Merritt Personal Lines Manual: Catastrophic Medical Coverage

Catastrophic medical coverage pays hospital and medical expenses above a certain -- usually high -- deductible. You may be responsible for $15,000 or $25,000 in medical bills before a catastrophic policy begins to cover you.

Once you get there, the medical expense benefits usually have no limit -- so you are entitled to receive all necessary medical and surgical treatment to cure or relieve a condition. However, your insurance company might set certain maximums or limits for a particular type of care or a particular medical procedure. But, even in this case, overall benefits are usually unlimited.

In many ways, a catastrophic policy will function just like a major medical policy. The policies provide benefits when you have a covered condition that requires hospitalization. These benefits typically include room and board and other hospital services, surgery, physicians' nonsurgical services that are performed in a hospital, expenses for diagnostic x-rays and laboratory tests and room and board in an extended care facility.

Benefits for hospital room and board may be a per-day dollar amount or part of the hospital's daily rate for a semi-private room. Benefits for surgery typically are listed, showing the maximum benefit for each type of surgical procedure.

Generally, smart consumers use catastrophic policies in one of several ways:

• as additional protection to combine with a limited hospital-surgical policy or a major medical policy with a lower-than-adequate lifetime limit;
• as a last-resort policy for people who are in poor health and don't qualify for any other form of coverage;
• as back-up coverage for companies that self-fund health insurance benefits offered to their employeees or individuals using alternative funding tools like Medical Savings Accounts (MSAs).

Generally, a catastrophic policy is not anyone's first choice for health coverage. Extremely wealthy people may not mind paying a $25,000 deductible out of pocket. People with poor health may have no choice. Otherwise, another form of coverage -- even a stingy HMO -- will provide more coverage per dollar spent (on premiums and deductibles).