Catastrophic Health Insurance

Buying health insurance requires a certain amount of research before you even begin comparing insurance quotes and part of that research is learning the terminology and types of health insurance that are available. Previous articles have covered the two basic types of health insurance – indemnity plans and managed care plans – and this article covers a specialty subset of health insurance, catastrophic health insurance, also known as high deductible health plans (HDHPs).

What is catastrophic health insurance?

In a nutshell HDHPs offer you very low premiums in exchange for a high deductible for all health care below a certain level – typically $2500 to $5000. This means you cover all your health care costs until you reach the deductible threshold set by your catastrophic health insurance policy. The idea is you are responsible for your basic health care needs, but you are covered in the event of a catastrophe such as surgery or emergency health care that exceeds your deductible.

Combining HDHPs with Health Savings Accounts (HSAs) lets you roll the unused money paid into the HAS into the next year to continue building savings toward more serious and expensive medical care as you get older. If you are in good health carrying catastrophic health insurance along with an HAS gives you peace of mind you are covered in the event you are hit with a substantial medical bill.

One key aspect of HDHPs is you must have enough cash on hand, or savings, to cover your basic medical preventative and routine care because catastrophic health insurance will not cover any medical bills until you meet your deductible. Another aspect of HDHPs to keep in mind is they are not designed for anyone who is seriously, or chronically, ill.

Did you know? Combining HDHPs with HSAs lowers your taxable income.

Takeaways:

1. Catastrophic health insurance trades off a very low premium for a very high deductible.
2. If you are in good health you can combine HDHPs with HSAs to build health care savings for later in life.
3. Catastrophic health insurance is not designed for seriously, or chronically, ill people.

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