Why Catastrophic is Better than No Health Insurance at All

March 18, 2013

Catastrophic Health Insurance Covers Broken LegA lot of people are turned off by the very mention of catastrophic health insurance. It may be that some see it as inadequate coverage, while others see it as a mystery concept filled with unimagined traps. But is that the real truth? In most cases having catastrophic is better than having no health insurance at all.

The Usual Arguments Against Catastrophic Health Insurance

There’s actually nothing mysterious about catastrophic health insurance at all. It’s simply a regular health insurance plan with a fairly high deductible. There is no deductible level at which a policy becomes catastrophic, so it’s mostly a matter of personal interpretation.

Most people are accustomed having a deductible that is somewhere in the range of $1,000-$2,500, so anything much above that range could qualify as catastrophic. More realistically, catastrophic plans begin with deductibles that start around $5,000, and can go as high you like.

That’s the part that scares people. If you have a deductible of $5,000, $10,000, or $20,000, you as the policyholder will be on the hook for most medical expenses in most years. But let’s face it, typically we don’t incur medical costs that high in most years. It can seem is if you’re paying health insurance premiums but still having to pay out-of-pocket for all of your medical costs.

Some people will go so far as to go without health insurance rather than to pay for a catastrophic plan. That line of thinking misses the point. Catastrophic health insurance does provide very important coverage – coverage you should not be without.

Having the Really Big Medical Events Covered

The true purpose of health insurance isn’t to cover every little medical expense that you have, but rather to cover the really big medical events that you can’t afford to pay for yourself. Catastrophic health insurance will do that.

Let’s say that you have a $10,000 deductible on your health insurance – which certainly qualifies it as a catastrophic plan. While it is true you will have to pay the first $10,000 of expenses out of your own pocket, the plan would begin paying benefits once you reach that threshold. In today’s world, where a single, significant operation could cost well over $100,000, your catastrophic plan would provide welcome financial relief, paying most of the bill.

The real purpose of health insurance is to cover medical disasters, and catastrophic plans will do that for you. In addition, they can give you treatment options that you won’t be able to afford if you have no insurance at all.

Participating in the Healthcare Provider Network Discount

Every health insurance company uses a healthcare provider network as a way of simplifying the reimbursement process, and holding costs down. But there is a big advantage to the policyholder for using the network. Every medical provider within the network must provide their services at a discounted rate.

What this means for you, as the policyholder, is that all services will be discounted even if they are not reimbursed by the insurance plan because of the high deductible. The financial advantage to this is substantial. Medical providers typically discount their bills by anywhere from 40% to 80% of the full amount.

Even if you had a medical bill for $10,000 that your insurance company wouldn’t pay because it’s within the deductible, if the provider discounts the bill by 60%, you’ll only have to pay $4,000. If you had no insurance at all, you’d be responsible for the full $10,000.

A Pass into the Healthcare System

All health insurance companies provide a benefit card that you can use to gain admission to a hospital or nearly any covered medical facility in the country. Just having that card makes it easier and quicker for you to get medical treatment. It also avoids the unpleasant task of having to either pay a substantial amount of money upfront, or to provide a list of assets or income information proving your ability to pay.

It will also mean that a medical provider will be less reluctant to suggest additional treatment. Just having the benefit card is a tremendous advantage all by itself. A catastrophic health insurance plan – like all other health plans – will provide you with that card.

More Affordable Premiums!

Though it can seem unfair to have to pay thousands of dollars for medical treatment when you have a health insurance policy, the primary benefit of this is in the lower premiums.

As an example, for a family of four (parents both age 40, with two children) it costs $432 a month for a health insurance plan with a $2,000 deductible through Assurant. The same coverage with a $5,000 deductible however drops to $277 a month. If affordability is the issue, catastrophic health insurance may be the answer.

It’s not a perfect plan, but it’s way better than having no health insurance at all.

Have you ever had catastrophic health insurance? How did it (or does it) work for you? Leave a comment!


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Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

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