HHS Vision on Catastrophic Plans Tests Legal, Industry Limits

The Trump administration’s bid to rewrite how catastrophic plans are structured under the Affordable Care Act is raising legal and actuarial questions, even as some policy professionals applaud the creativity aimed at solving rising premiums.

The Centers for Medicare & Medicaid Services released a proposed rule earlier this year that would allow catastrophic plans to design terms lasting for up to 10 years, an unprecedented overhaul of the current one-year standard.

Catastrophic plans are currently limited to individuals under the age of 30 or those experiencing a hardship exempting them from minimum coverage requirements. The plans don’t cover anything beyond preventive services before patients hit their out-of-pocket caps of $10,600, which the CMS is proposing to increase above statutory limits.

The rule also proposes to codify 2025 guidance expanding hardship exemptions to those not eligible to receive premium tax credits. Catastrophic plans can also now be used with tax-advantaged health savings accounts due to Republicans’ 2025 tax law.

The proposal is the latest move in the Trump administration’s effort to bust up the traditional health insurance business model—and the Obamacare marketplace—in the name of affordability. But critics contend the administration is expanding “junk plans” that leave patients with bare-bones coverage.

The idea of multiyear plans is driven by interest in encouraging more investment in preventive care, but could run afoul of the law’s many other requirements for traditional one-year plans. Insurance groups expressed significant skepticism of the idea in comments to the agency, urging CMS Administrator Mehmet Oz to either delay or phase in the provisions.

The American Academy of Actuaries detailed a “consequential set of questions”—such as whether premiums would be fixed for the full term—before insurers would be able to price multiyear plans.

America’s Health Insurance Plans outlined the need for more data and regulatory clarity, pointing to ACA requirements around risk calculations and spending limits as examples.

“In any scenario, significant consumer education, materials, and notices would be necessary to ensure consumers are aware of the unique structure of multi-year catastrophic plans and other important distinctions from plans available on the Exchange today,” AHIP wrote.

Innovation Flexibility

Policy analysts from both sides of the aisle lauded the rule’s intent, noting the need to address disincentives for insurers to invest in more preventive care.

“This has been a known problem,” said John Barkett, managing director at Berkeley Research Group LLC and a former Domestic Policy Council official under former President Joe Biden.

But the notion that people know what they need from their insurance years in advance is unlikely, Barkett said. Plans change when a person changes jobs, gets married, or has kids, for example.

“It adds another layer of complication to what’s already a complicated consumer decision,” he said.

Consumers could still drop their plan at will, so finding ways to keep them enrolled in the same plan is “a key question” for the policy’s success, said Brian Blase, a former Trump official who heads the think tank Paragon Institute. The rule’s suggestion of lowering an enrollee’s cost-sharing in later years is a good idea, he said.

“To try to be more creative with financing approaches I think is one of the keys to how we can lower system-wide health-care costs,” he said.

Zeke Emanuel, a former health adviser to President Barack Obama and a professor at the University of Pennsylvania, agrees that multiyear plans could help increase insurers’ investment in preventive care, particularly for conditions like diabetes and hypertension.

But he envisions a different model—plans that last up to five years, with “lock-in” mechanisms to keep people enrolled. Reasonable “escape clauses” for life events would be allowed, and the plans would be “real insurance,” he said. Not catastrophic plans.

“You’re locking people in, yes, but we get locked into all sorts of things,” he said, pointing to car leases and mortgages.

The demographics of catastrophic plan enrollees also mean 10-year plans don’t make sense, argued Debbie Curtis, a former Democratic staffer on the House Ways and Means Committee and a principal at McDermott+Consulting. Young and healthy people tend to select catastrophic plans to save money and guard against severe medical incidents.

“Over a decade, your circumstances—hopefully—are going to change terrifically,” she said.

Legal, Affordability Concerns

The CMS also is proposing to increase patient spending caps above statutory limits for bronze and catastrophic plans, saying it would help solve a mathematical quirk that makes pricing bronze plans difficult and help distinguish them from catastrophic plans. Catastrophic out-of-pocket caps would hit $15,600 in 2027.

The agency is additionally proposing to allow insurers to vary cost-sharing for specific conditions, like cancer, in disease-specific catastrophic plans. The American Cancer Society Cancer Action Network raised concerns in comments to the agency that the idea could violate anti-discrimination protections, also noting the steep out-of-pocket maximum that cancer patients would face before coverage would kick in.

“We fail to see how that solves the affordability issue for the enrollee,” the group wrote.

Making catastrophic plans eligible for health savings accounts fits with the administration’s mission of expanding low-premium plans for healthy enrollees, and encouraging consumers to save for a medical emergency.

“I don’t understand why people object to individuals using their own money to finance health care the way that works best for them,” Blase said.

But Curtis noted that Republicans have also been chipping away at HSAs over the years by exempting more preventive and chronic care from requirements that patients hit their deductibles and spending limits before coverage starts. The moves are a tacit acknowledgment that high deductibles are a deterrent for people who need care, she said.

“This is so much more about a philosophy that people should have more skin in the game in health care than it is about making health insurance work,” she said.