- Enrollment in catastrophic plans is limited to specific populations — and enrollment isn’t an easy process for applicants who are 30 or older.
- Catastrophic plans are available in and out of ACA’s exchanges
- Catastrophic plans cover all of the ACA’s essential benefits
- Subsidies can’t be used with catastrophic plans
- Catastrophic plans are not HSA-qualified
- Less than 1% of exchange enrollees select catastrophic plans
Q. I’ve always had a high deductible plan, and I’m happy with my coverage. I’ve heard that the ACA allows for a catastrophic plan. Is that the best option for me?
A. Although the term “catastrophic plan” has long been used as a generic catch-all phrase to describe health plans with high deductibles and little coverage for routine care, the ACA assigned strict parameters to the term: Catastrophic plans have limited eligibility guidelines, cannot be purchased with premium subsidies, and must provide certain limited benefits to enrollees before the deductible is met. [Details are available in the text of the ACA, section 1303(e).]
And for the purposes of the ACA’s risk adjustment program, catastrophic plans are in a separate risk pool from the metal-level plans, although they’re in the same general shared risk pool. This means that within a state, catastrophic plans transfer risk adjustment funds with other catastrophic plans, but not with metal-level plans. This is the primary mechanism by which catastrophic plans have lower prices than bronze plans.
Only certain populations can purchase catastrophic plans
Catastrophic plans are only available to people under age 30, or people 30 and older who qualify for a hardship exemption (which means that due to economic hardship — or certain other hardships, like the death of a family member — the person is not required to maintain health insurance coverage). Regardless of age or income, catastrophic plans used to be available for people whose health insurance policies were canceled because they were not ACA compliant, but that exemption ceased to be available after the end of 2016.
Although the ACA’s individual mandate penalty was eliminated after the end of 2018, the mandate itself continues to exist — there just isn’t a penalty for noncompliance anymore. So people can still seek hardship exemptions from the mandate in order to gain access to catastrophic plans (affordability exemptions are included under the general hardship exemption category, as described below). And the Trump administration expanded access to hardship exemptions in April 2018, allowing exemptions for people in areas where all plans cover abortions, areas where only one insurer (or zero insurers) offers plans in the exchange, or where a personal hardship is created due to the plan options available in the exchange.
In particular, the provision for people in areas where just one insurer offers plans in the exchange makes a hardship exemption available to far more people, allowing them to potentially purchase a catastrophic plan (albeit without premium subsidies, making this a realistic alternative only for people who aren’t otherwise eligible for subsidies).
Enrollment is low, partially because people don’t know they’re eligible for catastrophic plans
However, obtaining a hardship exemption is not always a quick process, and catastrophic plans don’t automatically show up on the list of available plan options for people who are 30 or older. So it’s possible that many applicants are unaware that they could seek a hardship (including affordability) exemption and obtain a catastrophic plan. A knowledgeable broker can inform applicants about catastrophic plans and guide them through the process of obtaining an exemption, but as described in this letter from a broker in Colorado, the process isn’t necessarily easy or seamless even with assistance.
During the 2019 open enrollment period, only 92,460 people enrolled in catastrophic plans, out of 11.4 million exchange enrollees nationwide. The fact that premium subsidies can’t be used with catastrophic plans is a primary reason for the low uptake of catastrophic plans. But for the population that isn’t eligible for premium subsidies (each year, roughly 15 percent of exchange enrollees pay full price), catastrophic plans would likely be much more popular than they currently are if the plans were displayed among the available options in the browsing tools used by the exchanges.
This could be accomplished automatically for affordability exemptions and there could also be a question in the plan browsing tool that asks the applicant if they’re eligible for and seeking a hardship exemption. Exemptions based on affordability are granted to people for whom the lowest-cost plan in the exchange would be more than 8.3 percent of their modified adjusted gross income (MAGI) in 2019 (this is dropping to 8.24 percent in 2020).
So for example, a single person with a MAGI of $50,000 (who can’t adjust their MAGI downward with contributions to an IRA and/or HSA) would not be eligible for any premium subsidies. If they’re under 30, they’re automatically eligible for a catastrophic plan. But if they’re 30 or older, they can qualify for a catastrophic plan — based on the affordability exemption — if the cheapest available metal-level plan is more than about $345/month (that’s 8.3 percent of their $50,000 MAGI, divided by 12 to get the monthly amount). For a young person, it’s common to see lowest-cost metal-level plans well below that amount. But for an older applicant, the cheapest metal-level plan can still exceed 8.3 percent of even fairly high MAGIs — well above the cut-off for premium subsidy eligibility.
However, there’s no readily available way for these applicants to see catastrophic plans when they browse their options. The form for obtaining an exemption is lengthy and the process can take several weeks, which makes it challenging for a person to obtain an exemption number during the six-week open enrollment period that applies in most states. A savvy broker can use rate sheets to manually get catastrophic plan quotes for their clients, but there is not a readily available DIY option, and even for brokers there isn’t an automated way to display catastrophic plan pricing for applicants who are 30 or older.
But catastrophic plan enrollment is low for other reasons as well. Even when it’s easy to see the pricing (ie, for an applicant under 30), catastrophic plans aren’t always the lowest-cost option for people who don’t get premium subsidies. For example, in Cook County, Illinois, the lowest-cost plan for a 27-year-old in 2019 is $269/month (a bronze plans), while the lowest-cost catastrophic plan for this person is $314/month. This pricing anomaly — with bronze plans priced below catastrophic plans — is rare but does exist (in this particular case, the catastrophic plan has a PPO network, while the bronze plan has an HMO network; PPOs are more expensive than HMOs when other factors are equal, since they give members more flexibility in terms of which providers they can use).
In some areas, there are no catastrophic plans available. And in some areas the lowest-cost insurer doesn’t offer catastrophic plans, so even if other insurers do, the bronze plan from the lowest-cost insurer might be less expensive than another insurer’s catastrophic plan.
And some applicants are specifically looking for HSA-qualified plans so that they can contribute money to an HSA. Catastrophic plans cannot be HSA-qualified high-deductible health plans — despite their high deductibles — because they cover some non-preventive services before the deductible and because their out-of-pocket maximum is too high.
Catastrophic plans are available both in and out of the ACA’s health insurance exchanges, but hardship (including affordability) exemptions for those 30 and older must be obtained from the exchange. The Trump administration issued guidance in 2018 that allows people to claim hardship exemptions on their tax returns instead of having to obtain them from the exchange in their state, but that’s only useful in terms of avoiding the ACA’s individual mandate penalty (which still applied for 2018 but is no longer applicable). Exemptions via a tax return are granted after the year is over. An applicant who wants to apply for a catastrophic plan must get their hardship exemption in advance in order to be able to apply for the catastrophic plan during open enrollment or a special enrollment period.
If you’re shopping for health insurance in your state’s exchange, you’ll see catastrophic plans (assuming they’re available in your area) in addition to the Bronze, Silver, Gold and Platinum plans when you browse the available options, but only if you’re under 30 years old. If you’re 30 or older, it won’t show up as an option unless you have your exemption certificate from the exchange.
Although the ACA places strict limits on who can purchase a catastrophic plan, Colorado lawmakers passed a bill in 2018 that called for a study of how expanded access to catastrophic plans would affect Colorado’s insurance market, both in terms of total subsidies received by Colorado residents, and overall premiums. Prior to seeking a waiver from the federal government that would allow anyone to purchase a catastrophic plan, the state is seeking input from the federal government about the likelihood of such a waiver being approved.
Catastrophic plans: High deductibles, plus primary care and preventive care
- Catastrophic plans cover all of the essential benefits defined by the ACA, but with very high deductibles, equal to the annual limit on out-of-pocket costs under the ACA (for 2019, this is $7,900 for an individual).
- They must still limit members’ out-of-pocket costs for in-network services to no more than the annual out-of-pocket maximum that applies to all plans (the cap is $7,900 for an individual in 2019).
- Catastrophic plans cover at least three primary care visits per year before the deductible is met (copays can apply for these visits, but at least part of the cost will be paid by the insurance company, even if you haven’t met your deductible).
- And like all ACA-compliant plans, catastrophic plans cover preventive care with no cost-sharing.
- Other services beyond preventive care and some primary care will be paid by the insured until the deductible is met.
Subsidies can’t be used to offset the cost of catastrophic plans
Premium subsidies are not available for catastrophic plans (nor are cost-sharing subsidies, which are only available on Silver plans). Depending on your income, you may be eligible for a subsidy that you could apply towards a metal-rated plan. This will likely make a metal level plan more affordable than a catastrophic plan.
Catastrophic plans are not HSA-qualified
A health savings account (HSA) is a type of tax-advantaged account to which people can contribute pre-tax money as long as they’re covered by an HSA-qualified high deductible health plan (HDHP). In layman’s terms, “catastrophic” and “high-deductible” are often used interchangeably. But in health policy, they each have strict definitions:
- HDHPs that allow a member to contribute to an HSA are not allowed to cover any care before the deductible, with the exception of preventive care, and the maximum out-of-pocket amount for an HDHP in 2019 is $6,750 for an individual (here are the IRS rules that pertain to HSAs/HDHPs).
- Catastrophic plans are required to cover at least three primary care visits before the deductible, and they have deductibles that are higher than the allowable limits for HDHPs (in 2019 the deductible and maximum out-of-pocket for a catastrophic plan is $7,900).
So by definition, catastrophic plans cannot be HSA-qualified, and catastrophic plan enrollees cannot contribute to HSAs. If you want to be able to contribute to an HSA, you’ll need an HSA-qualified plan. These are typically either bronze or silver plans — sometimes gold — but they cannot be catastrophic.
Very few people enroll in catastrophic plans
Because catastrophic plans are not subsidy-eligible, are only available to some enrollees, aren’t available in all areas, and aren’t automatically displayed to eligible applicants unless they’re under 30 years old, very few people tend to select these plans. In 2019, less than 1 percent of all exchange enrollees nationwide opted for catastrophic plans.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.