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Catastrophic Health Insurance Policies:
An Affordable Option

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With the cost of both health care and health insurance sky rocketing, many people have had to look for more practical options in terms of health insurance coverage. This is not necessarily a negative situation except for the cost of health care itself which many people feel is needlessly over priced. Regardless, many of us during the last two or three decades have gotten slightly spoiled by having “health care plans” rather than real health insurance.

The difference, by definition, is that insurance is a product intended to pay for an event that is possible but not necessarily probable, and is unpredictable. That is, a major illness or an accident would fall under the definition of insurable event as insurance was defined many years ago. An event like pregnancy, paying for eyeglasses, having physicals or other checkups would not have been covered because they were predictable and under the control of the insured.

The mid 1900s saw the development of “health care plans.” These plans were supposed to emphasize prevention and were designed to pay for a wide variety of health care including office visits, vaccinations, dental coverage, vision coverage, as well as the expected coverage for unexpected disease or illness. We have become so accustomed to these plans with their convenient copays and low deductibles that few of us think about opting for a catastrophic health care plan with a high deductible.  The rise in premiums, particularly in private policies, however, has forced many people to look for alternatives.

Catastrophic plans have been around for a long time. They were generally marketed as cancer insurance, intensive care insurance, insurance for heart attacks, strokes or other major illnesses resulting in extended hospital stays, or accident insurance. Many of these plans would pay you in addition to your regular insurance. This is called “indemnity.”

The indemnity plans are still available and have very reasonable rates; cancer plans are probably the best known, but several companies have “specified illness” plans that cover things like heart attack, stroke, cancer, and more. You can even get hospital indemnity plans that pay you for each day you are in the hospital.

One way to cut down the cost of your traditional health insurance is to take a “catastrophic” approach to your health care. However, it would be difficult to buy separate plans for each contingency. An alternative is to simply purchase a traditional fee for service plan, or, if available, a PPO, and take the highest possible deductible—say $5,000 or $10,000. Your insurance will be much lower priced, and you will be able to use the savings to pay for the occasional office visits, basic vision and dental care, and generic prescriptions. And you might want a hospital or specified illness plan as well.

So what if you have an unexpected illness and face the dreaded $5,000 bill or more? Here is where the catastrophic planning comes in. The government now allows those who have high deductibles (over $2500) to set up HSA accounts (Health Savings). This is a type of  IRA into which you put pre-tax savings. The savings can be added to each year (there is an annual limit) and carried over each year if you don’t use it. You can’t add to it once you retire, but you can continue to maintain the account and let it accumulate interest each year. You draw the money out and use it tax free for any health related expense. The money to fund the HSA comes from part of the savings realized from having lower cost health insurance. Thus although your health insurance might not be titled a “catastrophic plan,” you are taking a catastrophic approach by funding part of your health care yourself. Some companies, do however, offer insurance which they refer to as catastrophic. Use our convenient quoting service for catastrophic care health insurance quotes.