Catastrophic Health Insurance Overview

Nurses and doctors wheeling a patient on a gurney

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Catastrophic health insurance is meant as a financial safety net in case you have a health catastrophe. It won’t pay for everyday health problems but will pay when you have very expensive health care needs. Because of this, catastrophic health plans usually cost less than other health plans.

If you want health insurance that will pay for health care needs like sprained ankles and the flu, a catastrophic plan is not for you. If you can pay for your routine health care needs and only want your health insurance to cover you in the event of a health catastrophe like needing emergency surgery, then catastrophic coverage might be just what you’re looking for.

The yearly deductible for catastrophic health insurance is so high that most healthy people won’t ever pay it; the year will be over before they’ve spent that much on health care. However, if you have really expensive health care needs, a catastrophic plan will kick in and start paying after you’ve paid the large deductible.

The term "catastrophic" is often used to describe any health plan with a high deductible. But under the Affordable Care Act, it's a specific type of plan, offered in the individual market, and it's differentiated from other high deductible options. As defined by the ACA, catastrophic plans are not available as employer-sponsored coverage (in layman's terms, people often refer to high deductible employer-sponsored plans as "catastrophic coverage" but the term is only officially used to define a specific type of individual market coverage).

What Defines a Catastrophic Health Plan

Catastrophic health insurance offered on the Affordable Care Act’s health insurance exchanges (and outside the exchanges)

  • Has a very high deductible.
  • Covers all of the essential health benefits.
  • Limits who can enroll. Not everyone is eligible to buy a catastrophic plan.
  • Can’t be used with a health insurance subsidy to help pay the monthly premiums.

Catastrophic plans offered on state and federal health insurance exchanges have a very high deductible compared to other types of plans. For example, catastrophic plans offered in 2018 have a deductible of $7,350 for an individual. In fact, the deductible for catastrophic plans is the same as the out-of-pocket maximum. The deductible for your catastrophic health plan will increase each year as the government allows increases in the out-of-pocket maximum (in 2014, it was $6,350, and has grown each year since then).

Once you’ve paid enough out of your own pocket to meet the deductible, the catastrophic health plan will start paying for your covered health care expenses. In most cases, if you stay in-network, your catastrophic plan will pay 100% of your covered health care expenses once you’ve paid the deductible.

What’s a covered health care expense? A catastrophic plan has to cover the same essential health benefits that all of the other Obamacare health plans have to cover. For example, it must pay for things like doctor visits, blood tests, maternity care, mental health care and substance abuse treatment. However, it won’t start paying for those benefits until you’ve paid your huge deductible.

There are two exceptions to that rule:

  • Catastrophic health insurance must pay for preventive health care even if you haven’t paid your deductible. This includes things like your yearly flu shot, screening mammogram, well-woman visit, and contraception.
  • Catastrophic health plans must pay for you to see your primary care provider three times per year without having to pay the deductible first.

Who Can Buy a Catastrophic Plan?

Only certain people qualify to buy catastrophic health insurance in the individual insurance market. You have to either be under the age of 30 or have a hardship exemption (which includes affordability exemptions) from the ACA's individual mandate penalty. The federal government has expanded the list of circumstances that make people eligible for hardship exemptions, so more people than ever before are able to purchase catastrophic plans.


If you’re eligible for a health insurance subsidy to help you pay your monthly health insurance premiums, you can’t use that subsidy with a catastrophic health plan. You have to pick a bronze, silver, gold, or platinum plan to use the subsidy.

Some bronze plans have deductibles nearly as high as catastrophic plans (and total out-of-pocket costs that are equal to those on catastrophic plans), but no coverage for primary care visits before the deductible. Although premium subsidies can't be used on catastrophic plans, a healthy young person who doesn't qualify for premium subsidies might find a catastrophic plan to be a better deal than a bronze plan.

Although bronze plans tend to have out-of-pocket maximums that are the same as catastrophic plans, the catastrophic plans are generally less expensive. This is due in large part to the fact that catastrophic plans are pooled separately for risk adjustment calculations (here's the 2017 risk adjustment report; you can see that catastrophic plans only share risk adjustment dollars with other catastrophic plans). Bronze plans tend to be selected by fairly healthy applicants, but that means the insurers with significant bronze plan enrollment generally have to send money (via the risk adjustment program) to insurers that tend to enroll less healthy people, who may select silver or gold health plans. But catastrophic plans, which also tend to be selected by young, healthy people, don't have to send risk adjustment money to balance out the risk in metal-level plans. This helps to keep prices lower for catastrophic plans.

Hidden Benefit of Catastrophic Health Insurance

Even if you don’t spend enough on health care to meet your catastrophic health plan’s deductible, you’ll still pay less on out-of-pocket medical expenses with a catastrophic plan than if you had no health insurance coverage at all. Most catastrophic plans are an HMO, PPO, EPO, or POS plan. These plans all negotiate discounted rates with the doctors, hospitals, labs, and pharmacies that are in their network of providers. As a subscriber to the catastrophic health plan, you get the benefit of these discounted rates even before you’ve paid your deductible.

Here’s an example. Let’s say you haven’t met your catastrophic plan’s $7,350 deductible yet. You injure your ankle and need an ankle X-ray. The rack rate for your X-ray is $200. Without your catastrophic health insurance, you’d have to pay $200 out-of-pocket. Now let's say that the in-network discount rate for health plan members is $98. Since you’re a member of the health plan using an in-network X-ray facility, you’ll only have to pay the $98 discounted rate. You’ll pay $102 less than you’d pay if you were uninsured.

Beware When Shopping for Catastrophic Health Insurance

It’s easy to make the mistake of thinking that a catastrophic health insurance plan is the same thing as a high deductible health plan or HDHP. After all, a catastrophic plan has a high deductible, so it must be a high deductible health plan, right?


A qualified HDHP is a very specific type of health insurance designed to be used with a health savings account. Learn the difference between an HDHP and a catastrophic plan, and what might happen if you buy a catastrophic plan when you thought you were buying an HDHP.

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