ride in an ambulance, but at a lower monthly premium than a traditional plan. A supplemental plan is just that -- it acts as a supplement to other insurance plans you might have. Medical appliances, nursing care and psychiatric care might be included in a supplemental plan.
In both types of catastrophic insurance plans, once your deductible is met the insurance company covers the major medical expenses that it deems necessary, like hospital stays, surgeries, lab tests and intensive care. Like in other insurance plans, elective procedures are not covered.
So, you might have figured out by now that this type of insurance plan isn't for everyone. Let's find out who might benefit from them.
Catastrophic Insurance Candidates
Catastrophic insurance is most popular with the self-employed, those whose jobs do not offer health plans, people with a lower income who are looking for a health care safety net, and healthy adults with low medical needs. The ideal customer for this type of insurance would be a healthy person with few or no monthly prescriptions who doesn't visit a doctor on a regular basis. The older generation that purchases catastrophic insurance does so to limit their financial liability should they have a serious event like a stroke or a heart attack. Also, traditional health insurance is often unaffordable for older people -- if they even qualify for it.
However, trying to minimize health care costs by buying a catastrophic plan could work against you. If you have monthly medical expenses, like prescription drugs or supplies for a chronic condition, this kind of plan won't be of much use to you. There are several conditions that might get you excluded from any health insurance policy, but the list of conditions that would make you ineligible for a catastrophic policy is much longer. In addition, many catastrophic policies contain a clause that suspends coverage for maternity care until after a year of membership.
If you do fit the profile, though, this kind of plan could be perfect for you. That is why it is vitally important to be careful, thoughtful and deliberate when shopping for your health insurance.
Health Savings Accounts and Catastrophic Insurance
A Health Savings Account, or HSA, is an account into which you can make tax-deferred deposits to be used for qualified medical expenses. To get one of these tax-friendly accounts, you must be enrolled in a catastrophic insurance plan. There are several benefits to having a HSA: The funds stay with you even if you leave your employer or end participation in the catastrophic insurance plan, and you can invest the money accrued in your HSA, with all earnings sheltered from taxation.
For more information about catastrophic insurance, take a look at the links on the next page.
Is Catastrophic Health Insurance Right For You?
- Do you get sick very often? Those who are often at the doctor's office would probably not benefit from catastrophic insurance, and those with chronic conditions would not qualify at all.
- Do you need monthly medications or medical supplies? A high deductible, sometimes as much as $5,000, needs to be paid before these medications or supplies would be covered.
- How much can you afford to pay out of pocket for medical care? If you don't have the money to afford your high deductible at a moment's notice, like in the case of a car accident, this insurance isn't right for you.
- How broad do you want your health plan to be? -Once you meet the deductible, catastrophic insurance will pay for all health care expenses deemed necessary.