What is Catastrophic Health Insurance
Catastrophic health insurance is also known as major medical insurance. Buyers of catastrophic health insurance self-insure the lower cost medical expenses that fall below the deductible of their plan. Yet they are protected from catastrophic loss by the maximum-out-of-pocket feature of their high deductible plan. Why pay the health insurance company an unnecessarily high premium when you could pocket the difference?
Consider a High Deductible Health Insurance Plan
If you are relatively healthy, it makes good financial sense to buy a catastrophic health insurance plan with a high deductible, say $5,000, to make your monthly premium more affordable. The low cost of the high-deductible health insurance will save you lots of money. But what if something goes wrong? For example, you break your back skiing and rack up $100,000 in medical bills. Your catastrophic health insurance plan will work like this - you will pay your $5000 deductible portion of the bill first, leaving a $95,000 balance. Stay with me, this will take a minute…
How the Coinsurance Percentage Works
The coinsurance amount of the typical catastrophic health insurance plans is 20%. That means you pay 20% and the insurance pays 80% of the medical expenses. Let’s go back to our skiing accident scenario and assume that your catastrophic health insurance plan has a 20% coinsurance. You have a $95,000 balance so your portion of the bill is 20%, or $19,000.
The Maximum Out-of -Pocket Benefit Saves Your Bacon
Yikes, It looks like you’re stuck for $24,000 of that $100,000 medical expense. Not really, because the maximum out-of-pocket provision in your catastrophic health insurance policy says that no matter what happens, the insurance company will cover all but $10,000 in covered medical expenses including your deductible. Ah, so there it is! In any given catastrophic health insurance policy, you’ll never pay more than the maximum out-of-pocket expense. So your affordable health insurance plan paid $90,000 of the $100,000 major medical expense for your skiing accident. Now, I’m not saying that $10,000 is chump change. It’s still a big number, but after you subtract what you’ve saved in lower premiums by buying an affordable health plan, it just might be chump change.
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