The economics of catastrophic health insurance

Currently over 41 million Americans lack health insurance and would experience severe financial stress if faced with a major illness. Catastrophic health insurance has been proposed as a means of addressing this problem. This study utilizes the National Medical Expenditures Survey of 34,400 households to calculate the cost of catastrophic medical coverage under a number of different assumptions. Estimates of the annual cost range from $109.2 billion to $149 billion, depending upon the size of the deductible, and whether a means test is used to determine degree of coverage. Given the current antideficit climate in Washington, an expense of this magnitude cannot simply be added to the Federal budget. Instead, a simple funding proposal is suggested that provides more than adequate resources to finance the program. Specifically, universal catastrophic coverage would provide insurance companies with relief from approximately $175 billion in medical bills, more than enough to fund even the most ambitious of the proposals.