Thursday, September 13, 2007

The basics of catastrophic health insurance

If your employer doesn't offer health insurance, or you simply don't want to pay for coverage you don't need, you may be a candidate for a "catastrophic" health plan sometimes called a "major medical" plan.

Catastrophic health insurance is characterized by high deductibles and low monthly premiums. These plans typically cover only major hospital and medical expenses above a certain deductible, while you pay out-of-pocket for everything else, such as routine doctor visits and prescription drugs.

The majority of catastrophic health plans cover expenses for hospital stays, surgery, intensive care, diagnostic X-ray, and lab tests.

What are the basics of a high-deductible plan?

If you choose this kind of plan, your deductible will likely be $500 or higher. Along with the high deductibles, many catastrophic health plans have high lifetime maximum benefits, or "caps," between $1 million and $3 million. If you reach that cap, the insurance company will not pay for additional medical expenses, and your policy will be voided.

By choosing a high-deductible plan, you're expected to pay for your medical needs until the expenses reach the cost of your deductible. For example, if you have a $15,000 deductible and have surgery that costs $5,000, you have to pay for the surgery entirely from your own resources. By eliminating coverage to reduce your monthly premiums, you gamble on how much money you'll spend to care for yourself.

When looking at catastrophic plans, be sure to remember that most do not cover pregnancy care. If pregnancy is a possibility in your future, be sure to check what kind of coverage is available. Other plans may not cover maternity care for a full year after your effective date.

Do you fit the profile?

People who buy catastrophic health insurance tend to fall into two groups: young adults in their 20s and adults between the ages of 50 to 65. Young adults who buy this coverage are usually self-employed or do not have coverage through their employers.

Older adults who purchase catastrophic health are primarily concerned with financial losses associated with heart attacks, cancer, and other serious illnesses. They are generally healthy, have few or no prescription medications, and would rather pay out of pocket for office visits to save on their premiums.

High-deductible health insurance can be purchased as an individual plan as well as through an employer in a group plan. According to Frank McArdle, a spokesperson for Hewitt Associates, companies with 1,000 or more employees typically offer higher deductible plans. He also says that retirees who aren't yet eligible for Medicare choose these plans in order to keep premiums down.

If you have certain pre-existing conditions you may not be eligible for a catastrophic health plan. Health conditions such as AIDS, diabetes, emphysema, heart disease, multiple sclerosis, and schizophrenia, along with others, can prevent you from buying a catastrophic plan.

What does it cover?

You can buy varying levels of coverage depending on what type of high-deductible plan you choose.

For example, Blue Cross Blue Shield of Florida offers a catastrophic health plan called Essential in most counties. It has deductible of $250 and an out-of-pocket limit of $2,500 after you've exceeded your deductible. The lifetime maximum is $1 million. The plan covers hospital, surgical, and X-ray expenses. Other services such as doctor visits, maternity care, prescription drugs, and mental health visits are not covered.

According to an online quote, the monthly premium for a 21-year-old nonsmoking female would be $29.

Golden Rule Insurance Co. offers Basic Plan, a high-deductible health plan with deductible prices ranging from $500 to $5,000. Like Florida's Essential, prescriptions, office visits, and maternity care are not covered. Mental health and substance abuse expenses are also not covered.

The Basic Plan covers hospital and surgical expenses as well as MRI and CAT scans. The lifetime maximum for the plan is $3 million.

Shopping tips

  • Before you buy a catastrophic health plan, consider:

  • How much is the premium per month, quarter, and year?

  • How much is the deductible?

  • How much of a deductible can you afford?

  • How extensive do you want your coverage to be?

  • Do you need prescription medications?

  • Can you afford to pay for your own doctor's office visits?

  • Do you have any pre-existing conditions?

  • Do you get sick often?

  • What is the lifetime annual benefit?


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