"Let Them Eat Catastrophic Plans!" Trump & RFK Jr. have a "genius" response to expiring tax credit crisis (updated)

Thu, 09/04/2025 - 9:51am

For months now I've been shouting from the rooftops about the imminent expiration of the improved federal tax credits for ACA enrollees, repeatedly pointing out that those already paying full price are gonna get hit with average premium hikes of over 23% while most of the 92% of exchange enrollees who currently receive at least some federal assistance will see their net premiums skyrocket by up to 100%, 200% or even 300% or more.

Having helped cause this crisis in the first place both by refusing to push Congressional Republicans to extend the enhanced subsidies as well as by changing the Premium Adjustment Percentage Index formula (PAPI) to make the remaining subsidies even less generous, the Trump Regime has come up with what I'm sure they think of as a brilliant "solution" to the problem.

Via the HHS Dept. website this morning:

WASHINGTON — The U.S. Department of Health and Human Services (HHS) announced today it is implementing important measures to expand access to more affordable catastrophic health coverage through HHS’ new hardship exemption guidance. This guidance streamlines access to more affordable catastrophic coverage for consumers who are ineligible for advance payments of the premium tax credit (APTC) or cost-sharing reductions (CSRs).

Through these efforts, more Americans will be able to qualify for catastrophic health coverage based on need, beginning November 1st with the start of open enrollment. Catastrophic plans generally have lower monthly premiums, are designed to protect consumers from very high medical costs in the event of serious illness or injury, and are required to cover three primary care visits pre-deductible. Consumers under the age of 30 have always been eligible for catastrophic plans through HealthCare.gov.

Let's stop a moment and look at what Catastrophic Plans actually are.

There are five main categories of ACA-compliant health insurance policies for the individual market: The four "Metal Tiers" of Bronze, Silver, Gold, Platinum which have to cover an average of roughly 60%, 70%, 80% or 90% of the aggregate enrollees medical claims...plus a fifth category at the low end (below Bronze) called Catastrophic plans.

I'll let my colleague Louise Norris explain:

Catastrophic plans are only available to certain applicants, have deductibles equal to the maximum annual out-of-pocket limit, and enrollees must pay at least part of the cost of up to three primary care visits before the deductible is met...In addition, an enrollee in a catastrophic plan is not eligible to have premium subsidies paid on their behalf.

And for the purposes of the ACA's risk adjustment program, catastrophic plans are in a separate risk pool from the metal-level plans.

...Their enrollees are mostly fairly affluent – since subsidies cannot be used with Catastrophic plans, the enrollees tend to be those who earn too much to qualify for subsidies – and under the age of 30, and the plans don't have to share risk with metal-level plans that tend to have a less healthy pool of enrollees).

...Catastrophic plans cover all of the essential benefits defined by the ACA, but with very high deductibles, equal to the annual limit on out-of-pocket costs under the ACA. For 2025, this is $9,200 for a single individual, increasing to $10,600 in 2026.

They must still limit members’ out-of-pocket costs for in-network services to no more than the annual out-of-pocket maximum that applies to all plans. (This cap is $9,200 for an individual in 2025, and $10,600 in 2026.).

...Like all ACA-compliant plans, catastrophic plans cover certain preventive care with no cost-sharing.

...An enrollee in a catastrophic plan is not eligible for premium subsidies. (and cost-sharing subsidies are also not available for Catastrophic plans.

Until now there've been very few Catastrophic Plan enrollees...just 54,000 or so this year out of over 24 million nationally, for several reasons:

  • You usually have to either be under 30 years old;
  • If you're over 30, you have to qualify for a limited range of hardship exemptions
  • Applying & qualifying for a hardship exemption requires jumping through a number of administrative hoops
  • Catastrophic plans don't show up as an option on the ACA exchange sites if the person applying for coverage is over 30
  • You can't apply premium tax credits to them, vastly limiting the number of enrollees who'd have any reason to consider them
  • The ACA exchanges don't go out of their way to call attention to them (with good reason)
  • They aren't always the lowest-cost option even for those who don't qualify for subsidies
  • They aren't even available in some areas (in 2025 there are no Catastrophic plans available in ten states (AK, AR, IN, LA, MS, NM, OR, RI, UT or WY), and in other states there are likely some counties which don't have any...I don't know what availability looks like for 2026, but I'm guessing it'll be similar)

OK, back to this morning's HHS announcement: What's changing going forward?

Under new HHS guidance, consumers may qualify for a hardship exemption to purchase a catastrophic plan on or off the Exchange if they are determined or expect to be ineligible for APTC or CSRs based on their projected annual household income....With a hardship exemption, eligible consumers can enroll in a catastrophic plan through HealthCare.gov.

If I'm understanding this correctly, they're vastly expanding the "hardship exemption" to enrollees of any age who earn more than 250% of the Federal Poverty Level (FPL), since that's the income threshold limit for Cost Sharing Reduction (CSR) eligibility.

Beginning November 1, 2025, consumers can apply for the hardship exemption in two ways:

Side note: Not only do you have to submit it by mail, the PDF won't even open unless you use Adobe Reader, which takes me back to the "Your Browser Doesn't Support Flash" days of the internet...

  • HHS is also simplifying the process by streamlining the review of paper applications to reduce the administrative burden on consumers. This change will make it easier for individuals experiencing hardship and seeking a catastrophic plan to access the full range of catastrophic coverage options available to them.
  • HHS’ hardship exemption guidance for catastrophic coverage can be viewed on CMS.gov.

Side note: This link doesn't actually take you to today's specific changes but to a generic page of hundreds of CMS regulations dating back to 2011. I had to hunt around to find the specific file in question.

A fact sheet on HHS’ hardship exemption guidance for catastrophic coverage is available here.

The phrasing in the fact sheet is rather telling:

Health insurance premiums are projected to rise substantially for the 2026 plan year across the individual market, representing one of the most significant increases in recent years. The impact of significant rate increases may result in a hardship in obtaining coverage under a QHP, especially for consumers whose income disqualifies them to receive APTC or CSRs to lower their out-of-pocket costs. Therefore, a consumer may qualify for an exemption to purchase a catastrophic plan on or off an Exchange in accordance with 45 CFR §155.605(d)(1)(iii) if they are determined or expect to be ineligible for APTC or CSRs based on their projected annual household income.

In all seriousness, though, making it easier for more people to qualify for catastrophic plans isn't in and of itself necessarily a terrible idea...but it reminds me of a line from Apocalypse Now:

"We'd cut them in half with a machine gun and then give them a Band-Aid."

It's also worth noting that unless they were given a heads up about this announcement prior to it going public (or possibly even if they were), insurance carrier actuaries across the nation are likely having heart attacks (or at least ulcers) this morning, since, as a colleague of mine far more knowledgable about Risk Adjustment than I am put it:

...getting a bunch of 300 FPL 55-year olds will dramatically worsen catastrophic pool...biggest thing is that since this is going live for 1/1/26 everyone's pricing model just got worse idiosyncratically.

Remember, Catastrophic plans are kept in a separate risk pool from metal level plans. Since catastrophic enrollees tend to be young (under 30) and affluent (earn too much for tax credits), that means they're generally much healthier than the other 99%+ of the ACA individual market...which is what allows the premiums for these plans to be so low.

Except that by dramatically loosening the requirements for enrollment starting just 2 months from now (and going into effect in less than 4 months), Trump/RFK Jr. just made it very likely that the Catastrophic risk pool is about to become considerably sicker...while ironically also ensuring that the metal level risk pool is also made sicker at the same time (basically, those likely to make the move from Metal to Catastrophic are healthier than the former but sicker than the latter).

To understand why, here's an extremely oversimplified example:

  • Let's suppose you have 100 people in Catastrophic plans who only cost $1,000/yr to treat (Group A). You have another 200 in Metal Level plans...100 of whom cost $5,000/yr (Group B) the other 100 cost $10,000/yr (Group C).

  • Right now, the average cost to treat the Catastrophic pool is $1,000 apiece. The average to treat the Metal Level pool is $7,500 apiece.

  • If you move Group B into Catastrophic plans, the average to treat them triples to $3,000 apiece, while the average to treat Group C goes up 1/3 to $10,000 apiece.

As I just posted yesterday, at least 15 states have already locked in their final, approved 2026 rate filings for their ACA individual market carriers. This announcement has the potential to completely fuck up every assumption those carriers made about the 2026 market...and not in a positive way.

Continuing my simplified example above:

  • Most of the insurance carriers have already priced their 2026 plans assuming the Catastrophic pool only costs $1,000 apiece to treat (let's call the premiums $1,250/year to give them the ideal ACA 80% Medical Loss Ratio).
  • ...except that in this example, the 2026 Catastrophic pool will actually cost more like $3,000 apiece to treat...which means they'd lose $1,750 per enrollee!
  • Meanwhile, they also priced the Metal Level pool assuming they only cost $7,500 apiece (premiums of ~$9,375/yr) instead of the actual avg. cost of $10,000 apiece, meaning they'd lose another $625 per enrollee there.
  • Overall, the carrier in this example would end up with $1.6 million in claims while only taking in $1,187,500 in premiums...losing $412,500 for a Medical Loss Ratio of 135%.

Again, this is incredibly oversimplified & exaggerated (for one thing, Catastrophic enrollees older than 30 would still pay more than younger enrollees), but it illustrates the point.

So the most likely scenario, assuming a significant number of Metal Level enrollees over 30 take them up on it, is that ACA insurance carriers would take a major bath in 2026, and respond by either jacking up Catastrophic plan premiums dramatically (to the point they cost as much as or more than Bronze plans anyway) or simply dropping Catastrophic plans entirely in 2027.

Either way, this is a one-time gimmick at best.

UPDATE: OK, it turns out this is even more limited than I thought.

As I noted earlier, there are 10 states which don't currently offer any Catastrophic plans this year (and presumably not in 2026 either, though I'm not sure about that):

  • Alaska
  • Arkansas
  • Indiana
  • Louisiana
  • Mississippi
  • New mexico
  • Oregon
  • Rhode Island
  • Utah
  • Wyoming

However, it also looks like it won't apply in California, Connecticut, Maryland or DC either:

This guidance applies to consumers in FFE states and in States served by State-based Exchanges (SBEs) that choose to have exemptions processed through the FFE, which currently include all SBEs except California, Connecticut, Maryland, and the District of Columbia.

Assuming the 10 states listed earlier don't offer Catastrophic plans in 2026 either, that means this option will only be available in 37 states at most.

APTC
Catastrophic Plans
Inflation Reduction Act
Tax Credits

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