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Catastrophic Health Insurance

Catastrophic health insurance (also known as major medical or high deductible health insurance) is the best value in the individual health insurance marketplace today. Insurers understand that insurance shoppers will self-select where they are going to get the best value. They know that if a buyer selects a high deductible health plan, then that person probably feels very good about his or her health situation and is not planning on using the insurance policy. That self-selection influences the price and, therefore, the price of the higher deductibles are set relatively lower than they otherwise would be.

Major medical plans also give the buyer of the health insurance the opportunity to self-insure that policy. Why pay the insurance company a high premium when you could otherwise put that money in a savings account? In fact, that's what spawned health savings accounts, which allow individuals to buy high deductible plans along with a tax-advantaged savings account to put money away in case it's needed to pay the deductible.

The other benefit of catastrophic health insurance is that the buyer gets to take advantage of the discounts that the insurance companies receive, even though the insurance company does not pay for claims until the deductible has been met. The contracts that health insurance carriers have with physicians, hospitals, lab companies and other medical providers are very substantial. Hospital discounts often equate to 60% of charges, physician discounts can be 50%, and lab discounts can be 90% of charges. These are huge savings that a covered individual will enjoy, and an uninsured individual will not.

For example, the typical annual OB-GYN visit for someone who is not insured may cost $250 for the physician charge and $250 for the lab charge. That office visit with the insurance carrier's discount could be $50 for the lab charge and $100 for the physician, which represents substantial savings. In addition, many high deductible plans have preventive care for just a co-pay, and those exams could cost as little as $50 or, in some cases, nothing at all. This is a substantial savings over the $500 an uninsured individual would pay for the same services. In fact, this savings might even cover the cost of the entire health policy.

The term "major medical" implies that the policy is going to cover major medical expenses, as opposed to limited medical plans that have limits on the amount they will pay. Limited medical plans are typically for those who cannot qualify for major medical plans due to some pre-existing condition.