Expansion of Catastrophic Health Insurance Plans and New Regulations

The Trump administration has issued a final rule expanding access to catastrophic health insurance plans. These plans offer lower monthly premiums with high deductibles, safeguarding policyholders from substantial medical expenses. This change provides a viable option for individuals with higher incomes who are ineligible for Affordable Care Act (ACA) subsidies.

The enhanced premium tax credits that had reduced expenses for many ACA enrollees expired this year. In response, the Centers for Medicare & Medicaid Services (CMS) is permitting individuals whose household income disqualifies them from Advanced Premium Tax Credit or Cost Sharing Reductions to qualify for a hardship exemption. This exemption applies to those with household incomes below 100% or above 250% of the federal poverty level experiencing income changes, extending eligibility nationwide.

The final rule allows catastrophic plans to cover multiple consecutive years, up to a decade, introducing value-based insurance design. This approach encourages policyholders to access higher-value services at lower costs before deductibles apply, enhancing the efficiency of their coverage.

Part of the Notice of Benefit and Payment Parameters for 2027, the rule will be effective from July 20. The regulation addresses the need for affordable insurance options amid rising premium rates for some ACA enrollees. In 2026, ACA plan enrollments decreased by an estimated 17% to 26%. A shift from silver to lower-cost bronze plans led to an 11% rise in bronze plan enrollments.

For individual market bronze plans, CMS plans changes in cost-sharing from 2027 and updates requirements for catastrophic plans from 2028. Insurers offering non-network plans can achieve qualified health plan certification by ensuring an adequate choice of providers, offering specific benefit amounts for any provider choice.

The 2027 final rule includes updated payment parameters, regulations for risk adjustment, and validation programs. The federally facilitated exchange user-fee for 2027 is set at 1.9% of monthly premiums, and 1.5% for state exchanges, marking a reduction from 2026 rates.

Additionally, CMS is introducing new marketing regulations prohibiting tactics such as offering cash incentives for enrollments or misrepresenting insurance costs and enrollment deadlines. From 2027, CMS will measure improper payments of the Advance Premium Tax Credit through state exchanges. Finally, CMS will handle agent and broker training directly, eliminating the need for HHS-approved vendors, ensuring consistent training across the board.