ACA Wednesday: Catastropic plans: what are they, who is eligible and strategy

If you have been keeping up with Affordable Care Act topics on my blog and other places on the web, I am sure you have heard about the “metal” plans: Platinum, Gold, Silver and Bronze.  Not many people have heard about the catastrophic plans.  I will provide the basic information:

What are they?

They provide the same coverage as the other plans, but with higher out of pocket maximums.  These plans allow the maximum out of pocket maximums and deductibles allowed under the ACA:  $6350 for individuals and $12700 for families.  So these plans would have those amounts for their deductibles with 100% cost reimbursement after that point.  But not everyone is eligible for these plans.

Who is eligible?

People under 30 are automatically eligible to select this lower cost plan.  The government realizes that there are many more people in their 20’s that don’t carry insurance and want to give them a lower cost option to get them into the plan.  So people under 30 can use a subsidy along with the catastrophic plan to lower their insurance cost significantly.  But that’s not all, if the cost of the Bronze plan is greater than 8% of an individual’s or family’s modified adjusted gross income (MAGI), those people are also eligible for the catastrophic plan as they are not subject to the individual mandate.  So, this will mostly be the people who fall just outside of the 400% subsidy limit.  For a family of 4, this is between 94,000 and 95,000.  So, with a family of 4, if your MAGI is between $95,000 and 130,000, then you will likely be eligible for this catstrophic plan.  Of course, the government isn’t verifying income when enrolling for 2014…  I will leave it there on that statement.  What happens if you accidently over estimate your income and you end up making less and could have been eligible for a subsidy?  I suspect there won’t be a penalty, but I also suspect that you won’t be eligible for a subsidy reimbursement on your taxes.

What can you do?

The cost of insurance is going up.  Most people want to get the most coverage with the lowest out of pocket for the least amount of money. Makes sense.  What I have done the last few years is to try to provide a bit of self insurance using an HSA account.  Think of it as an IRA but only to be used for medical/health expenses.  So you could do something similar to what some life insurance companies recommend: buy term and invest the difference.  In this case, if you are healthy or you have a healthy family, you could buy the least expensive policy (Catastrophic, if you are eligible, or otherwise, the Bronze plan) and then invest additional dollars that you would have used to purchase a policy that had lower out of pocket maximums and lower deductibles.  In a few years, you will have enough in the HSA to cover 1 year’s out of pocket maximum.

More to come…  including Calculating Your Penalty and defining an HSA.

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