Catastrophic Health Insurance Policies
Catastrophic health insurance is for illnesses that require either long hospital stays or many treatments. It's primarily for bankrupting illnesses but not small medical inconveniences. You don't use it for the occasional doctor's visit or to cover smaller bills that you can pay out of your own pocket. Another name for catastrophic health insurance more frequently used is high-deductible health plans, or HDHPs.
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Deductible
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The deductible on catastrophic health insurance is normally $1,100 or more. This means that the individual pays that amount before the insurance company pays one cent. If you have a family, normally, there's a limit to the number of deductibles necessary before the insurance company participates in payment for the entire family.
Co-Insurance
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Once you meet your deductible in a catastrophic insurance plan, the insurance company pays a portion of the bill until you reach a maximum amount. The amount they pay is a ratio. For instance, in a policy that is 80/20, the insurance company pays 80 percent of the bill and you pay 20 percent until you reach a specified amount.
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Maximum Out of Pocket
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The most you'll pay for you or your family's medical expense is the maximum out-of-pocket expense. The policy normally lists both a family and individual maximum. For an individual, the deductible may be $1,100, and then 80/20 to $5,600. This means that you'd have $28,600 worth of bills before the insurance company pays 100 percent. The first $1,100 is the deductible; after that amount, you'd pay 20 percent until your total bills for the year equaled $28,600. If two family members have a lot of medical expense and hit the family maximum out-of-pocket expense for the year, the insurance company pays all the bills for the family from that point.
Health Savings Accounts
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Congress passed legislation allowing a health savings account (HSA). The account must accompany a high-deductible plan with the deductible at least $1,100, and the maximum out of pocket at least $5,600 for an individual. If you have a family plan, the amounts increase to $2,200 in deductibles and $11,200 maximum out of pocket. The plan is tax-free if used to pay medical expenses, such as the deductible amounts or out-of-pocket amount. It also receives tax deferrals for prescriptions and dental. If your catastrophic plan covers prescription drugs before you meet the deductible, your plan doesn't qualify for the HSA. Any money not used passes to the next year. It remains yours for later use even if you no longer have a catastrophic plan.
Coverage
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Initially, the plan only covered catastrophic illness and routine doctor's care, or in many cases, prescriptions didn't count for either the deductible or payment after the maximum out-of-pocket expense. Trends change with demand and most policies now cover those items, even if just to include them as part of your deductible. Read the terms of the policy before you purchase coverage.
Considerations
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High-deductible plans aren't for everyone. These plans save money on premiums and when combined with an HSA provide lower cost insurance. If you and your family seldom seek the services of a physician, the money you save by using a catastrophic health plan is considerable. If, however, suddenly you have several years with each member creating major expenses, the burden to your budget might be overwhelming. Weigh the pros and cons of all types of policies before you decide the right plan for you and your family.
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