What is a catastrophic health insurance plan?
Although the term “catastrophic plan” has long been used as a generic catch-all phrase to describe health insurance 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 reason catastrophic plans have lower prices than Bronze plans. (The coverage they offer is actually quite similar to Bronze plans, but catastrophic plans generally have lower premiums. Their enrollees are mostly fairly affluent and under the age of 30, and the plans don’t have to share risk with metal-level plans that tend to have a less healthy pool of enrollees).
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 2022, this is $8,700 for a single individual; for 2023, it’s $9,100).
- 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 (again, this cap is $8,700 for an individual in 2022, and $9,100 in 2023).
- Catastrophic plans cover up to 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 certain 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.
And the American Rescue Plan has made subsidies larger and more widely available through the end of 2022. This is important to keep in mind if you’ve opted for a catastrophic plan in the past because you weren’t subsidy-eligible. You may find that you are now eligible for subsidies.
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/affordability exemption (which means that due to unaffordability of coverage, economic hardship, or certain other hardships – such as the death of a family member – the person is not required to maintain health insurance coverage).
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.)
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 made 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). But insurer participation in the exchanges has increased significantly since 2018, with very few enrollees currently having access to just one insurer’s plans. That trend continued for 2022, with another wave of insurers joining the exchanges; even fewer enrollees have just a single insurer offering exchange plans in their area for 2022.
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.
Catastrophic plan enrollment is low, partially because people don’t know they’re eligible for catastrophic plans
Obtaining a hardship exemption is not typically 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 open enrollment period for 2021 coverage, only 98,135 people enrolled in catastrophic plans, out of 12 million exchange enrollees nationwide. And nationwide enrollment in catastrophic plans dropped to under 82,000 for 2022, despite the fact that total exchange enrollment climbed to 14.5 million people.
The fact that premium subsidies can’t be used with catastrophic plans is a primary reason for the low uptake of catastrophic plans. And the American Rescue Plan’s subsidy enhancements were available during the open enrollment period for 2022 coverage, making catastrophic plans even less popular (since more people were eligible for subsidies).
But for the population that isn’t eligible for premium subsidies, 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. (In a typical year, roughly 15% of exchange enrollees pay full price, although this percentage has decreased for 2021 and 2022, thanks to the American Rescue Plan’s elimination of the “subsidy cliff.”)
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 8.09% of their modified adjusted gross income (MAGI) in 2022.
For most people, this is not applicable in 2021 or 2022, thanks to the American Rescue Plan‘s enhancement of premium subsidies (households are not expected to pay more than 8.5% of their income for the second-lowest-cost Silver plan, regardless of how high the household’s income is). But if the ARP’s provisions are not extended past the end of 2022, affordability exemptions would once again be important in 2023 and future years.
If an applicant is under 30, they’re automatically eligible for a catastrophic plan and those plans will show up in their available search results. But for applicants age 30 and older, the system could show catastrophic plans if the lowest-cost Bronze plan is a higher percentage of their income than the affordability threshold. (Again, this won’t be an issue for most people in 2022, due to the American Rescue Plan).
With the current system, 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 annual open enrollment period unless they start early in the enrollment window (the Biden administration has extended open enrollment through mid-January in states that use HealthCare.gov, and most of the state-run exchanges have followed suit).
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.
Other reasons for low enrollment
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 for 2022 is $212/month (a Bronze plan), while the lowest-cost catastrophic plan for this person is $220/month. This pricing anomaly – with Bronze plans priced below catastrophic plans – is rare but does exist. (In this particular case, the Bronze plan had a maximum out-of-pocket limit of $8,600, while the catastrophic plan’s limit is $8,700, but the catastrophic plan provides three free primary care visits during the year, while the Bronze plan only pays for those visits after the deductible is met.)
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. So a person who wants to be able to contribute to an HSA cannot enroll in a catastrophic plan.
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 was 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.
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 (the definition of preventive care has been expanded by the IRS, but it’s still strictly controlled), and the maximum out-of-pocket amount for an HDHP in 2022 is $7,050 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 2022 the deductible and maximum out-of-pocket for a catastrophic plan is $8,700).
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 plans can be found at the Bronze, Silver, and Gold levels, depending on the area and the insurer offering the plans, but they cannot be catastrophic plans.
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. Each year, less than 1% of all exchange enrollees nationwide enroll in catastrophic plans; for 2022, it was only about half a percent.