CMS broadens hardship exemption for catastrophic coverage on ACA Marketplaces

On Thursday, September 4, 2025, the Centers for Medicare and Medicaid Services released new guidance that might soften the blow for consumers who will soon lose eligibility for advanced premium tax credits (APTC) or cost-sharing reductions (CSR). In short, any consumer with a projected annual income less than 100% of the federal poverty level or greater than 400% of the federal poverty level will be eligible to enroll in catastrophic coverage via a health insurance marketplace.

But the devil, as they say, is in the details.

Who is likely to benefit from this new hardship exemption?

The likely expiration of expanded subsidies, coupled with skyrocketing medical costs, means consumers will face real price hikes during open enrollment. Climbing medical costs have so far led to insurers around the country filing an average 20% increase in the individual market. But the loss of expanded subsidies will also hurt.

Before the coronavirus pandemic, there was a very real subsidy cliff. Tax households earning more than 400% of the federal poverty level were not eligible for subsidies. But, the pandemic brought along the American Rescue Plan (and later, the Inflation Reduction Act), which made it so no tax household would pay more than 8.5% of its income in Marketplace health insurance premiums. That significantly broadened the use of APTCs – The Kaiser Family Foundation estimates that nearly 95% of all Marketplace enrollments benefit from some level of APTC.

With the likely expiration of those expanded subsidies at the end of the year, KFF estimates the average household premium will rise at least 75%. And, the subsidy cliff will return.

Low-income earners may have already qualified for a hardship exemption. This new expansion, though, allows consumers earning more than 400% of the FPL to qualify for a hardship exemption and enroll in catastrophic coverage via a health insurance marketplace.

Yes, but…

There are some good things here, of course. Catastrophic plans are ACA-compliant, so enrollees will enjoy coverage for all essential health benefits, including preventive care. Drug coverage won’t be carved out, as it might be on private plans. At least three primary care visits must be covered before the deductible. And, catastrophic plans generally sport lower premiums than their bronze counterparts.

Catastrophic coverage does have some downsides, though. Your consumers will be exposed to very high deductibles and out-of-pocket maximums. You can help them offset these, though, with a Health Savings Account (thanks to the One Big Beautiful Bill Act) and the right supplemental coverage.

At the risk of being redundant, we should also emphasize that catastrophic plan enrollees are not eligible for APTCs or CSRs.

Who will likely be left out of this hardship exemption?

Let’s look at the text of the guidance for some clues.

“…a consumer may qualify for an exemption to purchase a catastrophic plan on or off an Exchange in accordance with 45 CFR §155.605(d)(1)(iii) if they are determined or expect to be ineligible for APTC or CSRs based on their projected annual household income.”

The text plainly states that only those who will be ineligible for APTCs or CSRs based on income will be eligible for this hardship exemption. And so, people who lose eligibility for other reasons under OBBA or the recent marketplace rule will not qualify. Some new reasons to be disqualified from assistance on the marketplace are:

• Being a DACA recipient
• Being lawfully present without a green card
• Being an asylee
• Being a person with Temporary Protected Status
• Failure to comply with Medicaid work requirements

And so, persons in these groups will need to look to other methods to find health insurance coverage.

What can a health insurance agent do with this information?

Agents and brokers working on the Health Insurance Marketplace can breathe a small sigh of relief. While there will almost certainly be some attrition as enrollees find themselves priced out of coverage, this new hardship exemption provides an ACA-compliant pathway to some sort of coverage. That’s good news for both your consumers and your commission statements.

Beginning on November 1, 2025, Healthcare.gov will automatically evaluate whether consumers qualify for this exemption, based on income data provided as part of the application.

Consumers can also file a paper hardship exemption form. When filing for this purpose, they should select “Hardship 14 – You experienced another hardship” in section 2 of the form. They should also be prepared to provide a brief explanation of their circumstances.

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