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Catastrophic health insurance lets you gamble on good health

If you've been left without medical insurance for you and your family, or you're just plain fed up with the ever-increasing costs of health insurance and the rigmarole you get with health maintenance organizations or preferred provider organizations, catastrophic health insurance may be just the right medicine for you.

It's a gamble. It can save you a pile of money every year or it can cost you a pile. It works best for two groups:

  • Young adults. Largely uninsured, members of this group are either self-employed or working for employers who provide no health insurance. They're generally healthy and take little or no medication.
  • Adults 50 to 65 years old. Many are uninsured or underinsured and approaching Medicare eligibility. They're worried they could be struck by a catastrophic illness or injury that could wipe them out.
  • Catastrophic health insurance protects against sudden, huge medical bills, but doesn't cover routine visits to the doctor's office for the sniffles and a yearly checkup.

    The idea is that you pay your own way for office visits and, in the process, save money by not paying high monthly premiums for health insurance. Instead, you buy a lower cost policy that protects you only against major injury or illness -- generally those pegged at $50,000 or higher -- with a hefty deductible, frequently $5,000 to $10,000.

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    Let's say you have a $50,000 medical bill, and your catastrophic coverage has a deductible of $8,000. You would pay the first $8,000 of your bill and the insurance company would pay $42,000. If your hospital bill came to $7,800, you would pay it all.

    By comparison, a young adult might have to pay $100 to $150 a month as his share of an employer's health plan, and more for a private plan. Often, that person goes years without making any claims and the protection costs him $1,200 to $3,000 a year for the peace of mind. A middle-age man -- particularly if he has a family -- who loses his job and goes on COBRA may pay $6,000 to $8,000 a year in premiums and make few, if any claims. COBRA is a federally mandated plan that requires employers to allow former employees to pay and stay on the company's insurance plan for a limited amount of time.

    A catastrophic insurance plan could have saved either person a small fortune each year.

    The gamble is if those people are struck with even a minor injury, an ailment of an ongoing nature or needs extensive testing and/or treatment. They then would have to pay the high deductible of a catastrophic plan before they received any relief.

    "When looking at any insurance product, read the entire document and be sure you understand every sentence. Don't skip any words, don't make any assumptions. Get any questions answered before you sign on the dotted line," says Karen Migdail at the federal Agency for Healthcare Research and Quality.

    There are lots of things to watch out for if you're considering this kind of move.

    The policies typically have a lifetime limit. Once your policy has paid bills totaling that amount, you're back on your own again. In addition to a lifetime limit, some policies also have yearly limits, or limits per illness or accident. Some have combinations of these limits.

    Many policies only pay for one covered illness. Check out any catastrophic policy to see if it will pay more than once. If you have a heart attack and it pays out, will it pay again if you have another heart attack or find out you have cancer?

    Pre-existing conditions are often excluded. Catastrophic health insurance is designed to kick in when you are facing huge bills from a major illness. But if you have a pre-existing condition that might turn into a major illness, you may not be able to buy catastrophic insurance to cover that illness. What's more, you may be restricted when it comes to other illnesses. These restrictions vary from state to state so you need to check with your state's insurance commission, according to Migdail.

    The most basic catastrophic polices often cover a single problem, for example, cancer. Others allow you to 'tailor' your plan to cover other afflictions, adding to the cost, of course. The more you cover, the higher your premium will be.

    Here are some important things you should consider before buying a catastrophic policy:

    • How do they pay? Will it come as a reimbursement for an expense you have already paid? Some pay a lump sum once you have exceeded the deductible. Mutual of Omaha, for example, has a policy that pays a lump sum upon diagnosis of critical illnesses instead of paying for actual medical expenses incurred after the deductible has been met. The insured can use the money as they wish -- medical treatment, home modifications, travel or whatever.
    • What is covered? It is essential to know and understand the terms. Check the fine print. If "tumors" are covered, for example, does the policy cover all tumors or only some, such as malignant ones? If the word "rehabilitation" appears, does it mean all efforts at rehabilitation or just some of them? Some policies cover the high costs of experimental medicine while others don't. Also, check to see if a policy pays for non-medical costs associated with an illness, such as mortgage payments.
    • How much coverage is enough? While critical illnesses just a decade ago were diagnosed fairly late in their development, today's screening and diagnostic techniques frequently mean you learn you have the disease and start treatment much earlier. This early, ongoing treatment can mean bigger bills quickly. Consider also that new screening tests can identify conditions that are not immediately life threatening but cost a lot in patient care, such as Alzheimer's disease.

    While you're considering catastrophic insurance, look into buying a disability policy. If you are out of work for a long time with a major illness, a disability policy that pays you 60 percent of your salary can offset what you are paying in medical bills. Do the math. Is a bigger disability policy combined with a simple, high-deductible catastrophic policy the right combination for you? That approach could keep your losses down and cost less than a lower deducible catastrophic policy with a lot of sophisticated additions to your catastrophic policy.

    Many company plans offer catastrophic coverage as an addition to the basic health insurance they provide. If employed, check with your HR department. The policies also can be purchased independently from insurance companies and may be a lot cheaper from an independent agent.

    Paige Latta is a freelance writer based in Alabama.

    -- Posted: Sept. 3, 2003

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