Obamacare has given everyone the option – or I should say the requirement – to purchase health insurance. This young adults, or “young invincibles” as the media likes to call them, who are age 18-34. This demographic is generally healthier and use less health care than older demographics.
Common advice for this age demographic, especially for those under 30, is to purchase a “catastrophic” health insurance plan. I think this is bad advice, and I’ll explain why.
First off, it’s imoprtant to understand what catastrophic health insurance plans are. Below is a description from HealthCare.gov:
A catastrophic plan generally requires you to pay all of your medical costs up to a certain amount, usually several thousand dollars. (Some care is paid for before you reach this limit, known as a deductible. See “Catastrophic plans cover prevention and some primary care” below.)
After you reach your deductible, costs for essential health benefits are generally paid by the plan.
Catastrophic plans usually have lower monthly premiums than a comprehensive plan, but cover you only if you need a lot of care. They basically protect you from worst-case scenarios like serious accidents or illnesses.
Essentially catastrophic plans are high-deductible health insurance plans with very high deductibles. On the flip side, you will also have some of the lowest monthly premiums because the likelihood of the insurance company being on the hook for claims is slim, as you have to hit that high deductible amount before they start paying out.
I went on the Minnesota Health Care Exchange Website, MNSure and found the following catastrophic plans available to me:
- PreferredPlus Select D – $6,350 Deductible, $76.62 monthly premium
- UCare Choices Core – $6,350 Deductible, $131.40 monthly premium
- Inspiration HealthEast Catastrophic – $6,350 Deductible, $90.87 monthly premium
- HealthPartners Key Individual Catastrophic – $6,350 Deductible, $98.32 monthly premium
- North Memorial Acclaim Catastrophic – $6,350 Deductible, $86.59 monthly premium
- PreferredPlus Choice D – $6,350 Deductible, $85.15 monthly premium
- Medica Applause Catastrophic – $6,350 Deductible, $97.18 monthly premium
As you can see, $6,350 is the lowest deductible available for a catastrophic plan.
Here are a couple of reasons young adults shouldn’t choose catastrophic health insurance plans:
High Deductible = High Financial Risk
The whole reason low premiums are attractive to young adults in the first place are that they are low; high premiums simply aren’t affordable. What young adults need to think about, though, is what if they do need to use their health insurance? With a deductible in excess of $6,000 for catastrophic plans, young adults who are already stretched financially have to figure out how they are going to pay for medical bills when they do come around.
Imagine if you did have a catastrophic situation, such as a surgery that can’t be avoided. It will almost certainly max out your health insurance, leaving you with a very sizable medical bill. There are many medical conditions that can come out of nowhere and lead to hospital and/or doctor bills that you simply can’t plan for.
Catastrophic health insurance may protect you from a $20,000 bill, but it won’t stop a $6,000 bill from showing up in the mail.
Missing out on Subsidies
Another important thing to keep in mind about catastrophic plans is that you will not be entitled to subsidies. From HealthCare.gov:
If you buy a catastrophic plan in the Marketplace, you can’t get lower costs on your monthly premiums or lower out-of-pocket costs based on your income. Regardless of your income, you pay the standard price for the catastrophic plan.
For 2013, individuals making between $11,490 to $45,960 are eligible for subsidies (based on 2013 income figures), with income below $11,490 making you eligible for medicaid. I don’t know about you, but $45,960 isn’t peanuts; many young adults who take advantage of catastrophic plans likely would have been able to take advantage of premium subsidies. Kaiser Health Foundation put together a Subsidy Calculator if you are interested in running the numbers.
____________
If you’re considering a catastrophic plan, make sure you look at other options before signing up. You likely will find that some of the other options available are preferable and fit better with your financial situation.
____________
Photo by Morgan
Check out some of our favorite personal finance resources:
Are you getting the best credit card rewards? Check out the top cash back credit card offers (updated daily)
Make extra money: 15 ways to make money from your computer
Get the First Chapter Free!
Join our online community and get the first chapter of the book Student Loan Solution absolutely FREE!
I would not be interested in using catastrophic health insurance because I think it feels too risky. Yeah, I get it that the monthly premium is really affordable and chances are at this age we are fairly healthy. However, I feel like whenever I make an assumptions like this, it’s my luck that something does infact happen. 6,350 is just too much for me right now.
BudgetforMoreSame for me. Both my wife and I have had completely uncontrollable and unavoidable medical situations that essentially are genetic that maxed out my insurance the past two years and likely will max out hers this year if she needs surgery. If I had used the logic behind the catastrophic plans I would have been on the hook for over $6,000 per year.
I think subsidies definitely come into play, but I wouldn’t really categorize the high deductible as high risk. There are many cases where even if you paid the full out of pocket max, your annual cost would only be slightly higher than a plan with a higher premium and lower deductible. With the difference being that the higher premium is a GUARANTEED cost while the higher deductible is not, PLUS a high deductible plan often lets you make use of an HSA, which makes things even more affordable. Obviously every situation needs to be evaluated on its own merits, but I think high deductible plans can be a great option.
Matt @ Mom and Dad MoneyI think you misinterpreted me. I’m not talking about high deductible plans, I’m talking about catastrophic plans which will carry a deductible that is (at least in the case of MNSURE) over $2,000 higher than a high-deductible plan. It’s a high deductible plan on steroids. If you’ve read my other posts on health care I have and always will advocate high-deductible plans with an HSA, and I recommend contributing to an HSA account for various reasons. I am not advocating a “low” deductible plan for young adults but I am speciically advocating against catastrophic plans because I do not believe that most young adults are financially prepared to pay a $6,000 claim and would be better off getting a plan with an HSA that is eligible for subsidies.
Yikes! Seems like the high-deductible plans are expensive for you as well. We are going to have no choice but to go with a high-deductible plan because they start at around $800 per month for us. Getting a plan with a lower deductible will cost between $1,000-$1,400 per month. I honestly think we might forgo insurance if it came to that.
Holly at ClubThrifty Yeah your posts were really important for getting the word out that many of these plans are not affordable.
One negative thing about the exchange plans are that despite the high cost for consumers, insurers still might lose money on the exchanges if it wasn’t for the reinsurance program the government is implementing the first three years. Then again, no one knows what the claim data is going to be like the first year. It’s hard to believe rates could increase next year, but I’m sure they will if insurers are losing money.
I should say I filtered specifically on catastrophic plans, so I didn’t include any high deductible plans. I should maybe do a post similar to yours and see how Minnesota compares to Indiana. I think high deductible plans are fine but at $800/month for you guys even if there was an HSA part to it (which I’m not sure there is?) I can see how it would be difficult to contribute money to it when you already have such a high premium amount going out the door. I do like my HSA but I’ve been clearing it out each year because of surgeries.
At a younger age (not that I’m even in my 30s), I had more health issues because I had taken additional risks with my health. I was hospitalized 4 times in 2 years and I had a catastrophic plan. It took me about 5 years to pay off all my medical bills. I did get some medical payment help through the hospital but it really wasn’t enough in the long run.
Now that I am older, I take better care of myself and am more willing to go to the doctor when I feel ill. I also am not about to risk a high deductible and roll the dice that I’ll never get sick. No thanks.
fitisthenewpoorYour situation sounds like a great example of why I think these plans are a terrible idea. They might make sense if you have a lot of cash in the bank and can afford these claims, but if something catastrophic does happen you are in a really tough spot financially. I find it hard to believe anyone would recommend these plans to 20somethings.
I didn’t realize that catastrophic plans were not eligible for subsidies. I will have to sign up for the exchanges in June when my union coverage runs out, it will be interesting to see what my best option is as a very healthy but very “poor”, under 30 year old.
brokeandbeauIt sounds like you’d be eligible for subsidies so I would steer clear of these catastrophic plans.
I think there are a lot of individual variables that come into play when it comes to insurance. You need to know generally how healthy you are, how much you expect to spend in an average year, and also to know how much risk you’re willing to take on. If you have a large emergency fund with which you’d be able to pay large deductibles if the worst were to happen, it might be worth your while to have a higher deductible plan for the lower premiums. At our house we now have a HSA with a high deductible plan, and it should work well for us.
It’s interesting to read about how so much of Obamacare is hinged upon young people buying insurance, and as of now there is an extremely low number of young people signing up for a plan at all, catastrophic or not, instead choosing to carry no insurance and pay the tax penalty.
I for one wouldn’t recommend getting no insurance like so many are doing – my wife had a massive blood clot when she was in her mid twenties, and luckily we had good insurance. We ended up paying about $3500 for care that year, while the insurance paid in excess of $250,000 for her 3 week hospitalization. It stinks having to pay, but you’ll be glad you have it when you need it.
moneymattersI think everyone interpreted this plan as though I’m opposed to high deductible plans, which I’m not! I’m opposed to catastrophic plans for people who, like you said, might not have the emergency fund to cover the expense if a worst-case scenario did happen. The catastrophic plans also do not come with an HSA, which is something I’m really big on as well.
I am also on the same page as you about the whole ‘go without insurance’ option. To me, this isn’t an option. In your case you would have had to declare bankruptcy and start from square one.
This is why I’m glad I’m still covered under my parents. I wouldn’t go for a catastrophic plan as I’ve had a history with acid reflux. While I haven’t been to a doctor in a few years for it, something could come up at random. I wouldn’t want to take the chance.
JourneytoSavingAnd that’s the thing: you never know when something will come out of nowhere and max out your insurance.
I’m sad to say that we currently have a catastrophic plan. However, we are working on changing this, and I’m researching health insurance now.
SenseofCents I actually wouldn’t be totally opposed to a catastrophic plan in your situation. Based on your income reports and the fact that you shared you paid down your student loans, the $6k deductible or whatever yours may be is likely something you could cover in a worst case scenario.
I feel for anyone having to navigate these new healthcare waters. In addition to being challenging, the prices and “benefits” vary by state so it truly is an individual decision. The one thing I do like about high deductible plans is the access to an HSA vs an FSA. The Healthcare Savings Account is a great way to put aside pre-tax money when you don’t need it to invest and grow tax exempt when you do need it.
blonde_financeI like high deductible plans too, just not catastrophic plans. They don’t come with HSAs, typically. I’m a huge fan of HSAs and contribute to mine every paycheck. Love those tax advantages.
DC @ Young Adult Money blonde_finance Ha! From the looks of the comments, it looks like you should do a blog post comparing Catastrophic plans with high deductible plans. I think we could all use a lesson. :-)
blonde_finance DC @ Young Adult Money Haha yes, or I should just realize that people skim blog posts and don’t read them word-for-word ;)
It’s tough to know what the right plan is, as we only rarely can anticipate medical costs. I see what you’re saying about the deductible on a catastrophic plan. A major event would be crippling. But I can also envision the majority of very young people coming out ahead with such a plan, with just a few having to pay the out of pocket maximums.
Another way of looking at it: if we trust the actuaries are fairly good at predicting a risk profile and assigning proper costs to premiums, then it shouldn’t matter which plan you choose, over a long period of time.
DonebyForty With insurance the majority of people will always be okay, but you need to insure against those catastrophic events.
Agree with you about the long period of time having it smooth out. They get your money one way or another, through premiums or through unloading some of the deductible on you.
Hard to have this conversation without knowing what the premiums would be on lower deductible plans. Often times the amount saved in premiums can cover the high deductible if you get in car accident, for example. Plus, you can keep more of your own money and invest it.
Kyle James You have a lot of faith in young adults saving and keeping a reserve in case they do get a large claim ;)
It seems like many people are confusing high deductible plans with catastrophic plans…I’m not really sure I know the difference either. How are the premiums for high deductible plans vs catastrophic plans. I do see why high deductible plans would be something young people might prefer since they generally have less health issues.
Andrew LivingRichCheaply I definitely think high deductible plans are good options for young adults, especially because many have HSAs. Catastrophic plans do not have HSAs (or generally do not), do not qualify for any premium subsidies, and usually have deductibles a couple grand higher than the “high” deductible plans.
I would have never been able to afford a $6000 deductible! While I’m generally a healthy person, I’ve had a few emergencies that would have ruined me financially for a long time under a plan like this. I am Canadian so we have a different system but I know the monthly health plan bills are a lot easier to budget for than an unexpected and expensive medical bill!
Lindsey at Sense Ah yes, Canada is a bit different in that respect ;)
I definitely support young, healthy people getting an HSA qualified HDHP. The catastrophic plans were, in my lowly opinion, designed to be so impractical to push enrollees to the other plans. That way, HHS can say “see, our plans are way better, and now that people have these options, they no longer want what was previously available to them.” I’m a little jaded coming from the insurance industry and having to deal with the real impacts the laws have had, but unless someone truly does not utilize health care, I would recommend them steering clear of the catastrophic plans.
ImpersonalFinance I also work in the health insurance industry, which I often disclose but for some reason did not on this post (probably should go back and add that to the end). I thought I was cynical but for some reason I didn’t even think of HHS intentionally making them unattractive.
$6,350 certainly isn’t a “drop in the bucket” for most people. I have a “high deductible” plan but my deductible is $1,250, which is much more manageable. Although it’s different than what I’m used to (traditional insurance with co-pays) it is cheaper and “should” save me money if I don’t have many many health issues this year.
Personally, I would rather have a high deductible and pay less in premiums, but I know my $10,000 deductible isn’t going to make me go broke. If it would, then I’d go for a lower one. To get good coverage with any deductible under $3000, we’d be paying $500 a month or more, so still $6000 a year anyway. I’d rather take my chances on being healthy and keeping my money. I do know that I’ll be paying if one of us gets sick or hurt. Sadly, though, I don’t fall into the young demographic anymore and I don’t qualify for a subsidy. If you do take it for sure.
Eyesonthedollar I think we’re on the same page here. I’m advocating in this post that if you are tight on cash you should consider an option other than catastrophic health insurance.
It is called insurance! Better having that option than getting turned down due to ‘pre existing conditions’!
moneycone When did I say catastrophic health insurance is worse than getting turned down due to ‘pre-existing conditions’?
My wife has lupus, so a catastrophic plan is pretty well out of the question for us, because we know she will have certain medical bills every year (semi-annual check-ups with her doctor, blood work multiple times a year, prescriptions, etc). However, if I ever need to get health insurance (currently just covered through my work), this post will be a good reference!
I love how they’re even called “Catastrophic Plan” right in the name. #not
I know this was posted way back when but it came across my search when I was trying to figure out if I should get a Catastrophic plan vs the Bronze high deductible plans. I make too much for subsidies and I rarely see my MD besides my annual visits (maybe an ear infection here or there at the most). The deductibles were practically the same for both kinds of plans that were presented to me so on one hand the catastrophic plan would be best for my situation (to me) but on the other I’d like the extra cushion just in case.