Expanded Catastrophic Plans: Opportunity, Risk, and the Questions Worth Asking
This is the 4th post in our series on the 2027 Notice of Benefit and Payment Parameters.
Catastrophic plans have generally received limited attention in the individual market. The plans were included in the original ACA legislation as a lower-premium option for younger and healthier individuals who might otherwise remain uninsured. For most issuers, they have represented a niche product with restricted eligibility and limited enrollment. Changes made to eligibility in September 2025 and the 2027 NBPP rules signal that CMS is trying to make them a more widely used lower cost option. This is being accomplished through two related but distinct modifications to catastrophic plan rules. The first expands the eligibility to open catastrophic plans to unsubsidized adults of any age. The second creates an option for issuers to offer multi-year catastrophic plans, a structure with no real precedent in the individual market. These changes may not transform catastrophic into a major market, but they do change the product in ways worth understanding this filing season, including whether some issuers might use the new rules to target a small but potentially profitable group of enrollees.
What Catastrophic Plans Are, and Where They Stand
Catastrophic plans are ACA-compliant coverage. They carry the same essential health benefits as metal-tier plans and the same ACA consumer protections: lifetime limit prohibitions and annual limit protections. What distinguishes them is their cost structure and risk adjustment pool implications. They cover almost nothing until the enrollee reaches the annual maximum out-of-pocket limit, which is $12,000 for an individual and $24,000 for a family in 2027. Three primary care visits and preventive services are covered before the deductible, which is equal to the out of pocket limit. This benefit design, combined with a healthier risk pool considered separate for risk adjustment transfers from the overall individual market, is why they have historically priced below bronze, which carries a 60 percent minimum AV floor. Catastrophic plans are not subject to the same metal-level AV framework, though CMS has generally treated 55 percent AV as the target for catastrophic plan design. The product was designed to provide lower-cost compliant options for people who were young, healthy, and unlikely to need much care.
They have always lived in their own separate risk pool, outside the metal-level risk adjustment market but removing the age requirement will certainly have other implications
Prior to September 2025, catastrophic eligibility was restricted to individuals under age 30 or otherwise exempt from the individual mandate due to hardship or unaffordability. Consistent with those limits, enrollment has remained a small fraction of total marketplace enrollment in every plan year since the ACA took effect, with the 2026 OEP report showing that catastrophic enrollment has been below 1% of total enrollment for the past 5 years. Only 67,489 of the 23.1 million people who selected plans during the 2026 open enrollment period chose catastrophic plans. This is less than 0.3% of total enrollees.
The September 2025 guidance and the 2027 NBPP signal the administration’s goal of positioning catastrophic plans as a broader vehicle for lower-cost coverage options, with higher cost-sharing shifted to the enrollee.
Two Distinct Changes in the 2027 NBPP
The final rule made two related but distinct changes to catastrophic plans, each with different implications for how issuers and consumers engage with the product.
Expanded eligibility. In September 2025, the administration issued guidance expanding hardship exemptions to cover unsubsidized adults of any age who could not access either premium tax credits or cost-sharing reductions. The 2027 NBPP affirms and extends that guidance. Starting in June 2026 (when the rule takes effect), individuals of any age who are ineligible for either premium tax credits or cost-sharing reductions based on projected household income qualify for catastrophic coverage through a categorical hardship exemption. The rule specifies two income groups: people below 100 percent FPL and people above 250 percent FPL, the threshold at which cost-sharing reductions end. Under the multi-year structure discussed below, eligibility determined at enrollment is maintained for the contract term without annual re-verification. Whether this expansion is within the administration’s authority is an open question. Section 1302(e)(2) of the ACA limits catastrophic eligibility to people under 30 and those meeting specific hardship or affordability criteria; the final rule grounds the expansion in the Secretary’s broad discretion over what constitutes a qualifying hardship.
Multi-year plan terms. Starting with plan year 2027, issuers may offer catastrophic plans with contract terms of one to ten consecutive years.
A rationale the administration provided for the ten-year option is that a longer enrollment relationship would give issuers a financial incentive to invest in member health, since keeping members healthier early in the contract would reduce costs in later years. Whether the structure as finalized produces that incentive is less clear, and the issuer-side implications are discussed below.
The original proposal included provisions that would have made multi-year plans meaningfully distinct products with the ability to average the MOOP across the contract term and use Value Based Insurance Design flexibility to allow coverage of additional services before the deductible. Neither was finalized. The MOOP resets annually, premiums are still set on a plan-year basis, and the VBID provisions are contingent on forthcoming guidance from HHS, Labor, and Treasury that has not yet been issued. In practice, a multi-year catastrophic plan for 2027 differs little from a single-year plan. The primary distinction is eligibility continuity. Hardship status determined at enrollment is maintained for the full contract term.
Three Frames for Thinking About the Changes
Consumers
The eligibility expansion opens catastrophic coverage to a larger population of healthy people who otherwise may opt to forgo coverage or purchase more limited alternatives to ACA-compliant coverage. Consider a 45-year-old earning above 400 percent FPL, generally healthy, with no chronic conditions and the financial discipline to fund a health savings account. Under prior rules, that person was choosing between an expensive bronze plan, non-ACA compliant coverage, or going uninsured. For the right person, a catastrophic plan funded alongside an HSA (a newly added feature of catastrophic plans) is a coherent coverage strategy.
The concern is for people who make the same choice for the wrong reasons. Catastrophic plans are marketed and experienced primarily through their monthly premium. The $12,000 annual deductible does not feel real until it does. The risk is sharpest for people who cannot fund an HSA alongside the lower premium, particularly those who select coverage based on monthly cost, lack the savings to absorb a high-deductible event, and end up with little practical protection when they actually need care.
Issuers
The population CMS is targeting with these rules includes healthy, unsubsidized adults who, under prior rules, were generally choosing between ACA qualifying coverage that they may consider too costly for their needs or going uninsured. For that group, a lower-premium catastrophic plan may be a coherent alternative, and one that could be modestly profitable given their likely utilization profile. The question for any issuer considering a catastrophic product is whether that population is meaningful in size in their specific markets.
Off-exchange bronze enrollment offers a rough proxy for the unsubsidized segment, since premium tax credits are available only on-exchange. Our internal analysis using 2023 EDGE LDS data indicates that approximately 1.7 million off-exchange bronze enrollees nationally. That number likely overstates the purely unsubsidized population. Some off-exchange enrollees may have subsidy access they are not using, and the relationship between bronze enrollment and unsubsidized status is imperfect. Even so, the directional picture holds, there is a real unsubsidized segment currently in bronze and a well-priced catastrophic product could be competitive for a portion of it.
The multi-year structure introduces a separate set of considerations. Pricing a plan that will renew for up to ten years requires assumptions about how member health will evolve, how risk adjustment coefficients will shift, and what the regulatory environment will look like across a period in which none of those things are knowable.
An issuer pricing a ten-year product also faces challenges in setting premiums based on assumptions about enrollee retention. Members who lapse before incurring high medical costs produce a favorable outcome, but pricing around that assumption is not a sound foundation. Members who stay will age and become statistically more expensive over a decade. The preventive care investment the structure is intended to incentivize depends on retention the product does not actually guarantee, and since premiums reset annually, neither the issuer nor the member has a strong financial commitment to the long-term relationship the contract nominally creates.
The Market
Since catastrophic plans occupy a separate risk pool and do not make risk adjustment transfers to metal-level plans, expanding the catastrophic market has the potential to weaken the individual market by drawing healthier, lower cost members out of the main risk pool. Whether expanded catastrophic enrollment strengthens or weakens the individual market depends on where new enrollees come from. If new catastrophic enrollees are primarily people who would otherwise be uninsured, the main risk pool is unaffected. If they are healthy people migrating from on-exchange bronze or silver plans, the metal pool loses favorable risk and premiums rise for those who remain.
The subsidy structure limits how much migration is possible. The migration-at-risk pool is bounded. Roughly 1.7 million off-exchange bronze enrollees nationally represent the most plausible source of healthy-member migration, against a total catastrophic base of approximately 115,000. The much larger on-exchange bronze population of 7.75 million enrollees is primarily subsidized and likely has no financial incentive to move to a product without premium support.
The risk of healthy members leaving the metal pool for catastrophic is real and worth monitoring as uptake grows, but it is constrained by the subsidy structure that anchors most bronze enrollment to the metal-level market.
The final rule does not include financial capacity requirements, restrictions on dividend payments from regulated subsidiaries, or market commitment obligations for issuers offering multi-year plans. These omissions create conditions under which under-capitalized carriers could enter with aggressive pricing they may not be able to sustain over the full contract term. The pattern has precedent in the metal-level market. Bright Health and Friday Health Plans expanded rapidly through aggressively priced products that attracted favorable risk, but mounting losses and capital pressures ultimately forced market withdrawals and regulatory intervention, disrupting coverage and leaving regulators, providers, and remaining issuers to absorb the fallout. These outcomes are not guaranteed, but without clear guardrails, the structural conditions exist for it to occur.
What to Watch
For issuers evaluating whether to enter or expand in the catastrophic market, the questions worth working through include how large the unsubsidized population in the markets you serve might be, and what your current bronze pricing position is relative to that segment.
For those considering a multi-year product, the harder questions to answer at this stage are how to price across a ten-year horizon without a premium lock, whether the preventive care rationale holds if members can and do lapse, and what the absence of federal solvency guardrails means for capital planning if another catastrophic carrier in the market cannot make a risk adjustment payable or becomes insolvent. Competitor credit risk should not be overlooked, even by well-capitalized carriers entering the market in good faith.
For everyone tracking the market, the next open enrollment period will be informative. Uptake under the September 2025 guidance was minimal; the codification of the expanded rules in the 2027 NBPP and the HSA eligibility change are more durable signals to the market. Whether those signals produce different behavior from issuers and consumers remains to be seen.