The Wall Street Journal reports that yesterday, Health and Human Services Secretary Kathleen Sebelius announced that the Obama Administration would allow "some" people with plans that have been canceled under the terms of the Affordable Care Act to purchase catastrophic health insurance plans in 2014. These plans would normally not meet the standards for insurance set by the Act. The announcement revealed an adjustment to the landmark health law that would allow an unclear number of people with canceled plans to have a hardship exemption. In her statement, Sebelius wrote that some people with canceled plans may have trouble paying premiums for new coverage, "As a result, in addition to their existing options these individuals will also be able to buy a catastrophic plan." Some members of the insurance industry are concerned that the expanded use of hardship plans could negatively affect the market.

The New York Times reports on its front page that the Obama Administration has changed who qualifies for catastrophic plan eligibility: "If the consumer believes that the plan options available in the marketplace in their area are more expensive than their canceled health insurance policy, they will be eligible for catastrophic coverage through a hardship exemption." Those receiving such an exemption will be able to satisfy the Affordable Care Act's individual insurance mandate with a catastrophic policy.

Employers and insurance companies have been reduced to reading the morning news headlines for the latest changes to the ACA. The changes are accelerating as the administration struggles to find solutions for the massive disruption expected in early 2014. The enrollment dates, eligibility requirements and when premiums will be paid seem to be at the administration's daily discretion.  HHS and CMS are constantly announcing changes or wished for outcomes with no guidance regarding who is responsible or how to administer the changes in real time. 

Current CMS Catastrophic Plan Rules:

What is a catastrophic health plan? 

As defined in the ACA, a catastrophic plan covers essential health benefits, but only after out-of-pocket cost sharing reaches a high deductible.  In 2014, that threshold will be $6,350 for self-only coverage and $12,700 for family coverage. However, deductibles will not apply to required preventive services or to at least three primary care visits. 

Are catastrophic plans eligible for premium tax credits?  

No, individuals purchasing catastrophic plans are not eligible for premium tax credits. 

Who is eligible for catastrophic plans?

Catastrophic plans may only be offered to individuals who: are under age 30 before the plan year begins, OR have received a certification from an Exchange that they are exempt from the individual mandate because they do not have an affordable coverage option or because they qualify for a hardship exemption.

How is affordable coverage defined?

Coverage is considered unaffordable for individuals if their cost of coverage exceeds 8% of annual household income. If an individual is eligible for employer coverage, affordability is determined by comparing the "employee share" of the premium cost of self-only coverage for the employer's cheapest coverage option that achieves minimum value (i.e., 60% actuarial value) to the taxpayer's household income.

If the individual is not eligible for employer coverage, affordability is determined by comparing to household income the lowest cost bronze plan (taking into consideration any applicable federal premium subsidies) offered in the Exchange where the individual would purchase coverage.

Can families purchase catastrophic plans?

Yes, but only if each individual enrolled in the coverage meets the eligibility requirements for enrollment in a catastrophic plan.

The information in this document is based on preliminary review of the national health care reform legislation and is not intended to impart legal advice. The federal government continues to issue guidance on how the provisions of national health reform should be interpreted and applied. The impact of these reforms on individual situations may vary. This overview is intended as an educational tool only and does not replace a more rigorous review of the law's applicability to individual circumstance.