CMS Proposes Major ACA Exchange Overhaul: What’s Behind the Push for Catastrophic Coverage

By Elena Pak, Credentialing Department, WCH

The Regulatory Shift

On February 10, 2026, the Centers for Medicare & Medicaid Services proposed a sweeping rule that fundamentally reshapes the Affordable Care Act marketplace landscape. The regulation expands access to catastrophic health plans, eliminates standardized plan design requirements, and tightens enrollment verification procedures—changes CMS Administrator Dr. Mehmet Oz characterized as giving states and insurers “more room to innovate and compete.”

The timing is deliberate. ACA enrollment has declined to 23 million people in 2026 from last year’s record high, following the expiration of enhanced premium subsidies at the end of 2025. Premiums increased by 114% for many enrollees when the subsidies lapsed, pushing substantial numbers to drop coverage entirely. The proposed rule represents the administration’s response: if subsidized coverage is politically unattainable, make bare-bones coverage more accessible.

The Catastrophic Coverage Expansion

The regulation’s centerpiece is expanded eligibility for catastrophic plans—coverage with low monthly premiums but extraordinarily high deductibles. For 2026, catastrophic plans carry annual deductibles of $10,600 for individuals or $21,200 for families before insurance pays anything beyond three primary care visits and certain preventive services.

Currently, catastrophic plans are largely restricted to people under age 30 or those meeting specific hardship exemptions. The proposed rule would allow anyone 30 or older who is ineligible for premium tax credits or cost-sharing reductions to qualify for a hardship exemption, dramatically expanding the eligible population.

Additionally, insurers could offer catastrophic plans with multi-year terms up to 10 years—locking enrollees into coverage arrangements for a decade.

The Access vs. Protection Debate

CMS frames this expansion as increasing access to “affordable catastrophic coverage.” That framing warrants scrutiny. Catastrophic plans are affordable in the narrow sense that monthly premiums are low. But they provide minimal financial protection against medical expenses until someone hits a five-figure deductible.

Consider what this means practically. A person with a catastrophic plan who develops diabetes requiring regular medication and monitoring, or who breaks a bone requiring surgery, will pay thousands of dollars out-of-pocket before insurance contributes anything. The coverage protects against truly catastrophic medical bills—hence the name—but leaves enrollees exposed to substantial costs for common health needs.

For healthy young adults with minimal healthcare utilization and limited budgets, catastrophic coverage may offer reasonable value. For older adults with chronic conditions or higher healthcare needs, these plans could prove financially devastating despite appearing “affordable.”

The 10-year term provision raises particular concerns. Healthcare needs change over time. A healthy 31-year-old might reasonably choose catastrophic coverage; that same person at 41 with new health conditions would likely need more comprehensive protection. Locking people into decade-long catastrophic plans risks misalignment between coverage and needs.

Eliminating Standardized Plans

The proposal would repeal requirements that insurers offer standardized plan designs on federal exchanges. These standardization requirements established common cost-sharing structures across bronze, silver, gold, and platinum tiers, making it easier for consumers to comparison shop.

Without standardization, insurers gain flexibility to design plans with varied deductibles, copayments, and out-of-pocket maximums within each metal tier. CMS argues this reduces regulatory complexity and enables innovation. Critics counter that it creates a bewildering marketplace where consumers struggle to understand what they’re buying.

The proposal would also eliminate limits on the number of non-standard plans insurers can offer. Theoretically, this increases choice. Practically, it may increase confusion as consumers navigate dozens of subtly different plan options without clear comparison points.

The Innovation vs. Confusion Tradeoff

There’s legitimate debate about whether standardization helps or hinders consumers. Proponents argue standardization makes comparison shopping easier—if all silver plans have the same deductible and copayment structure, consumers can focus on comparing networks and premiums. Opponents argue it constrains innovation and prevents insurers from designing plans tailored to specific population needs.

Research on standardized plans shows mixed results. Some studies indicate standardization modestly improves plan selection by reducing choice overload. Others find minimal impact on enrollment patterns. What’s clear is that removing standardization will make the marketplace more complex, and complexity disproportionately affects less-educated and lower-income consumers who have less time and expertise to navigate plan options.

Tightening Enrollment Controls

The proposed rule continues prohibiting special enrollment periods for people with incomes below 150% of the federal poverty level after the 2026 payment year. It also reintroduces pre-enrollment eligibility verification for at least 75% of new beneficiaries enrolling through special enrollment periods.

These provisions respond to Republican concerns about fraud on the ACA exchanges. The Government Accountability Office documented instances of improper enrollments and subsidy payments, contributing to the political decision to let enhanced subsidies expire.

The Fraud vs. Access Balance

Eligibility verification is reasonable in principle. Nobody supports fraudulent enrollments or improper subsidy payments. The question is whether verification processes create barriers that exclude eligible people while catching fraudsters.

Previous attempts at aggressive verification reduced both improper and legitimate enrollments. When systems flag legitimate applicants as potentially ineligible, they must navigate appeals processes that are time-consuming and confusing. Some give up rather than persist through bureaucratic obstacles, leaving eligible people uninsured.

The restriction on special enrollment periods below 150% FPL is particularly concerning. These are precisely the people most likely to experience qualifying life events—job changes, moves, family changes—that create coverage gaps requiring special enrollment. Eliminating this option risks leaving vulnerable populations uninsured between annual enrollment periods.

Marketing and Broker Restrictions

The rule proposes banning numerous broker and agent marketing practices CMS identifies as problematic:

• Providing cash or monetary rebates to encourage enrollment
• Falsely claiming beneficiaries qualify for zero-dollar premiums
• Misrepresenting enrollment deadlines
• Enrolling people in coverage that doesn’t fit their needs

These practices have generated substantial consumer complaints. The proposed restrictions are largely common-sense consumer protections. The question is whether CMS has enforcement capacity to actually prevent these practices or whether unscrupulous brokers will simply find new tactics.

The requirement that brokers use standardized HHS-approved forms for reviewing eligibility documentation should improve consistency, though it adds administrative burden for legitimate brokers.

State Exchange Implications

The proposal introduces a program measuring improper premium tax credit payments by state-run exchanges and makes it easier for states to transition from federal to state-run marketplaces.

The improper payment measurement program aims to create “consistency and parity” between federal and state exchanges. This makes sense if measurement methodologies are fair and account for different state populations and circumstances. If applied mechanically, it could penalize state exchanges serving more complex or disadvantaged populations.

Easing state transitions from federal exchanges could encourage more states to establish their own marketplaces, potentially allowing for greater state-level innovation and customization. Alternatively, it could fragment the market further, creating 50 different state approaches with varying levels of effectiveness.

The Underlying Policy Question

This proposed rule reflects a fundamental policy choice: prioritize nominal affordability (low premiums) over financial protection (comprehensive benefits). In a world where enhanced subsidies made comprehensive coverage affordable for most marketplace enrollees, this shift represents a significant retrenchment.

The enrollment decline from 23 million in 2026 (down from previous highs) demonstrates that when comprehensive coverage becomes unaffordable, people drop insurance. CMS’s response is making minimal coverage more accessible rather than making comprehensive coverage more affordable.

Whether this is sound policy depends on one’s perspective. If the goal is maximizing insurance coverage rates, cheap catastrophic plans may keep more people nominally insured. If the goal is ensuring people have meaningful financial protection against healthcare costs, catastrophic plans fall short.

What Happens Next

The proposed rule is open for public comment until March 11. Comments will likely divide along predictable lines:

Consumer advocacy groups will raise concerns about inadequate financial protection, complexity, and barriers to enrollment for vulnerable populations.

Insurance industry groups will support deregulation and flexibility while potentially raising implementation concerns.

Republican policymakers will endorse fraud prevention measures and catastrophic plan expansion.

Democratic policymakers will criticize the retreat from comprehensive coverage and subsidy reduction.

After reviewing comments, CMS will issue a final rule. Given the political context—a Republican administration rolling back ACA protections following subsidy expiration—major changes from the proposal are unlikely unless legal challenges emerge.

The Bottom Line

The February 2026 proposed rule represents the most significant restructuring of ACA marketplace regulations since the law’s implementation. It expands access to minimalist coverage while reducing standardization, tightening enrollment controls, and giving insurers greater flexibility.

Whether this improves or undermines the ACA marketplace depends entirely on which metrics matter. Coverage rates may stabilize as cheaper options become available. Financial protection will decline as more people carry high-deductible catastrophic plans. Market complexity will increase as standardization disappears. Fraud may decrease while some eligible enrollees face new barriers.

The proposal reflects a clear philosophical shift: from subsidizing comprehensive coverage toward deregulating minimal coverage. For the 23 million people currently enrolled in ACA plans, and millions more considering enrollment, these changes will fundamentally reshape their options and costs.

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Sources

1. Centers for Medicare & Medicaid Services. “HHS Notice of Benefit and Payment Parameters for 2027 Proposed Rule.” Federal Register, February 10, 2026. Available at: https://public-inspection.federalregister.gov/2026-02769.pdf
2. Centers for Medicare & Medicaid Services. “CMS Proposes Regulations to Lower Health Care Costs, Expand Consumer Choice, Protect Taxpayers.” Press release, February 10, 2026. Available at: https://www.cms.gov/newsroom/press-releases/cms-proposes-regulations-lower-health-care-costs-expand-consumer-choice-protect-taxpayers
3. Centers for Medicare & Medicaid Services. “HHS Notice of Benefit and Payment Parameters for 2027 Proposed Rule – Fact Sheet.” February 10, 2026. Available at: https://www.cms.gov/newsroom/fact-sheets/hhs-notice-benefit-payment-parameters-2027-proposed-rule
4. Healthcare Dive. “CMS proposes sweeping ACA exchange rule.” February 10, 2026. Available at: https://www.healthcaredive.com/news/cms-aca-rule-catastrophic-plans-standard-plans/811838/
5. Kaiser Family Foundation. “What is a catastrophic health plan?” Available at: https://www.kff.org/faqs/faqs-health-insurance-marketplace-and-the-aca/marketplace-health-plans-and-premiums/what-is-a-catastrophic-health-plan/
6. Kaiser Family Foundation. “Standardized Plans in the Health Care Marketplace: Changing Requirements.” Available at: https://www.kff.org/private-insurance/standardized-plans-in-the-health-care-marketplace-changing-requirements/
7. Healthcare.gov. “What Marketplace health insurance plans cover.” Available at: https://www.healthcare.gov/coverage/what-marketplace-plans-cover/
8. Healthcare.gov. “Health plan categories.” Available at: https://www.healthcare.gov/choose-a-plan/plans-categories/
9. U.S. Government Accountability Office. “Patient Protection and Affordable Care Act: Observations on Enrollment and Implementation.” Report to Congressional Committees, 2025.
10. Chandra, A., Handel, B., and Schwartzstein, J. “Social Comparison and Consumer Choice: Lessons from a Field Experiment.” American Economic Journal: Microeconomics, 2019.

Disclaimer: This analysis is based on the proposed CMS rule published February 10, 2026, and is subject to change following the public comment period and final rule publication. This article is for informational purposes and does not constitute legal, insurance, or policy advice. Individuals should consult healthcare navigators or licensed insurance professionals regarding specific coverage decisions.