Sally Pipes: "Stop Catastrophizing Catastrophic Plans"
How can we reduce the cost of coverage without increasing taxpayer spending on premium subsidies? Through greater access to lower-premium catastrophic coverage.
The following is an excerpt from an article by Sally Pipes, Founder & Chair of the Benjamin Rush Institute, published in Forbes. Click here to read the full article in your browser.
Earlier this month, the Centers for Medicare and Medicaid Services proposed a rule to expand access to catastrophic health insurance plans on the exchanges established by the Affordable Care Act.
The move may appear modest. In reality, it addresses one of the central design features that has made exchange coverage so expensive for many Americans.
Catastrophic plans offer low monthly premiums in exchange for higher deductibles. They protect consumers against major medical events while leaving them to cover routine expenses out of pocket.
Under current law, only people under the age of 30 or those who qualify for hardship exemptions can purchase catastrophic plans. The proposed rule would loosen those limits.
The scarcity of low-premium options on the exchanges is a natural consequence of the Affordable Care Act. The law requires nearly all plans to cover ten “essential health benefits,” prohibits insurers from setting premiums based on a person’s health status or history, and tightly limits age-based variation in premiums.
Those rules were intended to guarantee all Americans access to comprehensive coverage. They also significantly increased the cost of insurance.
Average benchmark exchange premiums have more than doubled since 2014, when the marketplaces opened for business. Temporary pandemic-era subsidies masked those increases for many consumers. But they did not change the underlying economics of the insurance market.
As a result, comprehensive coverage is often the only practical option available—even for people who face relatively modest annual medical expenses.
Data from the Peterson-KFF Health System Tracker show that the bottom 50% of Americans by health spending incurred just $374 in medical expenses in 2022. That annual figure is less than the average monthly premium for a benchmark exchange plan that year.
For many younger and healthier individuals, paying hundreds of dollars per month for comprehensive coverage offers little financial value relative to the risk they face.
This is not how insurance typically functions in other markets. Auto insurance protects against collisions and theft; drivers pay for oil changes and routine maintenance themselves. Yet in health care, policymakers have effectively required insurance to act as prepayment for predictable medical care rather than protection against catastrophic loss.
Critics argue that high deductibles can discourage people from seeking necessary care. But catastrophic plans must cover preventive services and at least three primary care visits per year without cost-sharing. They also cap annual out-of-pocket exposure. This year, that cap is $10,600 for an individual. Patients are responsible for just about all expenses up to that cap. But it protects them from financial ruin.
The Trump administration’s proposal does not repeal the Affordable Care Act’s mandates. But the rule offers a pragmatic workaround—expanding consumer choice in a system where mandates have narrowed it.
Absent broader reform from Congress, allowing more people to purchase lower-premium catastrophic coverage may be one of the few politically viable ways to reduce the cost of coverage without increasing taxpayer spending on premium subsidies.
The purpose of insurance is to protect against financial catastrophe. Expanding access to catastrophic plans moves the market closer to that traditional function—and gives consumers an option that Obamacare’s structure largely sidelined.