What Is a Catastrophic Insurance Plan?
Understand catastrophic insurance plans: their purpose, who they suit, and how they offer essential financial protection for major medical events.
Health insurance protects individuals from the financial burden of unexpected medical costs. It functions by pooling risk among many individuals, allowing an insurer to create a financial structure, typically involving a monthly premium, to cover specified healthcare benefits. This arrangement ensures that when a person experiences an illness or injury, the insurance company helps pay for services such as doctor visits, medications, and hospital care.
Key Characteristics of Catastrophic Plans
A catastrophic health insurance plan is characterized by its very high deductible and low monthly premiums. These plans offer financial protection against major, unexpected medical expenses, acting as a safety net for significant medical events like serious accidents or illnesses.
The deductible is the substantial amount an individual must pay out of pocket for covered healthcare services before coverage begins. For instance, in 2025, the deductible for an individual catastrophic policy can be around $9,200. Once this deductible is met, the plan typically covers 100% of essential health benefits for in-network services.
The out-of-pocket maximum is generally set at the same amount as the deductible for catastrophic plans. This maximum represents the absolute limit an individual will pay for covered medical expenses within a plan year, ensuring total annual costs are capped. While monthly payments are lower, the individual assumes significant financial responsibility for initial medical costs.
Who Catastrophic Plans Are For
Catastrophic health plans are tailored for individuals seeking protection against major medical emergencies while maintaining low monthly costs. A key eligibility requirement is age, with these plans typically available only to individuals under 30 years old. This age restriction reflects the expectation that younger individuals generally have fewer routine medical needs and are less likely to incur frequent healthcare expenses.
Individuals aged 30 and older may also qualify for a catastrophic plan, but they must obtain a hardship exemption or an affordability exemption. Hardship exemptions are granted for various severe financial or personal circumstances, such as homelessness, eviction, bankruptcy, or substantial debt due to unpaid medical expenses. An affordability exemption may be available if the lowest-cost health coverage, whether through the Marketplace or an employer, would exceed 7.97% of a household’s income.
These plans are a practical choice for those who are generally healthy and do not anticipate needing frequent medical care, but desire a financial safeguard for unforeseen, high-cost medical events. Premium subsidies cannot be applied to catastrophic plans, which might make other plan types, like Bronze plans, more affordable for some who qualify for subsidies.
What Catastrophic Plans Cover
Catastrophic plans are designed to cover essential health benefits (EHBs) once the high deductible has been satisfied. These EHBs, mandated by the Affordable Care Act (ACA), include a broad range of services such as emergency services, hospitalization, prescription drugs, mental health and substance use disorder services, and laboratory services. Once the enrollee meets their substantial deductible, the plan is responsible for 100% of the costs for these covered services for the remainder of the plan year.
Certain preventive services are covered at no cost to the enrollee, even before the deductible is met, as required by the ACA. These services typically include recommended screenings, immunizations, and counseling for various health concerns. Examples include annual check-ups, flu shots, and specific screenings for conditions like depression or diabetes. This upfront coverage of preventive care encourages individuals to maintain their health without immediate out-of-pocket costs.
However, routine medical care, non-emergency prescription drugs, and other common medical needs are generally not covered by the plan until the high deductible has been paid by the enrollee. While catastrophic plans may cover up to three primary care visits per year before the deductible is met, enrollees are typically responsible for copayments for these visits. This structure means that individuals with catastrophic plans will pay for most day-to-day medical expenses directly until their annual out-of-pocket spending reaches the deductible amount.