AgileHealthInsurance Report | 01-20-2016

Term Plans vs. Catastrophic Plans

For Millennials on a tight budget, even a bronze level Obamacare plan can be out of reach. Thus, the Affordable Care Act offers individuals under thirty years of age an alternative health insurance product—Catastrophic Insurance. While the ACA steers Millennials to catastrophic plans, Healthcare.gov acknowledges that these bare bones policies protect only from the “worst-case scenarios, like getting seriously sick or injured.”1

Catastrophic plans are considered Obamacare plans, but they are not eligible for tax subsidies, so an individual must pay the full premium, on average, $167.2 And, though it will cover an annual wellness visit and vaccinations for free, catastrophic insurance will not otherwise kick in until an individual hits the out-of-pocket requirement of $6,850. A recent study by Bankrate shows that 63 percent of Americans don’t have enough in savings to cover even a $1,000 emergency room bill,3 much less one for almost $7,000.

In contrast to catastrophic insurance, a term health policy with an out-of-pocket maximum of $3,500, 80 per cent co-pay (where the insurer pays 80% of the cost of covered medical services), and $2 million lifetime maximum can cost a twenty-six year old male almost two thirds less, only $57.43 a month.4

Like catastrophic insurance, an enrollee must meet the out-of-pocket deductible before insurance will cover costs such as doctors, specialists, hospitalizations, x-rays, lab tests, and physical therapy. However, with far more affordable premiums and deductibles, term health insurance makes better economic sense for many.

For example, the average cost for treating a broken leg is $9,954.5 With a catastrophic plan, an individual would first have to pay $6,850 before insurance would cover additional expenses. While on the surface, catastrophic insurance appears to cover 100% of those additional expenses, most plans actually pay only for in-network providers. If an enrollee wants to be treated by a doctor, specialist or hospital outside the plan’s often narrow network, he or she will be responsible for the full cost.

With term health, the enrollee would pay the first $3,500 in expenses, the co-pay rate for the next $3,500 (e.g. 20 per cent or $700), after which insurance would pay 100% for any covered services up to the plan’s lifetime max ($2 million). Perhaps more significantly, an enrollee has the freedom to choose any provider he or she wishes, in network, or out. Term health will cover the treatment.

Term health plans on AgileHealthInsurance.com offer other advantages including urgent care. Term plans on AgileHealthInsurance.com waive the deductible for urgent care. Consequently, an enrollee needing immediate treatment will pay only $50 for services at an urgent care facility.

A term health enrollee may be subject to the ACA uninsured tax penalty. However, there are numerous exceptions to the tax for which millions of Americans are eligible.6 A recent study from AgileHealthInsurance.com found that even with the tax, the average twenty-six year old saved money by selecting term health insurance.7

The monthly premium for a catastrophic plan may be less expensive than other Obamacare plans’, but it will only cover services after an enrollee has spent almost $7,000 dollars for emergencies and unexpected illnesses. And it restricts enrollees to in-network doctors and hospitals. Moreover, these networks are often very narrow with fewer doctors and hospitals in-network. For true savings and a far more robust plan, Millennials should consider term health insurance. For a third of what a catastrophic plan costs, they can enjoy urgent care services for a small copay, and are free to choose the doctors they trust.

  1.  How to Pick A Health Insurance Plan, Healthcare.gov, Jan. 8 2016, https://www.healthcare.gov/choose-a-plan/plans-categories/
  2.  Average Cost of Health Insurance, Value Penguin, Jan. 8, 2016, http://www.valuepenguin.com/average-cost-of-health-insurance (average cost for a 21 year old).
  3.  Sheyna Steiner, How Americans Contend With Unexpected Expenses, Jan. 6, 2016, Bankrate.com, http://www.bankrate.com/finance/consumer-index/money-pulse-1215.aspx
  4.  Term health insurance costs less than Obamacare for young adults losing coverage on their parents’ health plans, AgileHealthInsurance.com, Dec. 12, 2015, www.agilehealthinsurance.com/term-health-insurance/health-insurance-learning-center/term-insurance-costs-less-for-26-year-olds-with-penalty-and-subsidies (premiums based on 26 year old male for a policy with a $2,500 deductible, $3,500 out-of-pocket maximum, 20% copay and $2 million dollar lifetime maximum).
  5.  Femur Fracture Treatment, Health Care Blue Book, Jan. 12, 2006, https://healthcarebluebook.com/page_ProcedureDetails.aspx?id=30&dataset=MD&g=Femur+Fracture+Treatment.
  6.  Emily Bazar, How to Duck Obamacare’s Tax Penalty, Jan. 30, 2015, Orange County Regiser, http://www.ocregister.com/articles/tax-649674-exemptions-exemption.html
  7.  Term health insurance costs less than Obamacare for young adults losing coverage on their parents’ health plans, AgileHealthInsurance.com, Dec. 12, 2015, www.agilehealthinsurance.com/term-health-insurance/health-insurance-learning-center/term-insurance-costs-less-for-26-year-olds-with-penalty-and-subsidies

AFFORDABLE CARE ACT TAX. Term health insurance is health insurance outside of the Affordable Care Act ("Obamacare"). It does not include all ten of the minimum essential benefits of Obamacare and it does not cover pre-existing conditions. To learn more about the tax, its exemptions, and how to calculate the affordability of term health with the tax, see here. To learn more about the differences between Term health insurance and Obamacare, see here.