What Is a Catastrophic Plan, and How Do I Get One?

Healthcare plans available through the Health Insurance Marketplace (AKA Affordable Care Act, AKA ACA, AKA Obamacare) can be purchased at different levels: Bronze, Silver, Gold and Platinum. All of these plans offer the same types of coverage: checkups, pregnancy and birth, emergency room visits, prescription drugs, free preventative care like screenings and shots… The difference is the cost.
The level of plan you choose determines whether you have low monthly premiums with a high cost of care (deductibles, co-pays, coinsurance) or high monthly premiums with a low cost of care. Finding the right mix depends on your budget, your expected medical expenses, and what you feel most comfortable with. Regardless of what plan you choose, you won’t be turned down or forced to pay extra premiums based on pre-existing conditions; that’s one of the ACA guarantees.

There is also another level of plan that we haven’t mentioned, and that’s a Catastrophic plan. Not everybody is eligible for a catastrophic plan, however, and even if you are eligible, it still might not be right for you. Below we explain what these catastrophic plans are, who is eligible, and when you might want to consider one if you qualify.

So what is a catastrophic plan, and who can get it?

As we mentioned earlier, different plans have a different mix of low premiums versus high cost of care, or vice versa. Catastrophic plans come with the lowest premiums and the highest cost of care. If you are young and relatively healthy, you might not access very much medical care, but you still want to be protected from exorbitant medical costs if you get into an accident or suddenly become seriously ill. If this sounds like you, a catastrophic plan might make sense as a way to protect yourself from a worst-case scenario in the cheapest way possible.

Eligibility for a catastrophic plan is rather limited, however. First of all, anyone under 30 years of age is eligible to apply for a catastrophic plan. If you are over 30, though, you can only get a catastrophic plan if you qualify for a hardship exemption or affordability exemption.

To qualify for an affordability exemption, you have to prove that the lowest-cost plan available to you would take up more than 8.27% of your projected annual household income in 2021. The hardship exemption applies to people facing hardships such as homelessness; eviction or foreclosure; utility shutoff; domestic violence; a death in the family; fire, flood, or some other disaster; bankruptcy; medical debt; caring for an elderly or disabled family member; and a few others reasons.

If you qualify for a hardship exemption or affordability exemption, you are exempt from the requirement of having health insurance at all. However, if you can afford a small premium and want some level of protection, then you might consider the benefits of catastrophic plan coverage. Besides coverage for extreme medical costs, these plans also provide essential health benefits and free preventative care like the other plans, plus three primary care visits per year before you’ve met your deductible.

When a Catastrophic Plan Might Not Be the Best Choice

Speaking of deductibles for catastrophic health plans, they are high; over $8,000 in fact. And although premiums are lowest for this level of plan, they are not eligible to be offset by the premium tax credit. This tax credit is a major feature of the ACA that helps millions afford high-quality health care.

It is possible to get what is known as a High-Deductible Health Plan (HDHP) in one of the other tiers of insurance. These plans are typically combined with a health savings account (HSA) funded by contributions from you or your employer. An HDHP combined with an HSA through your work offers a triple tax benefit, and you can use the premium tax credit to offset the already low cost of your premium. For 2021, the total out-of-pocket expenses (in-network) on an HDHP are capped at $7,000 for an individual and $14,000 for a family.

If you are eligible for a catastrophic plan and think it makes sense for you, then it’s probably also worthwhile to crunch the numbers and see if you might be better off choosing an HDHP instead so you can benefit from the tax credit to help you pay your premium.