What is a Catastrophic Health Plan and What Does it Cover?

HR professionals are responsible for curating and implementing employer-sponsored insurance plans. Due to the complex nature of health insurance, it is only natural that they may face additional questions from employees related to plan options during open enrollment. One type of health plan that HR should at least be familiar with is a catastrophic health plan.

While most organizations do not offer these plans, there may be cases where employees wish to learn more about them. For this reason, we have created a list of some of the most common questions surrounding catastrophic health plans, and how you might best inform your employees. 

Q: What is a Catastrophic Health Plan?

Catastrophic Health Plans are designed to offer those under the age of 30 or those qualified under the hardship exemption, a more inexpensive option for health coverage. Hardship exemption refers to a financial situation that would prevent a person from enrolling in a health plan with greater coverage than a catastrophic plan. The Hardship factor does not abide by the “under 30” rule. The following are reasons for catastrophic plan eligibility under the hardship factor:

• Being evicted

• Homelessness

• Domestic abuse

• Bankruptcy

• Death of a family member

• Natural disaster

While these plans have a lower monthly premium, the deductible is significantly higher. They will cover medical emergency expenses that go beyond the deductible, though they will typically cover 100% of preventative care. 

The caveat to these plans is the high deductible cost. Outside of preventative care, these plans will require you to pay for 100% of your expenses until you meet that deductible. Should you have a medical emergency that requires immediate and expensive care, your catastrophic plan could help alleviate a significant portion of your out-of-pocket costs. 

Q: How Much Will These Plans Cover?

All catastrophic plans include 3 primary care visits per year at no additional cost. They will also cover preventive services as well as the 10 essential health benefits of qualified health plans (QHPs). These benefits include:

1. Ambulatory patient services

2. Emergency care

3. Hospitalizations including surgeries and overnight stays

4. Pregnancy along with newborn care

5. Substance abuse and mental health treatment

6. Prescription costs

7. Rehabilitation services for injuries both mental and physical

8. Lab work

9. Preventative services

10. Pediatric services including oral and vision

Q: Are Catastrophic Plans Financially Practical?

Catastrophic plans may be considered practical for young and healthy adults who primarily utilize their plan for preventative care or basic treatment. For someone in this situation, a plan with more benefits and a lower deductible may not be worth the increased monthly premiums. 

The idea is that if a young adult has no major medical conditions and sees their physician only a few times a year, then they can get by on a “bare-bones” health plan. In this case, a catastrophic plan may be practical. 

In the unlikely event that the covered individual was to incur a major emergency medical expense, they would then pay the deductible and the rest would be covered by the plan. While this can cause a large financial impact on a person due to the high deductible, had the individual had no plan at all the expense could be much larger. 

For qualified individuals, we recommend doing your own research on the types of benefits and coverage you need before purchasing a catastrophic health plan

Q: How Much Do Catastrophic Plans Cost?

For the 2022 plan year, catastrophic health plans will have an individual annual deductible of $8,700. After this deductible is met, all essential health benefit services will be covered at 100% for the rest of the year, provided the services are from in-network providers. Catastrophic plans typically have a lower monthly premium. To determine the cost of the premium, the plan will take into account your age, income, location, tobacco use, and other demographic information. 

With catastrophic plans, you are unable to utilize the premium tax credit or other subsidies to offset the cost of the plan. This may be something for you to consider looking into with the American Rescue Plan recently making tax credit subsidies larger and more accessible. If you have access to subsidies it may be a more prudent option to go with a non-catastrophic plan. 

Q: Who Should Consider a Catastrophic Plan?

If you are healthy and under 30 or qualify under the hardship factor, a catastrophic plan may be an excellent way to save money on your monthly premiums. However, as previously mentioned, stay up to date on your eligibility to use premium tax credits and other subsidies to determine if this option makes the most financial sense for you. 

For those who frequent their physician or have lingering medical bills throughout the year, we encourage you to look into other health plan alternatives as this type of plan may end up not being the most economical.