Catastrophic Plan

If you’re a small business owner, HR manager, or employee new to health insurance, you might have heard the term catastrophic plan tossed around but aren’t sure what it entails. A catastrophic plan is a type of health insurance designed primarily to protect against very high medical costs. In this article, we'll explain what a catastrophic plan is, its benefits and limitations, and how small businesses can incorporate this option into their benefits offerings.

What Is a Catastrophic Plan?

The Basics of Catastrophic Health Insurance

A catastrophic plan is a low-premium, high-deductible health insurance policy intended to shield you from worst-case medical scenarios, like major accidents or illnesses. While these plans usually cover essential health benefits, they are designed for relatively healthy individuals who don’t anticipate frequent doctor visits or ongoing care. They tend to have:  

• Very low monthly premiums  
• High deductibles that you must pay before insurance kicks in  
• Coverage mainly for emergency or catastrophic medical events  

Who Is Eligible for a Catastrophic Plan?

To enroll in a catastrophic plan, generally:  

• You must be under 30 years old, or  
• You qualify for a hardship or affordability exemption, which means you’ve faced certain financial or personal challenges that make other insurance unaffordable.  

This means many small business employees may meet the requirements, while others might not qualify and will need to consider other insurance options.

Why Do Small Businesses Care About Catastrophic Plans?

Affordability for Employees and Employers

One of the biggest worries for small businesses is managing health benefit costs. Catastrophic plans usually come with low premiums, which appeals to employees who want basic protection without breaking the bank. For employers, offering a catastrophic plan can:  

1. Provide a baseline safety net for employees with fewer health concerns  
2. Lower overall contributions or reimbursements compared to traditional plans  
3. Combine with a Health Reimbursement Arrangement (HRA) like an ICHRA to help employees with out-of-pocket costs  

Complementing Personalized Benefits

Today’s workforce wants choice. A catastrophic plan gives employees the freedom to select a plan that fits their health needs and budgets. Small businesses can use platforms like SimplyHRA to offer catastrophic plans alongside other insurance types — empowering employees with a health benefits experience tailored to their lives.

The Limitations of Catastrophic Plans

What They Don’t Cover

While catastrophic plans cover preventive care with no cost-sharing and essential health benefits after deductibles, they don’t cover:  

• Routine doctor visits or medications before reaching the deductible  
• Most non-emergency medical care  

High Deductibles Can Be Challenging

Since deductibles can be thousands of dollars, employees are responsible for a large portion of healthcare costs before insurance benefits take effect. This can create financial risk if unexpected health issues arise.

Using Catastrophic Plans with an ICHRA

What Is an ICHRA?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets employers reimburse employees tax-free for individual health insurance premiums and qualified medical expenses. It’s a flexible way to:  

• Control your health benefits budget  
• Allow employees to pick plans that fit their lives, including catastrophic plans  

Benefits of Offering Catastrophic Plans Through SimplyHRA

SimplyHRA makes it easy for small businesses to set up ICHRAs that can reimburse employees for catastrophic plans premiums and out-of-pocket expenses. This approach:  

• Gives employees variety and freedom in coverage  
• Helps businesses manage costs by setting reimbursement limits  
• Simplifies compliance and claims processing with automated tools  

What Small Business Employees Should Know About Catastrophic Plans

When Is a Catastrophic Plan a Good Fit?

If you’re young, healthy, and want a low-cost way to be covered in case of emergencies, a catastrophic plan may be right for you. Keep in mind you still need to budget for out-of-pocket costs.  

Can You Use a Catastrophic Plan With Marketplace Premium Tax Credits?

Generally, if you’re enrolled in an employer ICHRA that covers a catastrophic plan, you won’t qualify for premium tax credits through the Marketplace for those months. If the employer offer is unaffordable, you might decline it and seek Marketplace assistance instead.

How to Make Catastrophic Plans Work for Your Small Business

Steps to Introduce Catastrophic Plans Through SimplyHRA

• Identify employee classes and set reimbursement budgets based on their needs  
• Allow employees to shop for a catastrophic or other qualifying individual plans on the Marketplace  
• Automate expense management to track reimbursements hassle-free  
• Provide 24/7 AI chatbot support for quick answers on eligibility and claims  

Keep Compliance Hassle-Free

With IRS regulations to follow, SimplyHRA handles the complex tax and compliance aspects, so you don’t have to worry about paperwork or possible audits.

Why SimplyHRA Is Your Go-To Partner for Small Business Benefits

At SimplyHRA, we help small businesses set up ICHRAs that make offering and managing catastrophic plans — and other individual insurance options — easy, affordable, and fully compliant. From initial setup, employee education, automated reimbursements to friendly 24/7 support, our platform relieves administrative burdens and empowers employees with real choice.

We know small businesses often juggle many hats. That’s why our tools and expertise help owners and HR teams offer health benefits employees will genuinely appreciate — without enterprise-level complexities or costs.

If you’re ready to explore how a catastrophic plan could be part of your benefits offerings, contact SimplyHRA for a personalized consultation. Reach out by emailing info@simplyhra.com or schedule a call at https://www.simplyhra.com/contact. Let’s work together to build a smarter health benefits experience for your small business.

How Catastrophic Plans Differ from Other Health Insurance Options

Comparing Catastrophic Plans to Bronze, Silver, and Gold Plans

Unlike the more commonly discussed Bronze, Silver, and Gold plans found on the health insurance Marketplace, catastrophic plans occupy a unique niche. Here’s a quick rundown of how they stack up:  

• Premiums: Catastrophic plans generally have the lowest premiums compared to Bronze, Silver, or Gold.  
• Deductibles: They have significantly higher deductibles, which means that you pay most routine medical costs out of pocket until hitting the deductible.  
• Coverage Focus: Catastrophic plans primarily cover emergency services and essential health benefits after you meet the deductible, while other tiers offer more comprehensive coverage and cost-sharing assistance.  
• Eligibility: Catastrophic plans are restricted to younger individuals or those with hardship exemptions, whereas other tiers are available broadly.  

For small business employees who want minimal monthly expense and can shoulder higher out-of-pocket costs, catastrophic plans might be the way to go. Meanwhile, others may need to select plans from Silver or Gold tiers that offer lower deductibles and broader coverage.

The Role of Preventive Care in Catastrophic Plans

Coverage of Preventive Services

One feature that sets catastrophic plans apart is their mandatory coverage of certain preventive services with no out-of-pocket cost to the insured, even before the deductible is met. According to the U.S. Department of Health & Human Services, these services include:  

• Immunizations  
• Screenings like blood pressure and cholesterol checks  
• Annual wellness visits  
• Some cancer screenings such as mammograms and colonoscopies  

This preventive focus helps maintain employee health and may reduce more serious health risks down the line, making catastrophic plans more useful than barebones coverage might suggest — especially for younger employees.

Financial Assistance and Catastrophic Plans

Understanding Subsidies and Out-of-Pocket Caps

Because catastrophic plans do not qualify for premium tax credits through the Marketplace for most enrollees, employees relying solely on employer reimbursements might face higher net costs. Yet these plans do feature the same annual out-of-pocket maximums as other Marketplace plans, which limits extreme financial exposure in case of a medical crisis. The 2024 out-of-pocket limit set by the Centers for Medicare & Medicaid Services (CMS) is $9,450 for individuals, and $18,900 for families, providing a safety net if you hit high medical bills.

Employers can also use reimbursement strategies, like ICHRAs, to alleviate these costs either partially or fully for their workforce.

Integrating Catastrophic Plans into Employee Wellness Programs

Encouraging Healthy Choices With Catastrophic Coverage

Because catastrophic plans emphasize protection against major health events and cover preventive care, they fit neatly into employee wellness initiatives targeted at maintaining good health. Small businesses can:  

• Encourage regular preventive screenings and checkups since these are fully covered  
• Educate employees on budgeting for high deductibles and emergency funds  
• Combine reimbursement options with wellness incentives or health savings accounts (HSAs) for more comprehensive management of healthcare finances  

This holistic approach not only helps employees but can reduce absenteeism and improve morale, valuable outcomes for small businesses.

Special Considerations for Self-Employed and Contract Workers

Catastrophic Plans and Flexible Benefit Models

For businesses with freelancers, part-timers, or contract workers, traditional group health plans can be complicated or impossible to offer. Catastrophic plans — used in conjunction with health reimbursement arrangements like ICHRAs — allow more flexible benefits that accommodate these diverse employees. Through SimplyHRA, employers can:  

• Allocate reimbursements based on worker classifications  
• Let contract workers pick eligible plans that fit their needs  
• Manage costs while offering a meaningful safety net  

This flexibility supports a modern workforce where non-traditional employment relationships are increasingly common.

Monitoring and Adjusting Catastrophic Plan Offerings

Ongoing Review for Business and Employee Needs

Health insurance needs don’t stay static. Small businesses should regularly assess how catastrophic plans fit their workforce’s evolving profile. Consider:  

• Employee feedback on coverage satisfaction and affordability  
• Claims and reimbursement data indicating plan usage intensity  
• Changes in health status or demographics of your employees  
• Regulatory updates affecting plan eligibility or compliance rules  

Platforms like SimplyHRA provide audit-ready reports and analytics tools that make it easy to track these metrics and adjust benefit contributions and plan offerings accordingly.

Navigating Enrollment and Open Enrollment with Catastrophic Plans

Key Enrollment Periods and Special Enrollment Events

One sticking point with catastrophic plans is their enrollment windows. Usually, you can only sign up during:  

• The annual Open Enrollment Period set by the Marketplace, typically late fall to early winter  
• A Special Enrollment Period triggered by major life events like marriage, birth of a child, loss of other coverage, or employment changes  

Small businesses employing ICHRAs need to coordinate these windows carefully to ensure employees can enroll in or switch plans as needed and receive reimbursements appropriately. SimplyHRA’s systems assist with these timing considerations and ensure regulatory compliance throughout the year.

Avoiding Common Misconceptions About Catastrophic Plans

Separating Fact from Fiction

Many small business owners and employees get confused about what catastrophic plans cover and who they’re for. Let’s clear up a few common misunderstandings:  

• Misconception: Catastrophic plans cover only emergencies.
  Reality: They cover many essential health benefits once you meet a high deductible, including hospitalization and some prescription drugs.  
• Misconception: Catastrophic plans cost less overall.
  Reality: The low monthly premiums are attractive, but out-of-pocket costs can be high if health issues arise. Budgeting is key.  
• Misconception: All employees should have catastrophic plans to save money.
  Reality: Eligibility rules and individual health needs vary — it’s about choice and fit, not one-size-fits-all.  

Wrap Up

Understanding catastrophic plans helps small businesses provide more nuanced and affordable health benefits. With SimplyHRA’s platform and expertise, businesses can confidently offer these plans alongside other coverage, empowering employees while managing cost and compliance efficiently.

If you want to learn how to integrate catastrophic plans seamlessly into your small business benefits, reach out to SimplyHRA today. Email us at info@simplyhra.com or schedule a consultation at https://www.simplyhra.com/contact. Let's tailor health benefits that work for everyone on your team.

Frequently Asked Questions (FAQs) about Catastrophic Plan

Q: Can a catastrophic plan cover mental health services?  

A: Yes, catastrophic plans include coverage for mental health and substance use disorder services as part of essential health benefits. However, these services usually require that you meet the deductible first before insurance starts to pay. Preventive services related to mental health may be covered without cost-sharing.

Q: Are prescription drugs covered under a catastrophic plan?  

A: Catastrophic plans do cover prescription drugs, but like many other services, coverage typically begins only after the high deductible has been met. Some preventive medications could be covered with no out-of-pocket cost, but routine prescriptions will likely require upfront payment until the deductible is reached.

Q: How do catastrophic plans handle emergency room visits compared to specialist care?  

A: Emergency room visits are generally covered once you satisfy your deductible, protecting you from very high costs in urgent situations. Specialist visits fall under routine care, so they are subject to the deductible and will not be fully covered until you’ve paid out-of-pocket expenses reaching that deductible amount.

Q: Can dependents be covered under a catastrophic health plan?  

A: Yes, catastrophic plans can cover dependents, but they are most commonly chosen by younger, healthier individuals under 30. Dependents who meet eligibility criteria, such as age and relationship requirements, can be included, though the high deductible might make these plans less appealing for families with frequent healthcare needs.

Q: What happens to catastrophic plan coverage if my income fluctuates significantly during the year?  

A: Catastrophic plans themselves don’t adjust based on your income. However, if you’re purchasing coverage through the Marketplace, changes in income could affect your eligibility for exemptions or premium tax credits (if any). Since catastrophic plans typically do not qualify for subsidies, having fluctuating income might prompt you to explore other insurance options during annual enrollment.

Q: Can employers customize catastrophic plans offered through their benefits program?  

A: Employers cannot change the fundamental structure of a catastrophic plan because these plans are standardized by insurers and regulated by law. However, through reimbursement arrangements like an ICHRA, employers can effectively customize how much they contribute towards employees’ premiums and out-of-pocket costs associated with catastrophic plans, offering tailored support without altering the insurance product itself.

Q: Are catastrophic plans renewable every year?  

A: Yes, catastrophic plans are renewable annually during the Marketplace open enrollment period, provided you still meet eligibility requirements such as age or hardship exemption. Like other health plans, you can choose to renew, switch plans, or opt out each year depending on your health needs and financial situation.

Q: Do catastrophic plans cover telehealth services?  

A: Many catastrophic plans cover telehealth services, but these are generally subject to the deductible. Since telehealth is considered outpatient care, you’ll likely have to pay out-of-pocket until your deductible is satisfied. However, coverage specifics vary by insurer, so it’s wise to check your plan’s details.

Q: Can someone with a pre-existing condition buy a catastrophic plan?  

A: Yes, thanks to protections under the Affordable Care Act, catastrophic plans cannot deny coverage or charge higher premiums based on pre-existing conditions. However, because of the high deductible, individuals with chronic illnesses may find better value in other plan types with more comprehensive coverage and lower out-of-pocket limits.

Q: How quickly does catastrophic plan coverage start after enrolling?  

A: Generally, coverage under a catastrophic plan begins on the first day of the month following enrollment. Special enrollment periods triggered by qualifying life events can influence start dates, and employers using ICHRAs might coordinate reimbursements accordingly to align with plan effective dates.

Q: Are catastrophic plans available in all states?  

A: Yes, catastrophic plans are available nationwide through the Health Insurance Marketplace, but availability may vary slightly depending on the insurers operating in your state. It’s always a good idea to review the options provided specifically in your area during open enrollment.

Q: How does using a catastrophic plan affect my ability to use a Health Savings Account (HSA)?  

A: Because catastrophic plans meet the IRS’s definition of a high-deductible health plan (HDHP), individuals enrolled in these plans are typically eligible to contribute to an HSA. This can help cover deductible and other qualified medical expenses with pre-tax dollars, offering financial flexibility alongside the plan.

Q: Can I switch from a catastrophic plan to a different plan during the year?  

A: Typically, you can only switch plans during the annual open enrollment period unless you experience a qualifying life event, like marriage, birth of a child, or loss of other coverage. Special enrollment periods allow you to make changes outside the standard enrollment window.

Q: How do catastrophic plans work with employer health benefit contributions?  

A: Employers can offer reimbursement for catastrophic plan premiums and qualified medical expenses through programs like an ICHRA. This allows small businesses to help cover employee costs while giving employees the freedom to choose plans that best fit their needs.

Q: Is preventive dental care covered under a catastrophic health plan?  

A: Catastrophic plans are not generally required to cover dental services as part of essential health benefits for adults. Some pediatric dental benefits are mandatory, but adult dental coverage typically requires a separate dental plan.

Q: How do catastrophic plans handle maternity and newborn care?  

A: Catastrophic plans cover maternity and newborn care as essential health benefits, but since they have high deductibles, most costs related to prenatal visits, delivery, and postnatal care may require out-of-pocket payments until the deductible is met.

Q: What is the process if I want to submit claims for a catastrophic plan through an employer’s reimbursement program?  

A: Employees usually submit proof of premium payments and eligible medical expenses to their employer’s health reimbursement platform, such as SimplyHRA. The platform reviews claims for eligibility and processes tax-free reimbursements efficiently, streamlining what can otherwise be a complex administrative task.

Q: Can a catastrophic plan be combined with supplemental insurance?  

A: Yes, some employees choose to carry supplemental policies—like accident or critical illness insurance—alongside catastrophic plans. This can provide extra financial protection for specific medical events that may not be fully covered due to the high deductible.

Q: If I’m a business owner, can I participate in my company’s catastrophic plan?  

A: Owner eligibility depends largely on your company’s structure and tax status. For example, owners of certain business entities who receive W-2 wages may participate, but owners drawing income through other means may have restrictions. It’s best to review IRS guidance or consult your benefits provider for personalized advice.

Q: Do catastrophic plans cover out-of-network providers?  

A: Coverage for out-of-network care varies by plan. Many catastrophic plans follow standard Marketplace plan rules, which often provide limited or no coverage outside the network except in emergencies. Be sure to verify network restrictions before receiving non-emergency care out-of-network.

Why SimplyHRA Is the Right Choice for Small Businesses Exploring Catastrophic Plans

Navigating the complexities of offering catastrophic plans can feel overwhelming for small business owners and HR managers juggling multiple priorities. At SimplyHRA, we understand this challenge firsthand because we've been in your shoes. Our platform simplifies the administration of health benefits like catastrophic plans by providing intuitive tools to manage reimbursements, ensure compliance, and empower employees with real choice — all without the headaches of traditional group insurance.

Small business employees benefit too, gaining the freedom to select coverage that truly fits their needs and budgets, including catastrophic plans that protect against unexpected health expenses. With SimplyHRA’s automated workflows and 24/7 support, both employers and employees experience a seamless healthcare benefits journey marked by transparency, flexibility, and reliable assistance whenever questions arise.

Many of our clients have told us how much easier offering and managing health benefits became once they partnered with SimplyHRA — freeing up valuable time and resources to focus on growing their businesses. If you’re ready to provide your team with a personalized, cost-controlled health benefits experience that includes catastrophic plan options, reach out for a consultation today. Email info@simplyhra.com or schedule a call at https://www.simplyhra.com/contact and let us help you build benefits your employees will appreciate.