Catastrophic health insurance: What you need to know

What is catastrophic health insurance?

Catastrophic health insurance is a type of health plan with a high deductible and low monthly premiums. It is only available to people under 30 or who qualify for an exemption under the Patient Protection and Affordable Care Act (ACA). 

Because of the eligibility requirements, most businesses don’t choose to offer catastrophic health plans to employees unless the employer also offers other group insurance plans. However, if you offer your employees funds through an Individual Coverage Health Reimbursement Arrangement (ICHRA), they can opt to use that money to purchase a catastrophic health plan.

People may choose catastrophic health plans to protect themselves from financial ruin if they have a major health crisis. Although this type of plan has a very high deductible, the cost of the deductible is still much less than the cost of treating a serious, unexpected illness, such as cancer.

Catastrophic health insurance plans are required to comply with the ACA’s consumer protection requirements. That means these plans cover the same 10 essential benefits as other ACA-compliant health plans, including free preventive care, such as screenings and check-ups. 

People are typically drawn to catastrophic health plans because of their low premiums, but it’s important to note that other, more comprehensive plans sometimes have even lower premiums. 

How to choose the best catastrophic health insurance plan

Catastrophic health plans tend to have similar or identical coverage from plan to plan. That’s because these plans only offer the minimum essential coverage (MEC) that they are required to provide under the ACA. They also all have the same high deductible, which matches the out-of-pocket maximum ($9,200 for an individual and $18,400 for a family in 2025). This makes it hard to differentiate between plans and choose the best one. 

Here are some ways to compare different catastrophic health plans when you’re trying to determine which one is best:  

• Monthly premiums. Most people who choose a catastrophic health plan seek the lowest premiums possible. 

• Insurer. A variety of insurers offer catastrophic health plans. You may want to consider the insurer’s reputation and customer satisfaction rates. For example, J.D. Power ranks health insurers with the highest customer satisfaction scores across different regions

• Network. Different insurers have specific provider networks. Some catastrophic plans only cover the costs of healthcare services offered by their own in-network providers. 

• Referrals. Some catastrophic health plans require a referral before seeing a specialist. 

• Perks and additional benefits. While the core essential benefits of catastrophic health plans tend to be the same, some offer wellness perks, such as a gym membership reimbursement. Others may allow people to add dental or vision benefits.   

You should also take care to consider the organizational structure and type of provider network for different plans. Catastrophic health plans can be offered as health maintenance organizations (HMO), preferred provider organizations (PPO), exclusive provider organizations (EPO), or point-of-service (POS). Here’s a quick breakdown of what those terms mean: 

• HMO. With this type of plan, you need a primary care provider, and referrals are required to see a specialist. Coverage is typically limited to the HMO network of providers outside of emergencies. These plans tend to have lower monthly premiums. 

• PPO. This type of plan generally doesn’t require referrals and offers coverage to see the healthcare providers you choose. There may be a cost difference between seeing an in-network or out-of-network provider. These plans tend to cost more because they offer the freedom of choice. 

• EPO. With this plan type, you only have coverage to see in-network providers, apart from emergency care. However, the network tends to be large, providing more options. Referrals for specialist care may or may not be required.  

• POS. With a POS plan, you generally have both in-network and out-of-network coverage, but referrals may be required. 

Who is a good candidate for catastrophic health insurance plans? 

Young, healthy people may be interested in enrolling in a catastrophic health plan if they favor paying low monthly premiums over the risk of paying a high deductible should they need medical care. People of any age who qualify for an exemption may also choose catastrophic health plans if they have a limited budget and it’s all they can afford. 

People considering a catastrophic health plan should be aware that some ACA Metal plans—especially Bronze and Silver plans—may actually offer cheaper monthly premiums and a lower deductible while also providing better coverage. Don’t assume that catastrophic health plans are the lowest-cost option; compare what is actually available. 

Be aware that health savings accounts (HSAs) are not available with catastrophic health plans. HSAs allow you to save money tax-free for certain healthcare costs, including deductibles and out-of-pocket expenses. People who want an HSA must choose a high-deductible health plan, not a catastrophic health plan.   

What are the qualifications for an exemption? 

People over 30 can only get a catastrophic health plan if they qualify for either an affordability exception or a hardship exemption. 

In order to qualify for an affordability exemption, the lowest-priced health plan available through a job or the ACA Marketplace must cost more than 7.97% of the individual’s household income. 

To qualify for a hardship exemption, a person must have experienced financial challenges or other hardships that prevented them from getting health insurance. For example, hardships that would qualify include: 

• Eviction, or facing eviction or foreclosure

• Receiving a shut-off notice from a utility company

• The death of a family member 

• A disaster, such as fire or flood, that caused substantial damage to your property

• High medical expenses that cause substantial debt

• Bankruptcy

• Homelessness

• Domestic violence    

Healthcare.gov provides the full list and forms to apply for an affordability or hardship exemption.

How does a catastrophic health plan work with ICHRA? 

People under 30 and those with a hardship exemption can use their ICHRA for a catastrophic health plan. They can simply use their tax-free, employer-provided funds to pay the premiums. 

This may be a reasonable choice for people who are: 

• Healthy

• On a limited budget

• Comfortable taking the financial risk of a high deductible

• Not interested in an HSA

People over 30 can also qualify for a catastrophic health plan if they meet the requirements for an affordability exemption. That means the lowest cost plan available to them through their employer or marketplace costs more than 7.97% of their household income. 

What does catastrophic health insurance cover?

To comply with the ACA, catastrophic health plans must cover 10 essential health benefits, including: 

• Ambulatory patient services. This refers to medical services that you receive without being admitted to the hospital.

• Emergency services

• Hospitalization

• Pregnancy, maternity, and newborn care 

• Mental health and substance use disorder services. This requirement means plans must cover counseling and psychotherapy. 

• Prescription drugs

• Rehabilitative and habilitative services and devices 

• Lab services

• Preventive, wellness, and chronic disease management services 

• Pediatric services, including oral and vision care. This benefit is only for children. 

Plans must also cover birth control and breastfeeding services. 

For the most part, if you have a catastrophic health plan, you still need to meet the deductible before the cost of essential services is covered. 

The exception is preventive care. Like all ACA-compliant plans, catastrophic health insurance covers basic preventive care for free, even before your deductible is met. Preventive care includes check-ups and routine screenings, such as blood tests to check cholesterol or blood sugar levels. Preventive care also includes at least three primary care visits each year. 

What isn't covered? 

Catastrophic health plans don't necessarily exclude any particular type of medical care. However, you must meet your deductible before the plan will cover the costs of most types of healthcare, including emergency care. Like all ACA-qualified health plans, catastrophic health plans are required by law to cover basic preventive care for free. 

HSAs are also not available if you have a catastrophic health plan. 

Catastrophic health insurance for those over 30 

The term "catastrophic health plan" is a legal definition that can only be used by plans that meet certain requirements. One of those requirements is that these plans are only available to people under 30 or those who qualify for certain exemptions described above.

However, plans that offer very basic coverage for people older than 30, 40, 50, and 60 do exist. For example, "short-term health insurance" can offer temporary basic coverage for people who are between jobs or who recently moved. It's important to note that short-term health insurance plans don't meet the ACA's requirements for a qualified health plan. 

Understanding the options

Catastrophic health insurance is a qualified plan option under the ACA. An employee with an ICHRA can use their tax-free allowance toward a catastrophic health plan if the individual applying is under 30 or meets the exemption requirements. 

This may be appealing to healthy people with a very limited budget. That said, high-deductible health plans and mental plans may be available for the same monthly premiums or less. 

For employers who offer ICHRA, the wide variety of plan options available today means that your employees have the freedom to choose the health coverage that works best for their needs and priorities. 

If you’re considering offering ICHRA, take the next step. Book a demo with Thatch to learn about the flexibility and choice it can offer your team.