Feds to offer catastrophic health coverage ahead of premium hikes

The Centers for Medicare & Medicaid Services (CMS) has announced new guidance aimed at helping consumers – particularly those approaching retirement – cope with steep health insurance premium hikes expected in 2026. The agency plans to make it easier for certain individuals to qualify for catastrophic health coverage through expanded hardship exemptions on the Federally-facilitated Exchange (FFE).

Premiums across the individual health insurance market are projected to rise sharply in 2026 at the most significant rate in recent years. For consumers who do not qualify for federal subsidies such as advance payments of the premium tax credit (APTC) or cost-sharing reductions (CSRs), the price jump could make traditional Qualified Health Plans (QHPs) unaffordable.

To address this, CMS is extending hardship exemptions to individuals who expect to be ineligible for subsidies based on their projected household income. With the exemption, they will gain access to catastrophic plans, which are typically restricted to certain age groups or hardship cases.

Who qualifies?

The new guidance applies to people who fall below 100% or above 400% of the federal poverty level (FPL) and therefore cannot receive APTC. It will also expand to those above 250% of the FPL who lose eligibility for CSRs.

In short, individuals who find themselves shut out of subsidies due to income limits will have a pathway to enroll in catastrophic coverage, both on and off the exchange. This option will be available in states that use the FFE as well as in participating state-based exchanges.

Catastrophic health plans include all essential benefits required under the Affordable Care Act while keeping premiums relatively low. They are designed to protect consumers from worst-case scenarios, such as serious illness or injury, that could lead to overwhelming medical debt.

Key features include:

• Lower premiums compared with standard plans.
• Full preventive care coverage without cost-sharing.
• Financial protection against large, unexpected medical expenses.

These plans are not intended for routine care needs but provide a safety net for major health events.

Streamlined Application Process

Starting November 1, 2025, consumers will have two ways to apply for the new hardship exemption:

1. Online application (new option): Applicants applying through HealthCare.gov or enhanced direct enrollment partners will be automatically screened for hardship eligibility based on their projected household income.
2. Paper application (existing option): Applicants can complete a hardship exemption form, citing the hardship and an explanation of their circumstances.

CMS has also built in flexibility, allowing exemptions to be approved under different hardship categories if an applicant’s situation warrants it.

By expanding access to catastrophic plans, CMS hopes to soften the blow of premium increases for middle-income consumers who do not qualify for subsidies. Officials say the move reflects their effort to balance affordability with comprehensive coverage in a shifting insurance market.

CMS will expand hardship exemptions in 2026, allowing more consumers without subsidies to access catastrophic health plans and offset rising insurance premiums.