The Centers for Medicare & Medicaid Services (CMS) announced changes in September 2025 to expand access to catastrophic health plans, primarily through updated guidance on hardship exemptions.
CMS introduced these changes to help consumers access more affordable coverage. Why? Because enhanced federal subsidies may expire at the end of 2025 and CMS projects health insurance premium increases for the 2026 plan year.
What are catastrophic health plans?
CMS intends catastrophic health plans to protect individuals from worst-case scenarios. These scenarios, such as a serious illness or injury, could result in devastating medical expenses.
Their defining characteristics are tied to their cost structure:
- Low Premiums: Catastrophic health plans have low monthly premiums.
- Very High Deductibles: They come with very high deductibles. CMS sets this deductible equal to the maximum annual out-of-pocket limit allowed under the Affordable Care Act (ACA). For example, the out-of-pocket cap (and thus the deductible) for a single individual is $10,600 in 2026.
- Cost Responsibility: Because the deductible is equal to the maximum out-of-pocket limit, beneficiaries are essentially responsible for the vast majority of their medical costs until they meet that high deductible. There is no coinsurance for catastrophic plans.
What benefits do catastrophic health plans cover?
Despite the high deductible, catastrophic plans must adhere to the requirements of the ACA and cover certain services:
- Essential Health Benefits (EHBs): Catastrophic plans cover the same 10 essential health benefits as other Marketplace plans.
- Preventive Care: They provide full access to preventive services (such as screenings and check-ups) at no cost to the enrollee.
- Primary Care: They must cover at least three primary care visits per year. Although copays may apply for these visits, the insurance company pays at least part of the cost.
- Other Services: For all other services beyond preventive care and the three primary care visits, the insured must pay until they have met the deductible.
Who is eligible for catastrophic health plans and what is the target audience?
Enrollment in catastrophic plans is restricted to certain individuals. The plans are generally an affordable option for young or healthy applicants who do not anticipate needing frequent medical care.
Eligibility falls into two main categories:
- Age: People under 30 can enroll in catastrophic plans.
- Hardship Exemption: People aged 30 and older can enroll only if they qualify for a hardship exemption or an affordability exemption.
What specific changes did CMS make to catastrophic insurance?
Here are the specific changes made to Catastrophic insurance eligibility, effective for the 2026 plan year:
Expanded Hardship Exemption Based on Income Ineligibility
The primary change is expanded hardship exemption guidance for individuals ineligible for financial assistance due to income. This now includes consumers newly ineligible for Advance Payments of the Premium Tax Credit (APTC) or Cost-Sharing Reductions (CSRs) based on projected annual household income, specifically those with income below 100% or above 400% of the Federal Poverty Level (FPL). CMS views this change as providing a new, affordable option for consumers who may otherwise be priced out of the exchanges due to rising premiums and the expiration of generous federal subsidies.
Streamlined Application Process
To facilitate access to the expanded eligibility, CMS is introducing a more efficient method for consumers to obtain the necessary hardship exemption:
- New Online Application: Starting November 1, 2025, a new online application process will be available on HealthCare.gov and through certified partners.
- Automatic Evaluation: This online application will automatically evaluate hardship eligibility based on the projected annual household income data provided by the consumer during the application process.
- Expedited Review: CMS has also implemented procedures for an expedited review process for applicants using the existing paper application format, allowing approval for hardship reasons even if different from those originally requested when circumstances warrant flexibility.
How will the expansion of catastrophic plans impact the broader ACA marketplace risk pool?
The expansion of eligibility for catastrophic plans may impact the broader ACA marketplace risk pool by potentially drawing healthier, lower-utilization individuals out of the standard metal-level plans (Bronze, Silver, Gold, Platinum). Here’s how:
Drawing Healthy Enrollees
Catastrophic plans are structured to exist in a separate risk pool from the metal-level plans for the ACA’s risk adjustment program. This means catastrophic plans transfer risk adjustment funds only with other catastrophic plans, not with the metal-level plans.
Increasing eligibility for catastrophic plans could draw healthy consumers out of the ACA exchanges and into the catastrophic pool.
Bumping Up Premiums
This shift could potentially lead to higher premiums for the beneficiaries who remain in the non-catastrophic metal-level plans. The change is seen as potentially benefiting healthy individuals who opt into catastrophic coverage, but not those who remain in the metal tier plans.
Why? The expansion of access to catastrophic plans, implemented through additional hardship exemption guidance, primarily targets consumers who are currently or newly ineligible for financial assistance. These consumers typically skew healthier or more affluent. Historically, enrollment in catastrophic plans has been low, skewed young (under 30), and was limited because people receiving subsidies cannot sign up. But that may change, impacting the metal tier plan risk pool and ultimately driving up premiums for those plans.
Learn more:
HHS expands access to catastrophic plans ahead of premium pain on ACA exchanges
Trump administration expands access to ACA catastrophic plans
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