Short term medical insurance options: What is catastrophic health insurance?

Information on catastrophic health insurance that covers large, unforeseen medical expenses.

If you are self-employed or your company doesn’t offer health insurance cover, you may want to consider catastrophic health insurance.

This insurance covers major medical expenses such as hospital stays, surgeries, intensive care and diagnostic investigations. Also referred to as major medical plans, catastrophic insurance plans have high deductibles and low premiums. Deductible is a threshold of expense. You have to pay all expenses below this threshold out of your pocket.

Catastrophic health plans typically have a deductible around $500 or more per year. Above the deductible, most insurers reimburse 80 percent of eligible expenses with a maximum annual cap. Some insurers reimburse up to 70 percent with no limit or cap.
Why do insurers pay only a percentage of the expenses? That’s because they want the insured to share the medical costs. This is also called coinsurance or percentage participation. For instance, if you opt for an 80/20 coinsurance provision, the insurer will pay only 80 percent of eligible medical expenses above the deductible, while you have to shell out the remaining 20 percent.

So what happens if there is indeed a catastrophic event, like a heart attack or a major illness, where the expenses are extremely high, and the 20 percent suddenly looks like a mountain of debt? Don’t worry. Many plans contain a coinsurance cap or a limit on your out-of-pocket expenses. The cap varies from insurer to insurer and plan to plan. Beyond this cap, the insurer reimburses all expenses even if it is more than 80 percent.

Catastrophic health plans usually cover expenses incurred on hospitalization, surgeries, physicians (non-surgical), intensive care, private nursing, diagnostics, laboratory services and ambulance services. Most do not cover custodial or convalescent care, routine doctor visits, pre-existing conditions, cosmetic surgery, routine dental and eye care and occupational injuries or illnesses.

Catastrophic health insurance is essentially a gamble. You get lower premiums because you are willing to forgo cover for small, routine expenses. But you remain covered for major and unforeseen illnesses or medical expenses.

These plans are attractive to two groups of people: young adults (in their 20s) and senior citizens (above 50). The former buy this form of insurance because they are not covered by their employers or are self-employed. Senior citizens, on the other hand, buy catastrophic health insurance as cover for expenses against serious illnesses.

Things you should ask yourself before you buy major medical insurance.

1. How much premium are you willing to pay?
2. What deductible are you comfortable with? In other words, how much out-of-pocket expenses on routine medical needs can you bear.
3. What is the extent of coverage you need? For instance, do you want prescription drugs covered? Do you want maternity care covered?
4. Do you have a pre-existing condition?
5. How much lifetime annual benefit do you want?
6. How much coinsurance are you willing to pay? Up to what limit?

Answers to these questions will determine the kind of plan you should opt for.