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Catastrophic Health Plans Attract Few Buyers, Leaving Their Future in Doubt

By Rebecca Adams, CQ HealthBeat Associate Editor

January 28, 2014 -- Catastrophic insurance plans were seen by the authors of the health care law as a way to ensure that young adults would have a way to buy affordable coverage.

But now that very few people are buying the policies, the future of the plans is in some doubt.

Only about 1 percent of the people who signed up for insurance through the state and federal marketplaces through Dec. 28—or 20,224 people out of about 2.2 million—bought the catastrophic plans, which have very high deductibles. It’s unclear how many insurers will keep offering them in future years.

“If people don’t want them, there is not a reason to continue offering” them, said insurance industry consultant Robert Laszewski.

People who buy the policies get three free primary care visits a year, as well as coverage for any preventive services they might need, such as an annual check-up. But consumers can’t get any federal premium or cost-sharing subsidies if they choose a catastrophic plan.

The lure of those subsidies may be responsible, driving down demand for the catastrophic plans. About 80 percent of the people who enrolled by Dec. 28 qualified for some financial subsidies that lowered their costs, according to a Jan. 13 analysis released by the Department of Health and Human Services.

People who have incomes of 250 percent of the federal poverty level or less also can get government help in paying their deductibles and other out-of-pocket costs, but only if they choose a silver plan. The poverty level is $11,490 for an individual.

Perhaps as a result, 60 percent of the people who signed up chose a silver plan. Another 20 percent chose a bronze plan, which has cheaper monthly premiums than the silver, gold, or platinum level plans.

Many bronze plans have similar premiums and deductibles to the catastrophic plans but provide more generous coverage.

“People are just finding the metal level plans to be a better deal than the catastrophic plans,” said Christina Postolowski, senior policy analyst for the Young Invincibles advocacy group, which encourages young adults to sign up for marketplace coverage.

One big limitation for insurers who want to sell the plans is the restriction on who can buy them.

The health care law (PL 111-148, PL 111-152) said that only people under the age of 30 or other people who could not find affordable coverage in the marketplace were eligible to purchase them. People who search on the federal exchange website do not even see the plans listed unless they say they qualify for them. In some areas, only one catastrophic plan is offered.

Insurers were concerned last year when the Obama administration announced a new category of people who would become eligible for the plans. People whose plans were not being renewed because the policies did not meet the minimum benefit requirements under the law will be permitted to buy the catastrophic plans this year.

This development was not something the insurers anticipated or could have accounted for when they set their 2014 premiums for the plans.

“Premium rates may not be sufficient to cover that new type of enrollee,” said Chris Girod, a principal and consulting actuary for the Milliman consulting firm.

But Girod is not ready to say that insurers will scale back their catastrophic policy offerings next year. He said it is “way too soon to say” what the financial impacts on insurers will be. But the largest insurance companies may have the ability to keep offering the plans and see if additional interest develops.

“Most of the big carriers in particular will probably stay the course for the next couple of years,” said Girod. “If they offer them now, most will continue. There’s not a lot of impact to them to offer a few additional plans.”

But Girod can see why the plans are not attracting a groundswell of people.

“When you look at the benefits, they cover a few primary care visits but have a big fat deductible and are generally very lean,” he said.

Rebecca Adams can be reached at [email protected].

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